Expert magazine No.16 (605)
By Svetlana WEBER
Stefan Duerr emerged in Russia’s farming business in 1994 when it was in a sorry state indeed. He was among the first German investors who risked doing business with Russian farmers, and didn’t miscalculate. Today his company EkoNiva is a multi-faceted agricultural holding that works successfully in various agricultural sectors. In addition, Mr. Duerr became a link between German and Russian parliamentarians on agrarian policy issues.
Company profile: The Russo-German company EkoNiva has been operating in Russia’s agriculture since 1994. Today it brings together 25 enterprises in Moscow, Voronezh, Kaluga, Orenburg, Novosibirsk, Kirov, Kursk, Belgorod, Vladimir, Ryazan, Tula, Kostroma, Yaroslavl, Tver, and Smolensk regions and Altai Territory. More than 2,500 skilled specialists work here. In 2007, the company’s turnover was 4.4 billion rubles. EkoNiva offers modern machinery of the world’s leading manufacturers, the world’s best seeds of advanced varieties, and state-of-the-art farming technologies. It produces farm crops on an area of 80,000 hectares. EkoNiva intensely participates in Russia’s and Germany’s farming and political activities. The president of the company, Stefan Duerr, is a laureate of Russia’s national Pyotr Stolypin Agrarian Elite prize, and a recipient of the silver medal “For Contribution to Development of Russian Agricultural Complex”.
New thinking for new doings
- How actively do investors take up the farming business today?
- In a year or so two thirds of Russia’s agricultural enterprises will be investment companies. A fairly large group of them are investors in processing industry. Their prime job is to steadily supply their enterprises with raw materials in order to minimize the risks in purchases of raw materials, in terms of both amount and price. The second group includes financial investors who simply invest in business. The third group is independent organizations that could survive the hardships of the 90s and establish themselves. Today, they are efficient firms incorporating several neighbouring collective farms that had gone broke. The latter – some still remain – are pulling somehow the weight, but over time they will join the first group, or second, or third.
- How do emerging investors benefit the farming industry?
- They speed up development. Investors bring advanced technologies not only to production, but also into the management and financial area. They teach people to think, to ponder and act in a new way. This helps the Russian agro-industrial sector move to a qualitatively higher engineering and technological levels. These processes are now in full swing. Besides, the conscientious investors are prepared to work not only on land. They are also determined to solve the social problems of the village. Today, this is particularly important.
- Which areas of the farming sector are the most attractive for investment companies?
- Crop farming, due to the fast payback times and low risks. The livestock sector is less desirable because of the substantial investment involved, long payback times, and higher risks. This segment needs huge government assistance before investors will take interest, which in actual fact is what is happening today.
- Is the farming business interesting enough for foreign investors?
- Russia’s agriculture is a complicated business that needs permanent monitoring. It’s impossible to run Russia’s farming from London. Everything is so unpredictable. Therefore, despites all attractions, few foreigners are eager to come and work here.
- What are they afraid of?
- It’s not easy to work in Russia. The rules of business here are somewhat different from the generally accepted. And not all are willing to observe the law. Besides, in my opinion, the Western media seek to mar Russia’s image. In the 90s, many in the West asked me how I manage to live in Russia where crime reigns supreme. Now they wonder how I live in Russia where liberty is missing altogether. I don’t think so. Many foreigners who have lived in Russia for a long time say that changes, now afoot in the country, put it on the track of effective development. The first results are already visible: the world community starts taking Russia as a serious economic rival.
The land tax may stop profiteering on it
- What, do you think, must be countered in farming to make it more civilized?
- It is very important to prevent profiteering on land. Farming lands are being massively bought up at the moment in order to re-sell them later. If this is not stopped, the farming industry will sustain a heavy blow.
- How to stop the resale of land?
- If the land tax were higher, few would buy it just in case and for no particular reason.
There must be certain commitments for buyers of land: they must till the land, raise cattle and so on.
- What is your opinion of a possible introduction of a tax on profit for farming enterprises?
- This would be a real disaster. Today, farming enterprises work more or a less on “a legal basis”, with books open to monitoring agencies. If a tax on profit is introduced, the tax earnings will not increase. All will get back to the quasi-legal practices. Farming is a sort of business where everything is easy to hide.
Should the farmers’ taxes be raised, it must be done not at the expense of profit, but, for instance, by increasing the tax on land. This may displease many, but this is more than fair. Also, this will cool off those who “grab” the land to resell it. Otherwise, they have nothing to be afraid of. They are not dealing in land, they have no earnings from it, and they don’t fear the tax on profit..
As taxation goes, many questions arise with reference to the single farming tax. It is ineffective for farms that make hefty investments. Besides, it provides an opportunity for machinations with VAT.
- Your company is one of Russia’s major suppliers of foreign farming equipment. How actively do farmers acquire modern agricultural machines?
- The technical re-equipment is in full swing. The farmers start to understand that it pays to use efficient and well-powered machinery. It has become possible to buy such machinery thanks to the state’s program of subsidizing the interest rates and large credits of the Rosselkhozbank (the Russian Agricultural Bank) and other financial organizations
Hence the keen interest.
- What, in the first place, interests the farmers?
- Tractors, soil tilling and seeding machines as well as fertilizer introduction and plant protection equipment. In the context of implementation of the national project, the demand has arisen for cattle breeding equipment. I’m sure that the next step will be acquisition of grain pre-treatment and storage equipment. The bulk of today’s elevators are obsolete and the cost of storage is high. I think that in Russia the trend will be the same as in the US and Europe, i.e. the farms themselves will store the grain and sell it when and if it brings profit.
Punishing producers doesn’t help consumers
- One of your enterprises, EkoNiva, is a major milk producer in Voronezh region. What impact did the policy of milk purchase price restraint have on you and other enterprises?
- This is a blow below the belt dealt just when the producers started having their first profits and when the national project in milk cattle breeding started yielding results. If the prices continue to be restrained, many will quit the market voluntarily or will go bankrupt. Of course, large holding companies will survive by making up for losses in other areas. The ordinary farms, however, won’t be able to do so.
Looking into the root of the problem we see that the current growth of prices for farming raw materials, which is being deliberately restrained, is the fruit of the policy pursued over many years. In the 90s, all voiced their dissatisfaction with unprofitable enterprises, dooming them to bankruptcy. Bankrupt did they go. So what? No cattle, no milk today. We now heavily depend on imports. And once the people got an opportunity to buy, the prices went up, naturally. If the enterprises now go broke again, in the future the situation in farming will deteriorate still more, and the prices will grow still higher.
Another annoying thing is that the purchase price freeze actually did no good to end consumers. The milk producers sustained losses, but food processors and trading organizations keep up the prices just the same. So, the buyers did not enjoy the low prices for dairy products. In my opinion, the track must be changed: it is necessary to support socially unprotected segments of the population, to help the disadvantaged buyers instead of punishing the producer.
This is, for instance what they do in Belgorod region. There, the milk producers requested that a small amount of raw materials be made available to dairy plants at a lower price. Dairy plants processed this raw material at its production cost while trading organizations sold the products without markup. This mitigated the blow at farmers and tangibly helped the unprotected population. But what matters most, the producers realized why, or rather for whom, they were doing all that.