Since the Russian embargo on European food was enacted in 2014, Russia has been witnessing a surge of growth as new farms work to produce healthy food to meet the demands of cities with over a million residents.
This growth is enhanced, not only by the lack of competition from European producers, but also by legislation that creates incentives for farmers, even those who are foreign citizens.
What are the main advantages for farmers in Russia?
Russia attracts foreign farmers with inexpensive land. Justus Walker, an American who moved to Russia more than 10 years ago, today runs and owns a family farm in the Altai region where he breeds goats and makes cheese. “The most important piece of infrastructure for a farmer is the land. Even by South American standards, not to mention global standards, land in Russia costs peanuts,” says the farmer.
“Russia has very fertile land. You can grow anything here, you just need the desire. Even the winter is not an impediment since you can use greenhouses,” notes Sim Oyra, a Russian farmer with Korean roots who grows watermelons and melons in Bashkiria.
The absence of competition is also an important factor. “Since our generation of farmers is pioneering new agricultural methods, the market is practically empty, which gives you a certain competitive edge,” explains Olga Karogodina, co-founder of the Superfood Farm greenhouse business near Moscow.
What benefits do farmers receive in Russia?
First, beginning in 2017, startup farms have the right to apply for subsidies and, if their application is approved, they will receive state assistance, says David Kapianidze, the Director of Fiscal Services at BMS Law Firm. There is also the “Beginning Farmer” program, which allows qualified parties to receive a grant for developing their own agricultural business.
Additionally, according to Kapianidze, farmers can also apply for most of the benefits designed for small business. For example, small enterprises can use simplified accounting and have the opportunity to purchase state and municipal land that they have been renting.
Finally, entrepreneurs who open a business in Russia for the first time can expect to receive a tax break for a period of up to two years. “For them, there is no VAT on developing improved techniques and breeding lines for pigs, bulls, sheep, rams, and stallions, or embryos for cattle, pigs, sheep, goats, and horses,” adds Kapianidze.
Can foreign farmers receive benefits in Russia?
All the listed benefits apply to companies where authorized foreign investors own no more than a 49 percent stake in the company. Currently, authorities are looking for ways to increase this figure. For now, this means that if you are not a Russian citizen you will have to find a partner with a Russian passport to receive these benefits.
This is what Daniel Lawrence did. In 2014, he opened a greenhouse business called Superfood Farm near Moscow with his Russian partner, Korogodina. “We did not register the business as a farm since this involves strict requirements. We chose an LLC formation and created a shareholders agreement,” Korogodina told RBTH. Today their company is part of a simplified taxation scheme.
Regarding state subsidies, foreigners can only expect to obtain these if the company is registered in the name of a Russian entity. This is what French entrepreneur Patrick Hoffman did. He does not have Russian citizenship, but for the last 10 years he has been developing methods of breeding pigs in Russia and owns the Otrada Farm in the Lipetsk Region. “Like any Russian company, Otrada is eligible for interest subsidies. We have now been paid these subsidies for 10 years in a row,” Hoffman told RBTH. “Due to the efforts we have made in developing local swine genetics, we have also been recently granted a specific one-shot subsidy of 230 million rubles by the Ministry of Agriculture.”
What kind of credit options are available for farmers in Russia?
Opportunities for farmers to access credit are growing in Russia. In 2016, small- and mid-sized agricultural businesses were granted more than 9,200 loans for an amount totaling 191.5 billion rubles, which exceeds the amount lent in 2015 (183.7 billion rubles), said the Rosselkhozbank press service. This bank cooperates with the Russian Ministry of Agriculture and is one of the top four banks in the country.
Rosselkhozbank has its own special credit line “Become a Farmer,” which offers amounts of up to 15 million rubles for a period of up to 10 years. Moreover, there is state support that grants reimbursements for a portion of capital expenditures to be distributed among small- and medium-sized enterprises, added the bank’s press service.
What obstacles do foreign farmers face?
Despite the cheap land, Russia’s infrastructure is underdeveloped, says Korogodina. Another challenge, in her words, is the complete absence of qualified and diligent workers. “There is no commodity market for local produce since buyers still don’t fully understand the difference between locally-produced goods and imports.”
Another problem farmers face in Russia are the officials and bureaucrats, remarks Oyra. “They don’t produce anything themselves but love putting spokes in your wheels. The land for them is just another source of profit since it can be sold and developed,” he complains.
Walker is convinced that if you want to develop your own project in Russia, you should not count on state support. He himself did not receive grants or subsidies since almost all of these benefits are designated for Russian citizens. “An average small farmer can produce quality products at a price that is not much higher than the one found in supermarkets,” he explains. “There will be a demand for it and it will have a competitive edge in relation to those from big ag holdings. The most important thing is for the government not to get in our way.”
Maria Karnaukh and Stanislav Shakhov participated in the preparation of this article.