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The Industrial Urals Clutches its Empty Stomach

The Industrial Urals Clutches its Empty Stomach

11.06.2010 — Analysis

In 2010, for the first time since the Soviet era, Russia created a Doctrine on Food Security. It determines the minimal level of basic food production that is necessary for a state to be relatively independent from imports and the fluctuation of prices on global markets. One of the recommendations was that Russia produce at least 95% of its own grain and potatoes, and at least 90% of its milk and dairy products. Russians should get 85% of their meat from domestic farmers and 80% of their sugar, vegetable oil, and fish.

Similar indicators are used to determine the food self-sufficiency of the country's regions. However, the Russian regions, particularly the industrialized ones, are far from meeting these goals. The Sverdlovsk region is the most glaring example of this. In an interview with RusBusinessNews, the region's minister of agriculture and food, Ilya Bondarev, spoke about how local farmers are filling the grocery shelves. He also discussed the areas in which the Central Urals is capable of and prepared to make great strides vs. the spheres in which they will always be dependent on supplies from other regions of Russia.

- Mr. Bondarev, to what degree is the Sverdlovsk region's agricultural industry currently able to provide the area with basic foods?

- The Central Urals has always been an industrial region, and it remains so today. As such, we are greatly dependent on imports from other regions of Russia and from abroad. The Sverdlovsk region is only fully self-sufficient in potatoes and eggs, where we can provide 183% and 115% of standard levels of consumption. Only 40% of our milk is supplied locally, 42% of our meat, 27% of our vegetables, 15-16% of our fruit, and only 0.7% of our fish.

The new Doctrine will mean that we will have to develop our agricultural industry. But we're going to do it in a rational way. We're not going to try to grow something like bananas, for example, that can't be grown here. Our strategic goal will be to focus on developing ways to provide the population of the Central Urals with fresh food. That means meat, milk, live and refrigerated fish, vegetables, and processed foods. In the end, we'll import frozen fish just like before.

- Judging by these figures, some segments of the agricultural industry are developing unevenly, so there's no simple answer as to how we're going to make those strides. How does the region intend to correct the disparity between the standard levels of consumption and the actual levels of production of, for example, meat?

- We intend to become self-sufficient in pork very soon, once the Gornouralsky (owned by the Khoroshy Vkus industrial complex) and Uralsky (owned by the Sibirskaya Agrarnaya Gruppa) pig farms are operating at full capacity. The situation with beef is more complicated. Currently there are only three businesses that are directly involved in raising beef cattle. There are a few others that specialize in milk, but produce some beef on the side. So, all of the businesses put together that in some way or other produce meat are still only providing 22% of the standard level of consumption. Beef-cattle farming is still in its early stages and so it needs special support.

Right now we're developing two projects that will create new livestock-breeding factory farms. The project in Nizhny Tagil, in particular, is part of a development project for Russian towns that have traditionally had only a single, large, industrial employer. With this new production output, we will not only increase yields, but we will create jobs in places that have really suffered in the economic crisis.

Overall, the Sverdlovsk region fulfills all the requirements for beef-cattle farming. We have 5 to 6 months of good weather for grazing. We have on average 60% more humidity than the neighboring Chelyabinsk region, so grass grows better. The Sverdlovsk region also has excellent flood-meadows and pastures. In addition, several locations are being considered for a breeding farm. Recently, a delegation of Sverdlovsk farmers and officials from the Ministry of Agriculture visited a similar business in the Chelyabinsk region, where they raise elite Hereford beef cattle. But that's a fairly complex project. It takes at least three years to recoup the investment required to create and develop a beef herd. So we need an investor with deep pockets. Right now we're negotiating with several companies.

- Is the poultry situation just as complicated?

- Currently the local poultry industry provides about 50% of the region's needs. In 2009, poultry factory farms produced about 100,000 tons of chicken. We're trying to double that figure by 2013. We should be able to get to a level of 70% self-sufficiency, based on the capacities of the poultry factory farms that are in operation. And we can cover the remaining 30% of demand with turkey. This year the limited liability company Borodulinskoye should produce its first 170 tons of meat. A few other companies are thinking about getting into turkey breeding. We're going to Bashkortostan soon, where there's a farm that just started producing 30,000 tons of turkey a year. Since we're starting our operations literally from scratch, we need to learn from our neighbors' experience.

- And in another area, milk - how self-sufficient can the region realistically become?

We have plans to build and begin operating 36 industrial livestock-breeding farms. Of course, our plans have been adjusted by the economic crisis, but still, we're going to finish three facilities in 2010 and another five in 2011. So, once all the plans come to fruition, we can use domestic suppliers to provide for 60% of standard levels of consumption, instead of only 40% as we do today.

The goldfish - a small crucian carp

- There are some areas of agriculture, in which the Sverdlovsk region has always had to rely on others - for example, in the production of fish. Do you think it's possible not to be dependent on foreign sources of fish?

- The Sverdlovsk region is unique in terms of fish farming. We have built and are operating five industrial fish-breeding farms. They are located in bodies of warm water that do not freeze even in the winter. We can breed fish on an industrial scale, including quite lucrative species. For example, at the Reftinsky fish farm, broodstocks have been established that are composed almost entirely of sturgeon. They have Beluga sturgeon weighing between 50 and 70 kg., common sturgeon, sterlets, and paddlefish. In short, everything is in place to greatly increase the production of fish and caviar.

- And why has industrial-scale fish farming never been tried before in the Central Urals?

- Fish have been farmed here, but not in large quantities. The market conditions weren't right. Right now the demand is enormous, so the industry needs to expand. We can and should provide the market with live and refrigerated fish and caviar - items that we don't import or are difficult to import from neighboring regions. We're not claiming to be making any kind of breakthrough in how fishing operates, it's just one move in the game that is the Central Urals agriculture industry.

- There is one area, in which the Sverdlovsk region has always been dependent on outside sources - the production of cereals...

- That's true, locally-grown hard cereals make up about 5% of the market today. By transitioning to winter crops, introducing new types of cereals, and implementing some advanced technology, we can increase that share to 20%. But an increase beyond that is unlikely. Food-grade wheat simply won't grow in our climate. There is not enough sun for the wheat to develop a high level of gluten. That's why I think the Central Urals will continue to import grain from abroad. Since the neighboring regions can produce it at a lower cost, it just makes more economic sense to buy it than to try to grow it.

Private business - the workhorse

- For many years the Russian agricultural industry was state-run. Who owns most of it today and is thus responsible for developing it?

- If we're speaking about ownership of the agricultural industry - today there are 19 state companies operating in the region. This includes the poultry industry, fish farming, livestock breeding, the production of dairy products, and bread bakeries.

Although there's no question that most businesses in the agricultural industry are privately-held. That's why investment will have to come from them. One shouldn't forget that the Russian agriculture industry has traditionally been heavily subsidized. Both the state and the regions budget large sums every year to support farmers. Our task is to target the areas that should receive the money. For example, there are price discrepancies in some sectors. The price of the most basic foods is rising disproportionately due to hikes in the cost of utilities, fuel, and fertilizer. As a result, production costs are higher than market prices, and we use subsidies to fill in the gaps. So, milk producers receive between 3 and 3 ½ rubles for each kg. of milk sold.

The primary focus of the government's policies to promote the development of the agricultural industry is to reimburse interest costs on loans. So, farmers are compensated out of the federal budget for the cost of refinancing (a 7.75% interest rate), and the regional budget will compensate an additional 3% for livestock-breeding projects. So rural residents only end up paying less than half of interest rates ranging from 12 to 15%. In addition, the state budget currently subsidizes livestock breeding, elite seed production, programs to use chemical agents to protect plants, the purchase of mineral fertilizer, and crop insurance.

If there are sufficient funds in the Sverdlovsk region's budget, we plan to resume subsidies on the purchase of technology and equipment. Many farms today simply cannot afford to modernize and upgrade their equipment on their own. In the meantime, they can buy some machinery at 28-60% of cost.

- Let's assume a miracle happened. The Sverdlovsk region became self-sufficient in the most important types of food. Would that mean that the Russian regions would stop selling food across the borders to each other?

- Russia is a single country so it would be ridiculous to close the regional borders to trade in food products. In addition, our antitrust laws guarantee that all economic actors can compete in all markets.

A person should have a choice: today he might try chicken from Chelyabinsk, tomorrow from Tyumen, the next day from Sverdlovsk, and the next day an imported variety. And our task, in addition to verifying the quality of all the goods offered for sale, is to do everything we can to make sure the residents of Sverdlovsk choose local products - to make sure that they are competitive in taste and price and always available in local stores. In addition, I think that the undisputed competitive advantage of the locally-produced goods on the market is always their freshness.

This interview was edited by Evgeny Eremina

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