Offbeat Struggling U.S. Farmers Have a New Worry: A Resurgent Russia

15:51  24 september  2018
15:51  24 september  2018 Source:   online.wsj.com

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The wheat harvest on a farm near Belgorod.© Provided by The Wall Street Journal. OTRADNAYA, Russia—Vladimir Mishurov transformed the remnants of the “Lenin’s Path” collective farm in this village into a profitable business. He also helped make Russia the world’s largest wheat exporter for the first time since the last years of the czars.

Over the past decade or so, Mr. Mishurov replaced his aging Russian equipment with a dozen high-tech machines from John Deere and other makers, and started using powerful new fertilizers and seeds. He bought and rented more acres from neighbors and family, eventually reaching about 3,600, taking advantage of Russia’s overall low prices for land.

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And as many farmers do in the U.S., he often worked days on end with little sleep, especially during the harvest.

The major difference between Mr. Mishurov and a farmer on America’s Great Plains: The Russian’s costs are lower, and mostly in rubles, making his overseas sales—priced in dollars—immensely more valuable.

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Amid a multiyear, brutal slump in grain prices, Russian agriculture is thriving. The country exported more than 40 million tons of wheat in the year ending June, around 50% more than the previous year, and the highest level for any country in the past quarter-century. Russia overtook the U.S. as the world’s biggest exporter of wheat in 2016, and again beat the U.S. in 2018.

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The growing Russian competition is one more pressure point threatening American farming, which is facing the biggest wave of farm closures in the U.S. since the 1980s. A global oversupply of grain has pushed prices down to around half the level in 2012, when prices peaked, making it difficult to turn a profit in dollars.

U.S. trade disputes with China and other countries could make Russian wheat even more attractive, if big buyers apply retaliatory tariffs to U.S. grains. China has added a 25% tariff on U.S. wheat, but Chinese restrictions on imports from Russia have prevented Moscow from taking advantage yet, according to Swithun Still, director at Switzerland-based Solaris Commodities SA, which trades Russian grain.

For now, “it’s not the trade war, it’s economics” that is helping Russian wheat compete, even in places close to the U.S. such as Mexico, Mr. Still said. Russian “quality got better, and it’s cheaper.”

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Russian farmers come out ahead when export earnings are converted into rubles. Since the Russian currency has depreciated, a dollar now converts to twice as many rubles as it did in 2014. Russia has a similar advantage against the euro and other currencies. Russian farmers can cover their costs at home to keep planting, and also undercut Western competitors on price.

Russia’s surge of agriculture exports, including grains, fish and meat, is part of an effort to diversify the economy away from crude oil. Oil and natural gas were once the source of half of federal budget revenues. With oil prices still down 25% from their high in 2014—recovering from a swoon of more than 60%—exports now account for around 40% of budget revenues.

“Given the fall in prices for oil, grain has come to the fore. Grain is our oil,” then-Agriculture Minister Aleksandr Tkachev said in 2016.

Less-expensive Russian wheat is pushing U.S. and European grain out of import-dependent countries in the Mideast and North Africa, where the Kremlin has made a military and diplomatic push for influence in recent years.

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Agriculture exports, at $20.7 billion in 2017, have overtaken the arms industry as Russia’s No. 2 earner. Wheat makes up about a quarter of the total.

Russia harvested an area of wheat almost twice as large as the U.S. in the year ended in June, according to the U.S. Department of Agriculture. American farmers, seeing little opportunity to profit, planted the smallest area of wheat since records began a century ago. U.S. wheat production shrank 25% in the year.

Mr. Mishurov’s farm is on the fertile steppe of southern Russia. The area is the country’s biggest grain producer—a bread basket known for its mineral-rich black earth and mild climate.

Now 46 years old, he spent his late teens and early 20s driving a bone-rattling tractor that needed its motor refurbished every year and left his hands callused. A lack of cash meant workers were paid in sacks of flour, wheat or sugar, and drunkenness was pervasive.

At the start of the 20th century, Russia had been the world’s largest exporter of wheat. The Soviets killed and imprisoned millions, including many of the most-successful farmers, as part of an effort to install a system of collective farming that proved inefficient. By the 1970s, the Soviet Union had to import grain.

Collective farms stumbled on after the Soviet Union collapsed in 1991, often still managed by the same bosses without business smarts or cash to invest.

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“No one was in charge,” said Mr. Mishurov. “They couldn’t adapt to the market economy. They were accustomed to unthinkingly following instructions.”

Farmhands worked “to pass the time of day until they could go home,” said Andrei Burdin, a farmer from a nearby village who works land that was once part of the “Dawn of Communism” collective farm. “Farming was at a dead end.”

Russia opened the land market at the end of the 1990s, but new investors and their managers tended to be far from the land and averse to risks, farmers said.

Mr. Mishurov, who worked as chief agronomist at a large farming conglomerate, recalled telling an executive in the early 2000s that using pesticide could increase the barley crop by around a quarter.

“ ‘No, Vova, it’s enough already,’ ” he said the executive replied, using a nickname. “Why should I persuade someone to earn more money?” Mr. Mishurov said.

He struck out on his own in the mid-2000s. At first, he pooled land with relatives and used whatever equipment he could lay his hands on. Today, he grows wheat, barley, beets, corn, sunflowers, peas and other crops.

Mr. Burdin, 43, started farming around 250 acres in 2005 with a dilapidated tractor and planter. He invested early profits into more-efficient vehicles and better fertilizer, and expanded territory by renting from neighbors.

“When we made the first money, I didn’t buy a Mercedes or an apartment,” he said. “I put it into the next season.”

At first, he bought Russian equipment, but later upgraded to John Deere tractors and combines, which the Russians call zelyonaya tekhnika, or “green machines.” Mr. Burdin said he tested a John Deere combine against a Russian one and found it produced about one-third more grain from the same area.

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He also added a planter from Sweden’s Vaderstad AB that shoots seeds into the ground at the optimal depth and intervals, improving yields. He now farms about 3,700 acres.

In April, while loading the planter with seed, Mr. Burdin joked with farmhands about equipment in the old days. He recalled working with a pesticide sprayer that would soak him with chemicals. He said he could only work for about four hours at a time before giving up, out of fear for his health. Now, his sprayer can measure how much pesticide to spray and where, keeping costs down.

The price of land in the region where Messrs. Mishurov and Burdin live is significantly lower than for many foreign rivals. On average, farmland in Romania, a European Union member on the Black Sea, is nearly three times the price, while farmland in Iowa and Kansas is more than five times the price, according to a 2017 survey by Moscow-based SovEcon, which provides consulting services, analysis and forecasts on Russian agriculture.

Mr. Burdin said Russian seeds and fertilizers still cost less than Western brands, even though they have improved significantly in recent years. He buys wheat seeds from a state-run agricultural institute, and can plant the seeds produced from those plants the next season. Many American farmers use expensive, high-yield, patented seeds from companies such as Bayer AG or DowDuPont Inc., which don’t allow the produced seeds to be planted, requiring farmers to buy fresh seeds annually.

Transport costs are also low for the region. It is close to Black Sea ports, and gasoline costs are much lower than in Western Europe. Mr. Burdin and Mr. Mishurov run their own fleets of trucks that move grain to the Novorossiysk port some 200 miles away by road.

Private and state-owned companies have modernized grain terminals in recent years and increased their capacities. Farmers can use an app on a smartphone to book a slot for their trucks to deliver grain, rather than the old system of having trucks wait in line for days.

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Bumper harvests are stretching infrastructure. Windows for unloading grain are snapped up quickly, and farmers are often assigned slots several days after a requested time, Mr. Burdin said.

Exports “could be even higher if they could figure out how to load more,” he said.

Russia has made it a priority. President Vladimir Putin ordered officials to tackle infrastructure bottlenecks that are holding back exports. In inland areas, large distances and a lack of train cars and storage silos hamper grain from reaching external markets.

One of Russia’s largest terminals in Novorossiysk is completing a three-year modernization this year that will nearly double its capacity. Other companies have announced plans to build or expand terminals on the Black Sea, the Baltic Sea in the north and in the Far East. Officials said expansions at ports could increase export capacity of grains by 50% to 7.5 million tons a month by 2020.

Government officials tout the importance of state subsidies, including inexpensive loans to help farmers replace old equipment. Analysts and farmers say the state’s efforts to support agriculture have been hit and miss. Subsidies often make their way to well-connected companies, investment in infrastructure has been slow and bureaucrats and other officials often expect bribes.

“Farmers received the freedom to do business in the way they thought most efficient,” said Andrei Sizov Jr., managing director of SovEcon. “The role of the state was quite muted in the last 10 years, and that was good for the industry.”

Giant agroholdings, conglomerates often created by wealthy tycoons or people close to top federal and regional government officials, have built up spreads that dwarf Western farms. Individual farms larger than 250,000 acres, or nearly 400 square miles, account for around 13% of all land farmed in Russia, according to Mr. Sizov.

Mr. Mishurov can now afford to collect and restore a half-dozen vintage Soviet cars and vacation in the Maldives and Thailand, although he said he prefers staying home.

The poor villages here depend on the generosity of wealthier farmers. Mr. Mishurov funded renovations to his village’s statue of Lenin and a monument to locals who died in World War II, while Mr. Burdin paid to fix up his village’s kindergarten.

Mr. Mishurov employs 10 farmhands, three guards and a cook who prepares meals for the workers. “It’s a lot for our acreage, but we try to preserve jobs in the village,” he said. One recent morning, a man dropped by Mr. Mishurov’s farmyard office to cadge a bucket of corn for his hens. It was a former collective farm boss.

Write to James Marson at james.marson@wsj.com

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