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The Far Eastern Agricultural Complex: A Driver of Growth or a Missed Opportunity?
2 September 2021
10:00—11:30
KEY CONCLUSIONS
Thanks to its regional and financial characteristics, the Russian Far East possesses substantial potential for growth in the agricultural sector

The Far Eastern Federal District is located near Asian markets, which is a major advantage in terms of minimizing logistics expenses. It’s crucial to capitalize on this. However, the markets of the Asia-Pacific are not the only ones open to producers based in the Far East – there are others as well. Transport subsidies are available to cover costs under a co financing programme. Excluding aviation, products can be shipped to the consumer via intermodal transport — Maxim Kobin, Vice President, Russian Export Center.

Competition is lower in this field, and due to low competition in general, the sector is twice as profitable than it is in the Central Federal District. The debt burden is lower here than across the country as a whole, to the order of about 30%. This indicates that the region possesses significant financial resources for further development — Dmitriy Zhilyakov, Head of the Center for Strategic Analysis of Large Business, Russian Agricultural Bank.

The Asia-Pacific region offers promising destination markets for exports of agricultural products from the Far East

Last year, the Asia-Pacific region imported food and agricultural products worth a total of almost USD 700 billion. That in effect represents 45% of global imports. <…> We can see a fundamental approach for the Far East’s agricultural industry to substantially increase both production volumes and added value. By this I mean exports to the Asia-Pacific region. The potential of this area is helping to bring about an increase in agricultural production that will be measured not as a percentage, but as a multi-fold increase — Sergey Levin, Deputy Minister of Agriculture of the Russian Federation.

We are fairly active both in terms of cultivating and exporting crops. Currently, we are mainly focused on exports to Japan and China — Dmitry Savenkov, General Director, Legendagro Primomorye LLC.

I would say that probably exports to China are the priority. Processing is crucial to us, but this will be a gradual process. It cannot be done immediately. We will perhaps be looking to the next five years for this. But we cannot halt exports — Valery Nagel, Beneficiary, Plemennoi Zavod Komsomolets.

A range of financial and non-financial measures are helping to support the development of the agrarian industry in the Far East

A federal project is in place entitled ‘Exports of Agricultural Products’. It sets out a great many measures which the Far East and its agricultural sector can capitalize on — Sergey Levin, Deputy Minister of Agriculture of the Russian Federation.

We have put credit limits in place for foreign buyers in China and Hong Kong. And today, Russian companies insured by EXIAR are selling their products on a deferred payment basis. They are insured against the risk of not receiving sales revenue. That means they do not need to raise additional working capital and assume these risks themselves — Maxim Kobin, Vice President, Russian Export Center.

Currently, it can be difficult for producers of goods in the Far East to find new sales channels in the Asia-Pacific region. The Russian Export Center, Sber, and other institutions are working to meet the wishes of both their customers and potential exporters, and are offering many forms of non-financial support — Vladimir Sitnov, Senior Vice President, Sberbank.

ISSUES
Land improvement systems are in a critical state; however, there is very little desire among organizations to bring them up to standard

Over the past 20 years, most of them [land improvement systems in the Far Eastern Federal District – ed.] have been used inadequately. <...> All these systems are completely dilapidated and are of no benefit from a technological point of view. <...> There are major problems surrounding the assignation of ownership of land improvement systems for the purposes of joining government subsidy programmes for the construction of these systems — Alexander Sarapkin, General Director, Amuragrocenter.

In Amur Region, up to 10 farmers – major enterprises – use the land improvement system, of which only 1–2 have displayed a clear commitment to work on it further. For various reasons, none of the others want to do this — Oleg Turkov, Minister of Agriculture of the Amur Oblast.

An underdeveloped logistics infrastructure is having a negative impact on the development of the agricultural industry in the Far East

Transport – the development of transport infrastructure – is a major issue. It is still the case that not everything in the Far East is in a good shape — Sergey Levin, Deputy Minister of Agriculture of the Russian Federation.

A lack of financial support is hindering efforts to develop the Far East’s agricultural industry

Sadly, we are still rooted to the spot. <...> Of all the money allocated as part of agricultural programmes, a mere 1% gets to the Far East — Nikolay Kharitonov, Chairman of the Committee for Regional Policy and Issues of the North and Far East, State Duma of the Federal Assembly of the Russian Federation.

I would like to discuss CAPEX [capital expenditures – ed.], i.e., the direct costs of constructing vegetable storehouses. <…> One can find the construction of these facilities is a very costly undertaking, particularly in the Far Eastern Federal District. We have seen how sharply prices for construction materials and metals have risen — Galsan Dareev, Deputy Chairman of the Government of the Republic of Buryatia - Minister of Agriculture and Food of the Republic of Buryatia.

For investment projects related to processing, it is crucial that feedstock is better protected, because this year has shown that 20% is insufficient. Several genuine projects which are already in place could have unfrozen their capacity. However, they were unable to do so because China offers a higher price, despite the duties in place — Mikhail Maltsev, Executive Director, Fat-and-Oil Union of Russia.

SOLUTIONS
Investment in infrastructure and processing will make the Far Eastern Federal District’s agricultural industry more competitive, both domestically and in terms of exports

The development of infrastructure is probably the most critical element in terms of enabling the Far East’s agricultural sector to fully capitalize on the potential afforded by its climate and increase production — Sergey Levin, Deputy Minister of Agriculture of the Russian Federation.

The key issue is investment – long-term investment in storage facilities and logistics. We need 10–15-year investments, and Sber is in a position to offer these. <...> This is also vital for unlocking export potential — Vladimir Sitnov, Senior Vice President, Sberbank.

These are investments related to processing, including the processing of products which are in demand in key markets. <...> A crucial element which is still not being properly discussed – although the ministry is already giving thought to it – is putting logistics in place in target sales markets. Our competitors do this – it is a normal thing to do — Ilya Strokin, Director of the Agribusiness Center of Excellence, KPMG in CIS.

We need to increase the amount of land being used, increase crop yield, and at the same time build capacities to be competitive on the market. You cannot just have one large processing company – they will dominate the market, which will be pointless for crop growers — Denis Tsesarenko, Founder, Teros LLC; Founder, Sporos LLC.

Training specialists in the field will help in efforts to restore land improvement systems in the Far East

It is essential to restore personnel training programmes in engineering and technical subjects at higher education institutions in the Russian Far East. <...> Yes, it will not be easy, and the departments probably no longer exist. However, there are institutions which are willing to work on this. <...> We need to start training specialists, organize companies, and get people interested in studying – and consequently working in – irrigation — Alexander Sarapkin, General Director, Amuragrocenter.

Exchange auctions could help boost processing in the agricultural sector

We need to make it economically beneficial to get involved in trading, and to put a mechanism in place. <...> We propose holding unilateral auctions, with customers consisting of major processing companies. These companies will be able to bid for goods in the standard way, and producers based in the Far East can join as participants. The market price will be determined in a competitive and transparent contest, and the winners will automatically have a standard contract in place. And central to this contract will be a subsidy, which will act as an incentive to participate in these bidding contests — Nikita Zakharov, Director, Joint-Stock Company «National Mercantile Exchange».

The domestic exchange <...> is, as we see it, an additional tool, and it would be no bad thing to have a subsidy attached to it — Dmitry Savenkov, General Director, Legendagro Primomorye LLC.

Meetings between representatives of agricultural enterprises aimed at sharing experience will help foreign companies in the industry

The most difficult thing is obtaining precise and accurate information, such as who to contact, what changes could be made to processes, and what steps are needed to take decisions correctly. Primorye Territory offers considerable potential, but it is very difficult to continue to work there. In order to resolve this issue, I would propose that Russian agricultural enterprises operating in Primorye Territory hold regular meetings with foreign companies in order to share perspectives and discuss joint ventures. This would make it easier to work in Primorye Territory — Choi Won Bo, Head of the Far East Representative Office, Lotte International.