May 20, 2016

The ongoing Russian embargo on Western goods and continuing sanctions imposed by the West in response to that country’s actions in Ukraine, have created a challenging domestic investment space.

In addition to these conditions, the precipitous drop in global oil prices has created a situation that Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF) told CNBC was a “crisis”.  However, despite this, Dmitriev sees the landscape as one providing the ‘opportunity to restructure’.

The Russian economy shrunk by 3.7% last year and is expected to shrink by an additional 1% this year according to CNBC, however, some of the country’s wealthiest families are seeing an opportunity for growth and returns in farming.

At the end of last year, Arkady Abramovich, the son of Roman Abramovich, one of Russia’s wealthiest entrepreneurs and number 13 on Forbes’ Russia list with a net worth of $7.6 billion, launched Greenhouse – a company focused on vegetable production in the Belgorod region. The venture plans to develop 200 hectares of greenhouses dedicated to producing tomatoes and cucumbers.

Russia Beyond the Headlines reports that investment in the project is estimated to be between $3 million and $4 million per hectare, leading to a total potential investment of between $600 million and $770 million.

Igor Chaika, the son of Russia’s prosecutor-general, Yury Chaika, is also venturing into the ag space. In March of this year he established Agro-Region, a specialized vegetable farming company. However, according to filing information reported by Free News XYZ, Chaika plans to expand the company’s agricultural activities upstream to include not only the production of vegetables, but the production of fertilizers, processed foods, and the cultivation of mushrooms and other agricultural crops.

If anyone would be able to see the opportunity for growth in Russia’s ag sector it would be Alexander Tkachev, Russia’s head of the Ministry of Agriculture. Tkachev states that given the best scenario, the Russian Federation will be self-sufficient in its dairy sector within five to seven years, reports the Russian Economic Portal.

Analysis firm, BEFL issues rankings of the largest agricultural companies in the country with holdings exceeding 100,000 hectares or either owned or leased farmland. RBC reports that the firm’s rankings for 2016 included 43 companies – up from 40 the previous year, with a total land bank of 10.45 million hectares, representing a 16% increase year on year.

The company on the list to show the most dramatic growth, jumping into the top ten, was the Tkachev famiy’s “Agrocomplex them. IN Tkachev”. After acquiring approximately 150,000 hectares of land from Valinor, one of the largest landholders in Russia in May 2015, effectively doubling its land bank to 456,000 hectares, the Tkachev family company jumped from 16^th place to sixth place on the BEFL list.

On the back of this expansion, Russia Beyond the Headlines reports that the company plans to build a US$29.2 million, 2,800 head, dairy farm in the Rostov region. The first phase of the project, with a capacity of 1,200 head of dairy cattle is scheduled to begin this year, and within the next five years the company plans to double its output.

The family is also expanding its business along the value chain. In November 2015, The Moscow Times reported that the Tkachev Agricultural Complex, will invest US$121 million to begin construction of its first cheese factory in Russia’s Krasnodar region.

Upon the implementation of the embargo, cheese imports into Russia fell by 94,300 tons in the first eight months, according to a report from the National Union of Dairy Producers, reports the Moscow Times.

Production at the facility, which will be one of the largest of its kind in Russia, is expected to begin in 2017, helping to fill the void on the market through the production of Maasdam, Emmental, and mozzarella cheeses.