Aug 31 2008
A land rush in rural Russia
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PODLESNY, Russia : The fields around this little farming enclave are among the most fertile on earth. But like tens of million of acres of land in this country, after the collapse of the Soviet Union, they literally went to;seed. A decade after capitalism transformed Russian industry, an agricultural revolution is stirring in the countryside, shaking up village life and sweeping aside the collective farms that resisted earlier reform efforts and remain the dominant form of;agriculture.
Now that may be changing. Together, they have created a land rush in rural;Russia.
The transformation is being driven by soaring global food prices (the price of wheat alone rose 77 percent last year) and a new change allowing foreigners to own agricultural land.
As a result, the business of buying and overhauling collective farms is suddenly and improbably very profitable, attracting hedge fund managers, Russian oligarchs, Swedish portfolio investors and even a descendant of White Russian émigré;nobility.
“Where else do you have such an abundance of land?” Samir Suleymanov, the World Bank's director for Russia, asked during an;interview. But the new business model rests on a belief that Russia's long, painful history of collectivization is destined to end in large, corporate factory;farms.
Earlier reformers envisioned the collective farms eventually breaking up into family farms. Some officials have hinted at the prospect of a government takeover of the farming industry reminiscent of the Soviet;era.
These investments are also a gamble in a country accustomed to government control of business. “Russia is very often perceived throughout the world as a major military power,” he said at a food summit meeting in Rome early in his tenure.
And the Russian minister of agriculture, Aleksey Gordeyev, speaks often of food in terms of national security.”
Russia occupies an unusual niche in the global food chain. “At the same time, and perhaps above and beyond anything else, Russia is a major agrarian;power.
Today, roughly 7 percent of the planet's arable land is either owned by the Russian state or by collective farms, but about a sixth of all that agricultural land - roughly 35 million hectares, or about 86. Before the Russian Revolution and the subsequent forced collectivization of farming under Stalin, it was the largest grain exporter in the;world. By comparison, all of Britain has six million hectares of cultivable;land.5 million acres - lies fallow.
Crop yields in Russia, however, are tiny.
Even excluding the slivers of land contaminated by the Chernobyl disaster or by industrial pollution, Russia also has millions of hectares of untouched, pristine land that could be used for;agriculture.85 tons a hectare - compared with 6. The average Russian grain yield is 1.04 in;Canada.04 in;Canada.
If Russia could regain its old title of leading grain exporter, it would significantly relieve strained world markets and reduce prices, Suleymanov of the World Bank said. It could also reduce malnutrition and;starvation.
What is more, a significant expansion of farming capacity could add to Russia's heft as a world power, much as its prowess in oil and natural gas aided its resurgence in recent;years.
“The great story of this land is how big it is,” said Kingsmill Bond, chief analyst at Troika Dialog, a brokerage house in Moscow. Troika is closely watching the transformation of the Russian countryside into an investment opportunity. “You can't buy anything like it anywhere else in the world,” he;said.
Analysts say the new companies dedicated to breaking up and changing collective farms hope to bring huge tracts of land into production - tracts that can take advantage of economies of;scale.
The last attempt at decollectivization, under the government of President Boris Yeltsin, failed in part because collective farms devolved into small holdings. Those who made the leap to become private farmers failed. The rest remained in the collective;farms.
Some trade and agriculture specialists say there is still a danger that a country like modern Russia, which jealously guards its natural resources, could one day renationalize farms or form a cartel that dictates to;landowners.
Clearly, that fear is not foremost in investors' minds. Land prices have roughly doubled in the past two years, according to Troika. The average price per hectare was $570 in 2006 and is now $1,000, Bond;said.
One of the first investors to see value in the Russian countryside was Michel Orloff, a former director of the Moscow office of Carlyle Group and the scion of a White Russian noble family. He said a visit to Argentina in 2004 inspired him. He saw large landowners making profits without government subsidies and envisaged a similar model for Russia that would hark back to the noble estates of his family history, only lubricated by modern;finance.