Foreign banks are reluctant to lend money, hindering research investment and infrastructure improvements
CHICAGO, Ill. — Economic sanctions do not appear to be hurting Russian agriculture, says a John Deere official.
“They’re planting, they’re producing and we don’t see a decline right now,” Derek Boudreau, country manager for John Deere Russia, told the DTN Ag Summit 2014.
A number of countries imposed sanctions on Russia this spring after it annexed Crimea.
Boudreau said the sanctions have had negative and positive effects on Russian agriculture.
A significant negative has been the dramatic increase in the cost of credit.
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Retail finance rates to buy farm equipment shot up to 18 percent from 12 percent in February. They are likely heading to 20 percent in the new year.
However, the availability of credit is more worrisome. Foreign banks are refusing to do business with select Russian banks, which limits the amount of equity available to growers.
“That is probably one of the primary short-term threats to the agricultural producers,” said Boudreau.
There have been positives, including higher domestic prices for commodities, such as dairy and meat, caused by Russia’s counter-sanctions.
As well, the rapidly depreciating ruble is resulting in bigger returns for exporting farmers and significantly reduced input costs, which are denominated in rubles.
The Russian government is also heavily promoting a policy of increased self-sufficiency within three to five years.
“If anything, the self sufficiency is going to drive more and more activity in the ag sector,” said Boudreau.“The real question is long-term, how competitive are they going to be globally?”
John Deere believes Russia will become a major grain exporter because it has nine percent of the world’s arable land, eight percent of its fresh water supply and two percent of the population.
A lot of land has been sitting fallow since the 1991 collapse of the Soviet Union.
The government is keenly interested in getting those idled acres back into production and is offering equipment subsidies to farmers willing to take on more land.
There is also a focus on improving mechanization. Russian farmers use 25 percent of the horsepower that is used by their counterparts in the United States and Canada, which is partly why their wheat and corn yields are well below those of their export competitors.
The government wants to boost the amount of horsepower used on Russian farms and is tracking that number closely.
Logistics also needs improvement. A single supplier dominates the rail industry, roads are in worse shape than they are in North America and significant port expansion is re-quired.
There is also a need for improved seed genetics to combat weed infestations and more investment in regional research institutes.
Russia could become a fierce competitor in export markets if those reforms happen.
However, it will be difficult to find the capital necessary to make those reforms, considering that Russia is heading into recession because of declining oil and gas revenues and reduced consumer spending.
