Planting the seeds of long term competitiveness

Agriculture has a good investmnet potential
With the government looking to promote a more efficient and globally competitive Russian agriculture sector Business RT spoke with Dmitry Rylko from Ikar – the Institute of Agricultural Market Studies – about the issues Russian agriculture faces.

RT:What has the drought of 2010 shown about the agriculture sector in Russia?

RY:“First of all we had several very successful years, during the 2000’s we were lucky with our weather, and global warming, paradoxically, gave positive results for domestic climactic conditions.So we had a chain of warm and humid winters, and warm and pretty humid summers.And Russia, for many years during the 2000’s, Russia had pretty good results in grain and oilseed production. So we were highly lucky and successful in the international arena.Unfortunately this chain of positive events was broken last year and we had a severe drought – it looks like the weather punished us for all the successful years beforehand.So severe drought showed that Russian agriculture is also exposed to bad climactic conditions, and all decision the making chain and all the supply chain we must make our conclusions from what has happened.

First of all we must reload the agricultural insurance system because it showed it is unsuccessful – it doesn’t work properly.Secondly we must consider how to regulate domestic agriculture and grain markets because, in my view, the export ban was not an optimal decision for domestic agricultural producers, and we must get many other lessons from what has happened.”

RT:What could be an optimum outcome?

RY:“Unfortunately it looks to me that there was no optimum decision, unfortunately.Unfortunately there is no optimal decision on how to get back to the international arena.So right now all the best brains in Russian agriculture are thinking about optimal possibilities on how to get back, when to get back, and what conditions.But unfortunately there is no optimal decision which would be satisfactory for all players and all branches of the domestic industry.And there are many uncertainties about what is going to happen in the next few months.”

RT: Is there significant scope for productivity improvements to be brought about in Russian agriculture?

RY:“Actually Russian agriculture is highly diverse.As to the south of Russia we are pretty close to international efficiency levels.Actually our yields are not worse, even better, than in comparable production zones in the world with whom we compete directly.As to other regions, they are pretty far ahead from optimal efficiency, but basically during the 2000’s they were gaining quite successfully and the efficiency gap between Russia and our competition has declined quite dramatically during the 2000’s.”

RT:Do you think Russian agriculture could be a better import replacement or export proposition than it currently is?

RY: “Actually in Russia we have type of bifurcation, so to say, in our domestic agricultural policies, and what happens, in my view, is a type of constant virtual struggle between two links in domestic agricultural policy developments.First is focusing on so called self-sufficiency, and trying to produce everything including those items which we traditionally import. And second scenario is to try to continue to concentrate on what we do better and best in the world.It is basically wheat, oil seeds and some other crops production.We are highly competitive in wheat, sunseeds, rapeseeds production and we may concentrate on it, while we can export a lot.And I hope we will export a lot, and we will continue to import those items from which we are not that competitive in comparison with the rest of the world.”

RT:The government has said it needs to stimulate investment into agriculture so that Russia is a bigger agricultural player.How do you think it best does that?

RY: “I think that the worst that can happen is if the government invests in domestic agriculture.In my view the government should not invest into domestic agriculture.It would be better if the government concentrated on the creation of a type of investment platform, improving domestic legislation, improving ownership rights, especially land ownership rights.Improving other elements of domestic investment climate, maybe some subsidization, when and where it is necessary, and leave the space for investment to private investors.I guess this is the best that the government can do for domestic agriculture.”

RT:Which sectors do you believe could benefit most from increased investment and which regions?

RY:“Despite all these success stories which have taken place during the last ten years, Russia remains a type of terra incognita for investors, and luckily each and every branch of our industry still is hungry for investment and can be substantially improved.There are numerous niche opportunities, and there are numerous tremendous big opportunities for investments, and getting money out of them.But strategically we must concentrate on what we do the best – its wheat production and wheat export for neighboring developing countries.We are very successfully located, we are in very close proximity to importing countries, and we must continue to concentrate on this strategic advantage.But there are many other niche opportunities.We could count them and it would be pretty endless.”

RT:Do you believe that Russia has the logistics and infrastructure to support greater agricultural production?

RY: “Again our logistics is very diverse – south of Russia is not that bad, its pretty good, logistically – but we have a lot of logistical problems and bottlenecks all over Russia.And of course it depends on, again you can compare – I just came back from Brazil, and if you look on Brazil from an airplane you see that there are no railways and very limited network of roads in Brazil.In Russia we have much better developed infrastructure, but we have type of virtual and real monopolies which raise tariffs, so in my view the government must make a competitive environment in our infrastructure, and it would be the best solution.”

RT:Do you believe that global investors are interested in Russian agriculture?Do Russian agriculture sector players have a significant international profile with investors?

RY: “Again we have a long chain of stories about good and bad investments in domestic agriculture.Basically there is a dramatic under information, and bad level of information about opportunities in Russia.Some people do successfully invest in our country.Those who have patience and understanding, and long term view of agriculture as a business.”

RT:Do you think that WTO accession will help bring about change in Russian agriculture?

RY:“There are many myths about Russia and WTO accession, so that people who are frightened by those issues, which are unlikely to damage domestic agriculture competitiveness, and they are not aware off issues which are really concerning.In my view basically there is no big dramatic threat to domestic agriculture as a result of Russian WTO accession.But the devil, as our American friends say, is in the details, so we are not aware fully about a complete bunch of details from our negotiators.When we know about the full details, the full package, I could better tell you what is going to happen.But what we have heard from them up until today gives us pretty positive signs that there is no dramatic or any substantial threat to key domestic agricultural sectors.”

RT:Do you think that Russians could have better quality and cheaper prices if the agricultural sector was better developed?

RY:“Yes of course there are a lot of efficiency gaps, a lot of quality gaps, and we can continue to work on them, and improve them.But we must do a lot of work.”