Irina Zhachkina, First Deputy Chairman of the Board of Russian Agricultural Bank, spoke to RBC+ online publication about the development of export operations of Russian agribusinesses.
RBC: Presidential Order No 204 dated 7 May 2018 “On the National Objectives and Strategic Development Targets for the Russian Federation to 2024” has shifted the course of Russian agribusiness development from import substitution to export. It sets a new target for annual exports by agribusinesses, $45 million. What has changed since?
IZ: More than a year has passed since Russian agribusiness embarked on an ambitious task to double its exports. Now we can see that, after a period of adaptation, they are starting to deliver. Even those who are not yet exporting are considering it. Our approaches have changed as well. We have built a vertical servicing hierarchy to support foreign economic activities and established an ad hoc Competence Center. All our export support operations are governed by a “single window” principle. We are happy to share our expertise with clients as we do all the preparatory work for foreign export deals free of charge.
Our credit policies are aligned with the Government objectives. To deliver on the President’s May decrees we need to enhance the sector’s efficiency. As the core bank for agrarians, we are aware of our responsibility. We mobilize expertise and calculate financial return and benefits of particular projects for agribusinesses, and we are already engaged in financing projects whereby businesses can build up their exports.
As an example, we have signed a cooperation agreement with Yug Rusi, a leading Russian sunflower oil producer and stepped up financing to ensure that they are able to fully utilize their processing facilities and to export the extra products they will be producing. With our support Yug Rusi will be able to grow its exports by more than USD 200 million by July 2020. In the next marketing season they intend to raise them to USD 1 billion. To make this happen we had to conduct a thorough analysis of the production cycle so that the borrower could be comfortable with the commitments they were about to undertake. Client’s financial comfort is a priority for us. We analyze all potential deals in detail so that the producer can efficiently operate under a specific debt burden. Packaged solutions do not apply here.
RBC: What export outlook do agribusinesses have in the Far Eastern Federal District?
IZ: Of all Russian macro-regions, agribusinesses in the Far East generally have the highest potential. Given the Far East’s geography and transportation opportunities, it has the potential to boost both internal consumption and exports. Vast natural resources and unprecedented state support come as additional factors underpinning the region’s investment appeal. I am thinking of the 18 priority development territories, the “Far Eastern Hectare” and the additional tax benefits for prioritized regional projects. These tools come in addition to nation-wide investor support tools, such as subsidized lending, reimbursement of exporters’ freight costs and many others.
RBC: What kind of projects do you think the Far East may see coming in the course of export potential growth?
IZ: All kinds of projects, really. The Far East’s export staples are currently oilseed, soybeans, fish and seafood. As this is 93% of its total exports in value terms, its export can be described as dominated by raw materials.
By increasing the number of shipments of both traditional and new product groups we can grow exports of agricultural raw materials and products by almost 60%, up to $6 billion. For example, there is a good case for developing dairy exports. We believe that Russia is quite capable of exporting 1 million tonnes of milk, of which about 400,000 tonnes could be produced in the Far East. The current situation with ASF in China opens up opportunities for meat export notwithstanding the existing production capacities.
Another highly promising segment is deep soybean processing into isolates, concentrates, defatted soya flour and texturized soya proteins. Global production of concentrates increases 10-15% per year, and there is a good market for them both internationally and domestically. At the Eastern Economic Forum, we signed with Legend-Agro Holding an agreement for a vertically integrated agribusiness holding company, a large-scale project for deep soybean processing and a logistical hub to export to Asia Pacific.
There is also ice cream, a high-margin product with a strong potential. Forty percent of all ice-cream produced globally is consumed in China, but its retail price is pushed up by long-distance shipments from the key suppliers, the US and the EU. This is clearly a chance for Russian producers from the regions near China, specifically in the Primorye Territory. Exports of Russian ice-cream may more than double by 2024 to $100-120 million.
Another high-margin segment is wild-growing plants, animal raw materials and related products, including medicinal plants, berries, mushrooms, nuts and deer antlers. Reserves of Russian wild-growing plants, estimated at 8.5 million tonnes per year, are currently utilized only at 5% maximum. Their annual exports from Russia are worth $100 million per year, with over 80% going to South East Asia. By 2024 exports may rise tenfold. In this respect, Yakutia has the highest potential of all Russian regions.
RBC: Would it make sense to have a holding company in place for wild-growing plants?
IZ: Not necessarily, because it could all be handled by small businesses. In addition to boosting the revenue, harvesting wild-growing plants will help create manual jobs for rural residents, including indigenous minorities. I can say with confidence that we will never grow exports in this segment if we fail to engage small business. Our farmers will undoubtedly secure a place for themselves on the global market, and an aggregator will be quite useful here. RusAg knows better than anybody how to work with small businesses in rural areas. Our share in lending to them currently stands at 70%.
It has to be said that not only do we use financial tools to support farmers – we help them promote their products. For three years in a row we have been hosting SVOE, a food festival in Russian towns, to navigate consumers through products from the companies we work with. Events like this are a good springboard for producers helping them to enter the market.