The Wall Street Journal – The Experts
Jul 15, 2015
By Dr. Ariel Cohen
ARIEL COHEN: Russia could be a food superpower, given its vast soil and water resources. It still may become one, but the question is whether the food will be Western or Chinese.
Since the beginning of the Ukrainian conflict, the Russian economy has been experiencing the negative effects of international sanctions and Russian counter-sanctions, including Moscow’s ban on the import of some Western foods, including cheeses, meats and wine.
The effect on Russian agriculture has been deleterious, as the “import-substitution,” promised by the Kremlin, failed to materialize. Herein lie great opportunities for American and other international agricultural and food companies.
The potential is huge. The Russian Empire was a major exporter of grains and eggs to Europe in the late 19th-early 20th century. However, after agricultural collectivization, including starvation of the peasantry under Stalin, the U.S.S.R. became a major importer of grains.
The introduction of market economics in the 1990s brought new hope to the sector as yields rose.
However, Russia’s vast reserves of land and water did not ensure the prosperity for the new generation of the country’s farmers as food quality remained lacking and productivity lagged behind.
The reasons for Russia’s underperformance include opaque property rights, corruption, the lack of rural agricultural training extensions, weak agricultural financing, and inadequate infrastructure.
Things improved somewhat in the Russian food industry in the last 25 years. The introduction of Western technologies and management, as well as investments of Western capital have helped the Russians to forget the queues at grocery stores–a common sight in Soviet times. However, consumers are now grumbling over the Moscow-imposed “counter-sanctions”, including bans on imported meat, fish, fruit, vegetables and milk products from the U.S., the European Union, Norway, Canada and Australia.
There are signs that Russia is looking East for agricultural solutions. Recently, a subsidiary of the Chinese investment firm Huae Sinban announced plans to lease more than 280,000 acres of land in the Russian Far East. Russian officials say the deal could be worth up to $448 million over 49 years.
An alternative strategy would be to invite U.S. and other foreign companies to set up industrial agriculture in the “Black Earth” breadbasket, in Siberia, in the South (such as the Stavropol and Kuban region), and in the Volga basin. Some Western companies are already operating in Russia, making brisk business in the food processing sectors, including dairy, meat and confectionary. Wholly-owned Russian subsidiaries and non-U.S.-based companies could turn Russia back into the agricultural superpower it was over 100 years ago–but the Kremlin would have to liberalize market entry to make that happen.
Ariel Cohen (@Dr_Ariel_Cohen) is director of the Center for Energy Natural Resources and Geopolitics at the Institute for the Analysis of Global Security and principal at International Market Analysis, a political risk advisory firm in Washington, D.C.