North Central Ohio, across the Corn belt ! | Russian Farms Curb Siberian Push as $10 Billion Debt Costs Rise
By Maria Kolesnikova
Oct. 9 (Bloomberg) -- The financial meltdown that started on Wall Street is now hurting farmers in Siberia, threatening a Russian agricultural revival that the United Nations says is needed to help avert a world food shortage.
Cash-strapped banks have cut funding to an industry already reeling from plummeting grain prices and soaring borrowing costs. The collapse of the stock market has closed off the other main money source for Russian agricultural companies, which produce nine percent of the world's wheat.
``Russian farmers may need to repay as much as $10 billion of loans by the end of the year,'' said Arkady Zlochevsky, president of the Russian Grain Union. ``Many farmers probably won't be able to borrow money for the spring sowing.''
Russian growers are putting on hold billions of dollars of expansion into vast swathes of Siberia, suggesting the harvest will weaken after this year, the best since the collapse of the Soviet Union. The UN Food and Agriculture Organization had estimated in March that Russia could double grain output by 2016.
Loan rates for farmers have jumped by half in some cases to more than 20 percent in the past few months, Zlochevsky said in an interview in Moscow. At least seven companies have abandoned planned share sales as the benchmark Micex Index in Moscow lost more than half its value since August.
``We are getting information from the regions, from companies, from unions and associations about the lending difficulties in agriculture,'' Agriculture Minister Alexei Gordeyev said in a statement on Oct. 7. ``And we are talking not only about supporting investment projects, but loans for working capital, which is especially worrying.''
`Cooler' Than Oil
Russia has about 20 million hectares of unused arable land, an area the size of England and Wales and equal to 40 percent of all current farmland in the country. Siberia accounts for a fifth of all Russian farmland and has reclaimed into cultivation more land lying fallow than anywhere else in the country this year.
Russia ``could make a real difference on the world markets,'' said Charles Riemenschneider, director of the UN Food and Agriculture Organization's investment center.
President Dmitry Medvedev announced $36 billion in new emergency funding for banks on Oct. 7 to help revive the credit market, including about $1 billion for state-run Russian Agricultural Bank. That boosts the amount of pledged assistance to the farming industry through 2012 to about $28 billion.
``The food market could potentially be a hell of a lot cooler than the oil one,'' said Vasily Aldokhin, who buys farmland for Siberian Agrarian. The company, based in the Novosibirsk region of Siberia, plans to triple the amount of land it sows to 1 million hectares by 2012.
Loan Payments
The biggest issue for farmers now is to extend the repayment period for loans due this year until spring so that the amount of sown land doesn't shrink, according to the Grain Union. The group tried and failed to win state support for a moratorium on repayments in July, according to Zlochevsky.
At the time, the government argued that there was no legal framework to allow farmers to postpone loan payments this year. Now, after the Micex has plunged more than 50 percent in two months while interest rates have surged, officials are sounding a different note.
``It is especially important for us to analyze the current situation, to calculate all the risks, so that the large investors don't leave the industry, so that the banks don't stop lending, so that agriculture doesn't stagnate,'' Gordeyev said.
Russia went from being the world's largest wheat supplier in 1910, with 36 percent of the market, to one of its biggest importers in the waning years of the Soviet Union.
Collective farms under communism failed due to inefficiency, returning just 90 cents on every dollar invested, according to U.S. government estimates.
Early Snowfall
Russia will produce about 102 million metric tons of grain this year, 25 percent more than last year and double what the country produced in 1998, when the government defaulted on about $40 billion in domestic debt and devalued the ruble, wiping out the life savings of most of the population overnight.
Siberian Agrarian's main worry isn't access to credit, it's the weather, Aldokhin said. Early snowfall in September delayed harvesting by two weeks, leaving less time to complete the job before winter arrives for real, he said.
Then there's transportation. Russia will be able to export only about 20 million tons of this year's 30 million-ton surplus because of port bottlenecks and a shortage of railcars, Zlochevsky said. As a result, the price of food-quality wheat in Russia has fallen by more than half since May.
``The global financial crisis is driving prices lower, and export opportunities are waning,'' Zlochevsky said. ``As a result, Russian prices are going down, destroying incentives for producers to increase output.''
To contact the reporter on this story: Maria Kolesnikova in Novosibirsk at [email protected].
Last Updated: October 8, 2008 16:14 EDT
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Bloomberg.com- Russian Farms strugle with Ag. Development
