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New Agricultural Operators (“agroholdings”) in Russia and Black Sea
FSU: causes, current state, and future challenges
IKARDmitri Rylko
IKAR Institute for Agricultural Market Studies
We are Moscow based private agbiz market intelligence company
Founded: August 1998
18+ employees
Revenues (2009): 12% founder, 15% government, 73% industry
For the second time during last century Russia challenges the organizational landscape of the world agriculture…
- 30’s of 20’s century: massive collectivization
- 00’s of New Century: New Agricultural Operators (NAOs) or «agroholdings»…
IKAR
“Agroholdings”
General context
Why agroholdings
What we know about them
Future
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World gain and FSU Black Sea loss of arable land: 1992=100%
Mln Ha
-2 -4 -5 -6 -5 -6 -7 -8 -8 -9 -9 -10 -10 -11 -11 -11-3-6 -9
-11-13 -14 -13 -12 -13 -13 -13 -12 -12 -12
-1 -1 -1 -1 -1-1-1-1-1-1
-1
19
23
3129 29 29 30 30 31 32
18
1214
97
3
-30
-20
-10
0
10
20
30
40
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Russia
Kazakhstan
Ukraine
Rest of world
Over last two decades the dramatic arable land shrinkage has taken place In three FSU Black Sea countries…
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Net grain export from FSU Black Sea countries
-20
-15
14
38 10 11 13
23 209
9
1114
7 7
24
20
4
4
7
5
3
49 9
6
8
1
-30
-20
-10
0
10
20
30
40
50
60
1989/1991 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010
Kazakhstan
Ukraine
Russia
…In parallel three FSU Black Sea nations have transited from being worldbiggest grain importer to the major grain exporting nations…
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Shares of Russian grain & oilseed complex exports
Russian corn export
40 53 81 52
1370
250
0
200
400
600800
1000
1200
1400
1600
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
TMT
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Sunoil export
0
1
2
3
4
5
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
MMT
Ukraine ArgentinaRussia Other
World wheat export
020406080
100120140160
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
MMT
RussiaOther
7,5%9,2% 9,2% 10,8%
12,9% 14,5%
World barley export
0
5
10
15
20
25
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
MMT
Russia
Other
8,8%8,0%
11,6%
7,0% 19,8% 12,9%
The country has occupied strongest positions on the world wheat, barley, and sunoil export markets
Russian’s wheat share in our key export segment: winter milling (conditionally) soft red wheat world
export markets
0
5
10
15
20
25
30
35
40
45
50
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
MMTUSA
Russia
EU-27
27,5%33,3% 33,3% 37,9%
34,0% 41,0%
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As wheat in reality is highly heterogenous commodity, our role in specific export market is even much stronger…
Type/Quality break-downs of Russian grain exports
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10 …
2020
/202
1
W3 W4 Feed wheat Feed barley Others
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Our key specialization: feeding developing countries of Middle East and North Africa with world’s cheapest 11.5-12.5% protein milling wheat
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The issue of «independent collective farm»
•• Lack of ownership and controlLack of ownership and control
•• Lack of efficient managementLack of efficient management
•• Lack of legal and administrative protectionLack of legal and administrative protection
IKAR The issue of «independent collective farm»
•• Fragmentation and disappearance of traditional input Fragmentation and disappearance of traditional input and service institutions and supply channels to/from and service institutions and supply channels to/from agricultureagriculture
•• Absence/weakness of Absence/weakness of ««rule of contract lawrule of contract law»», or , or simply wrong contract legislationsimply wrong contract legislation
•• Extremely) high open market transaction costExtremely) high open market transaction cost
IKARThe issue of vertical supply chain
•• Lack of commodity market price volatility protection Lack of commodity market price volatility protection
Combination of Combination of new organization of vertical supply chain new organization of vertical supply chain
and and
new new organization of farmingorganization of farming
IKAR«AGROHOLDINGS» as regional solution
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NAOs/agroholdings: mega-multi farming projects of mostly non-agricultural entities, which have entered primary ag production
Criteria:Criteria:
•• SizeSize
•• Value at risk in agricultureValue at risk in agriculture
•• Active, but remote Active, but remote participation in participation in management and controlmanagement and control
Our basic knowledge up-to-date
From Autumn 1999 (first publication) ongoing monitoring and From Autumn 1999 (first publication) ongoing monitoring and updating data baseupdating data base
As of Autumn 2009: more than 200 private companies, which As of Autumn 2009: more than 200 private companies, which have captured 14500 THA of arable lands in Russia (out of have captured 14500 THA of arable lands in Russia (out of 113113000000THA total nominal Russian arable land and ~60 under THA total nominal Russian arable land and ~60 under key perennial crops)key perennial crops)
Including 35+ companies with 100 THA and moreIncluding 35+ companies with 100 THA and more……
IKAROur basic knowledge up-to-date
IKAR
0
200
400
600
800
1000
1200
1400
1600
1800Diversif. agbiz
Food industry
Conglomerates
Unindentified.
Inputs supply
Ag trade
Agriculture
Banking and finance
Who? Land distribution by nature of «mother company»
(THA)
IKAREstimated break-down of arable land under agroholdings’control by regions (THA and % of regional arable land)
IKAREstimated break-down of arable land under agroholdings’control by regions (THA and % of regional arable land)
Why most fertile (South) and least fertile Siberia areleast captured by agroholdings?
Individual company cases
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IKAR
2001: aim: “to process in Russia!”
2002: Krasnodar is the best place to grow raw materials. To process there
Custom harvesting insufficient
“Captured” 5 th ha farm in Krasnodar, brought full scale technology, trained and brought the labor, modernized irrigationsystem
Production contract does not work
Full scale production on the long term leased land is the only realistic way to arrange the local raw material (corn and peas)
In 2004 Bonduelle, global food processor, never ever involved into agriculture, found itself farming in Russia!
Case of Bonduelle
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Started in 90’s as local (Voronezh region) distributor of agricultural chemicals for global agribusiness brands.
From late 90’s: gradual acquisition of local independent collective farms (assets against debt payback arrears)
00’s: adding dealership of farm machinery; growing farming portfolio (to 60 th. ha of arable lands nowadays)
AgroTechGarant
Performance: much faster company economic growth than the sector growth; outpacing yields; questioning company’s assets/liabilities…
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Started in middle 90’s as local (Rostov) grain trader
Late 90’s: one of first grain export terminals in Delta of Don River
1999: huge investment into oilseed crushing and further processing facility in Rostov
Yug Rusi
2000: successfully lobbied 20% oilseeds export duty
From 2002: grabbing( mostly bankrupt) collective farms in Rostov, Krasnodar, Volgograd. Total arable land under control: 180 THA
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Started in mid 90’s as middle-size Moscow based pure animal meat protein importer and processor…From the end of 90’s: aggressive backward integration into poultry and swine operations against the background of becoming biggest domestic meat protein groupFrom middle 00’s: further expansion into animal farming backed by government’ National Priority Project. Successful IPO and SPOs, although questioning assets/liabilitiesFrom 2007; aggressive expansion into crop production for origination of in-house feedstuffs, «land bank»formation of 300 th/ ha. Currently: biggest investor into metal country grain storage elevators and dairy farming...
Cherkizovo Group
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Ag chemicals
Crop production operations
Grain trade
Bakery & Pastry
Bakery & Pastry
Ag chemicalsCrop production
Formal Real structure
Case of SAHO: formal positioning and real assets structure: pseudo integration
• Input supply: mega-deals
• Credit: new collateral mass
• (Super)Quick crop rotation swings
• Marketing: «in-house», or «captured» markets, or more professional approach to commodity sales
IKAR Agroholdings and «traditional» farming: what is the change?
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Agroholdings: aggressive “integration” into the state bureaucratic pyramid
Lobbying preferential conditions for domestic agriculture and agbiz
• Rice: from small 10% import duty to $120 per ton
• Sugar: introduction of flexible rate raw sugar import tariff up to $270per ton
• Grains: Intervention fund and subsidized investment credits on farm, country and export elevators’ construction
• Meats: transfer from 0% to import TRQ incl. prohibitive over-quota tariffs
IKAREvolution of domestic crop “margins”
IKAREvolution of domestic crop “margins”
Agroholdings have generally evolved in spite of general and individual margin fluctuations…
Case of «Traditional» and «New» farming. Stavropol, neighboring farms, winter wheat. June, 2009
2.3 tons/ha potentialyield
7.0 tons/ha potential yield
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Why is the “family farm” in the rest of the world?
THE Rule of Agriculture. Perennial crops: predominance of “family farming” (mother nature and biology. Deviations: plantation crops, modern livestock and poultry operations!)
Agroholdings aggressively do against the “rule of agriculture”: massive invasion into perennial crop production!
Managerial issue
IKAR Management in agroholdings
Creation of «reverse managerial pyramids»and highly hierarchical up-to-down decision making pipelines
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World analogies. Farmers’ coops: «normal pyramid»
Board of directors: farmers
Hired professional managers
Delegation of part of service functions
Mostly independent production decisions by individual farmers
Department ofgreenfields financing
Department of field security
Strategic weather planning division
Department of mane and horse-tail management
Division of furrows
Anti-trespassers brigade
Department of field theft accounting
Section of horse harness
Department of horse -ploughman movement coordination
Department of hoof-running monitoring
Department of flies drive back
Department of horse manure depreciation
Department for global GM -oats procurements
Department of horseshoe amortization
Department of ploughman security
Global warming laboratory
Department of wooden sharpening
Horse relations centre
Источник: Агрохолдинги
IKARAgriholdings management: with sense of humor
New technologies
New vision
IKAR Agroholdings managerial dilemmas
Economy on scale
New collaterals
«Protection»
Where/who is the “master”Is there Perpetual Stewardship?
Lack of ag experience
Discrete and chaotic DM
Reverse hierarchical management pyramid
What’s next: regional contextIKAR
Kazakhstan
20 companies “capture”4/5 of the grain output
Russia
200 NAOs control 1/4 of grain output
Ukraine
From second part of 00’s are growing fast!
Russia is not a unique story at all. The country is type ofin-transitional-between of Kazakhstan (dominance of «agroholdings», and Ukraine (quick emergence of agroholdings))
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Our regional («Black Sea FSU countries»)’ agroholdings are really unique case (size/scope/industry focus)
Agroholdings as a way of speedy re-industrialization of domestic agriculture (to «quickatch» & expand much faster than «average»farming operation)
Agroholdings will continue to expand until they fully digest independent collective farms, until farm land is undervalued, until markets are not complete and efficient.
Instead of conclusions. Agroholdings: preliminary observations
Long term technical and managerial efficiency of agroholdings is highly questionable
Dmitri Rylko
Tel/fax: (495) 232-90-07
Skype: Dimash574
E-mail:
WWW.IKAR.RU
IKAR