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Russia’s agriculture sector continues to BOOM in face of Western sanctions

A major economic shift unremarked by the West, while multiple production dimensions come on line.

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Much is written about the vast strides Russia has made in matters agricultural. The many different Cheese types that were previously imported are now largely produced in Russia. The gains are across the edible board, from poultry, fish and pork through to fruits, vegetable and grains. Grains specifically have shown strong and steady growth due to increased investment as well as using the latest management and production technologies.

For example, wheat harvests in Russia are now not only satisfying Russia’s national demand, but also form a significant and steadily increasing part of the country’s global exports. In Soviet times, world traders and specs eagerly awaited the announcement of the wheat harvest or its forecast potential. To those punters on the world’s futures exchanges it usually signaled how much the USSR will BUY over the coming year to meet its internal needs, as they didn’t ever SELL. That has radically changed, much like the country, its direction, politics, beliefs, abilities and its people.

One small but glaring opportunity gap in this growth curve has only recently come to active investor attention, and is finding real support from the financial institutions in Russia. This gap is in the range of products and ingredients derived through the deeper processing of raw materials, in this case grains. These little known, not off-the-shelf products are an essential part of the processing and manufacture of almost all foods and beverages, and a number of pharmaceutical products, even textiles.

These ingredients are exclusively obtained through deep processing and treatment of wheat and other grains. They include dry wheat gluten, modified starches, glucose-fructose syrup, molasses, and feed mixtures (as a by-product of the technological process).

These products are widely used for not only food production, but also pulp/paper manufacturing, in low-alcohol and beverage industries, pharmaceuticals, cosmetics, animal husbandry and in several other industrial sectors. The demand for these products both domestically and in the global markets is strong and continually growing.

In general, only 10-12% of such ingredients are produced in Russia while 88-90% must still be imported. The irony of the situation is that one of the major raw materials used to produce these products is wheat, which has been steadily growing to large surpluses these past several years. Today several multinational firms involved in agricultural processing like Cargill, Archer Daniels, L. Dreyfus and several Asian groups have already started either through M&A or through investing in their own processing to begin filling this void inside Russia.

Russian agricultural companies have been quite active too, as deep processing of grain results in products with far higher economic benefit than simply selling raw material or milled flour/starch. Establishing such deep processing projects also addresses the challenge of partial or even complete import substitution. These valuable and increasingly demanded ingredients can easily use even extremely low grades of wheat as perfectly suitable raw materials, which without deep processing are close to valueless.

One example is a start-up in the Kursk region, which is part of the famously fertile “black earth” area of Russia. The company, a 100% Russian start-up called OOO “InnPromBioTec” is a group of young and experienced professionals in the food processing industry. Their expertise has ranged from implementing and successfully commercializing production of food ranging from low-fat mayonnaise to fermented “kvass” (a traditional Russian grain based beverage), as well as oil from various grains. Today they are in the process of establishing a technologically cutting-edge deep wheat processing facility in the middle of this grain rich region.

With sanctions in place, while they officially do not impinge of food production or foodstuffs, they do and have affected the attitudes of traditional investors in the USA and the EU, not to mention the non-Russian banks. There is a palpable fear among the potential and logical investment partners in both the EU and US not to bend, therefore dismissing profit, rather than risk forging ahead and perhaps facing politically unstable censure from their own countries.

This Kursk based company therefore shifted its focus to the Far East, specifically China, Japan, Thailand, Korea and possibly India. This, while the most cost effective points of export realization and ready markets demanding such deep processed products are next door in Europe, who also import, albeit to a lesser degree, to meet their production requirements.

From an economic perspective, projects such as InnPromBioTec’s are attractive, especially in today’s markets. The capital required for such technologically intensive production is about 150 million Euro equivalent to process 250,000 tons per annum. Russian banks are willing and prepared to lend fully 80% of the needed capital as project financing, and the government affords a number of easements and incentives to make such projects as riskless and transparent as possible as they are considered a national priority, and are therefore quite secure and problem free.

Projects like this are not immediately operational, they must be planned as well as built from scratch, and this has been the bane of long term investing in Russia. Local investors want huge returns on their money and they want it almost immediately, therefore Greenfield projects have tended to suffer neglect.

Projects like deep wheat processing have a very long productive lifecycle, measured sustainably for decades with their products in perpetual and growing demand. Typically, the discounted payback period is from 6 – 7.5 years, with an internal rate of return of approximately 40%, profit margin realistically near 50%.

It looks like Russia’s steady economic evolution away from simply exporting raw materials, but opportunities to deepen the dimensions of production will be financed by visionary, practical and pragmatic Asia. The products of which inescapably will be demanded and consumed by Europe one-way or another, if only because of the secure price of proximity.

At a deeper level, this one project example is indicative of many similar projects coming into being throughout the length and breadth of Russia. The vast soybean farms in the southern parts of the Russian Far East have historically simply sold and shipped the harvests unprocessed across the border into Asia. Today, projects are starting up to add value to these crops by processing some of the myriad products obtained from soybeans both for internal consumption as well as for ready export markets literally next door.

The list goes on, with one of the longest coastlines on the planet (23,000+ Miles), the opportunities for fish, mollusk and crustacean farming is vast. The relatively low cost of energy in Russia and no shortage of fresh water also allows for controlled environment farming regardless of climate, be it hydroponics, greenhouses or commercial scale urban agriculture year round. All of these opportunities afford similar value added dimensions through processing and producing market ready finished goods.

On reviewing Russia’s economic path it is worth noting that it has managed to rebalance its exports from 70 percent energy in 2013 to 59 percent in 2017, according to the World Bank. As of this writing, the budget is again in surplus, and government debt stands at a notable 33% of GDP, the lowest among all of the G20 nations. Inflation is now running at a record low of 2.4% year-over-year, well below the CBR’s target of 4% and food inflation despite sanctions is close to 0%. Simply to contrast, and yes, sizes and volumes do make a difference, so just to cherry-pick: The S&P 500 Index is up just a tad over 13% for the past year, while at the same time the MOEX Russia Index has shown 21+% growth with an attractive 6.46% dividend yield, compared to 1.94% for U.S. stocks.

A major economic shift is occurring as secondary, tertiary production, manufacturing and the support and services infrastructure businesses establish and develop inside Russia. Some projections indicate that in these new business areas Russia will show a sustainable 5-6% year on year growth from 2018 – 2020, and perhaps greater. Incredibly, it is woefully under-reported even by the international financial press.

These secondary and tertiary industries have been historically left to the outside world to import into Russia. Be it in agriculture, textiles, machinery or oil patch technologies, Russia is now steadily filling these internal niches, and the opportunities for investors today have vastly expanded into many previously ignored dimensions. It only requires the business will and clarity of “blinders-free” vision to investigate, get involved and step up to the table.

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WalterWayne BlowfoxenburgGano1William Reston Recent comment authors
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Walter
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Walter

Sanctions against Russia are a big laugh. Sanctions are a big loss to EU countries who want them ended. Maybe the Putin-Trump meeting next month will correct this problem.

Walter
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Walter

Why are my comments not published??

Walter
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Walter

Why are my comments not published ???

Wayne Blow
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Wayne Blow

Go Russia, beats gas pipes and bomb making eh ??

foxenburg
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foxenburg

You say Russia is short of, inter alia…..dry wheat gluten, modified starches, glucose-fructose syrup, molasses.

The Russians would be wise to steer clear of this obesity-inducing Western crap.

Gano1
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Gano1

Farm machinery is selling well too, they build some very good machinery and it is cheaper than Western junk.

William Reston
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William Reston

As usual, excellent insights Mr. Goncharoff. Your opinion articles are a breath of fresh air and a wonderful truth window into Russia for all of us “out here” in the States. Thank you!

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James Woods Suspended From Twitter Over Satirical Meme That Could “Impact An Election”

James Woods crushes Jack Dorsey: “You are a coward, @Jack.”

Alex Christoforou

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Via Zerohedge


Outspoken conservative actor James Woods was suspended from posting to Twitter over a two-month-old satirical meme which very clearly parodies a Democratic advertisement campaign. While the actor’s tweets are still visible, he is unable to post new content.

The offending tweet from July 20, features three millennial-aged men with “nu-male smiles” and text that reads “We’re making a Woman’s Vote Worth more by staying home.” Above it, Woods writes “Pretty scary that there is a distinct possibility this could be real. Not likely, but in this day and age of absolute liberal insanity, it is at least possible.”

According to screenshots provided by an associate of Woods’, Twitter directed the actor to delete the post on the grounds that it contained “text and imagery that has the potential to be misleading in a way that could impact an election.

In other words, James Woods, who has approximately 1.72 million followers, was suspended because liberals who don’t identify as women might actually take the meme seriously and not vote. 

In a statement released through associate Sara Miller, Woods said “You are a coward, @Jack,” referring to Twitter CEO Jack Dorsey. “There is no free speech for Conservatives on @Twitter.

Earlier this month, Woods opined on the mass-platform ban of Alex Jones, tweeting: ““I’ve never read Alex Jones nor watched any of his video presence on the internet. A friend told me he was an extremist. Believe me that I know nothing about him. That said, I think banning him from the internet is a slippery slope. This is the beginning of real fascism. Trust me.”

Nu-males everywhere non-threateningly smirk at Woods’ bad fortune…

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Another witness named by Ford becomes third person to deny being at party

A woman believed to have been one of five people at a party 35 years ago where Ford claims she was assaulted by Kavanaugh is now the fourth person to deny being at any such party.

The Duran

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Via The Washington Examiner


A witness, reportedly named by Christine Blasey Ford as one of the people at the high school party where Supreme Court nominee Brett Kavanaugh allegedly sexually assaulted her, told the Senate Judiciary Committee on Saturday she was not there.

The attorney for Leland Ingham Keyser told the Senate Judiciary Committee that Keyser does not remember being at the party Ford described as the location of the alleged assault.

“Ms. Keyser does not know Mr. Kavanaugh and she has no recollection of ever being at a party or gathering where he was present, with, or without, Dr. Ford,” Keyser said in the statement. CNN reported Keyser is a lifelong friend of Ford’s.

Keyser, whom the New York Times reported is one of the people Ford named as being in attendance at the party, is the third witness who has denied knowing about the alleged assault. Mark Judge and Patrick Smyth said earlier this week they did not remember the party in question.

Kavanaugh has denied Ford’s allegation.

The news comes after Ford, through her attorneys, tentatively agreed to testify on Thursday, after days of negotiations over the timing and conditions of her

Committee chairman Sen. Chuck Grassley, R-Iowa, had repeatedly extended deadlines set for Ford’s team on the decision, including three on Friday and one at 2:30 p.m. Saturday. Grassley threatened to proceed with a committee vote on Kavanaugh’s nomination Monday if he did not hear from Ford.

“Five times now we [have] granted extension for Dr Ford to decide if she wants to proceed [with] her desire stated one [week] ago that she wants to tell senate her story,” Grassley tweeted Friday. “Dr Ford if u changed ur mind say so so we can move on I want to hear ur testimony. Come to us or we to u.”

The extended discussions have been labeled a delaying tactic by some Republicans.

Ford’s attorneys and Grassley’s aides will reportedly continue negotiations Sunday on the details of the conditions of Ford’s testimony, per the New York Times.

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Was NYT Story About Rosenstein ‘Coup Attempt’ A Setup?

The New York Times is reporting that Rod Rosenstein pushed a plan to record President Trump and invoke the 25th Amendment to remove Trump from office.

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Via Zerohedge


Is the FBI trying to goad President Trump into firing the man in charge of supervising the Mueller probe? That’s what Sean Hannity and a handful of  Trump’s Congressional allies think.

According to a report in Politico, Republicans in Congress are approaching a story about Deputy Attorney General Rod Rosenstein attempting to organize a palace coup with extreme caution, despite having twice nearly gathered the votes to remove him in the recent past.

On Friday, the NYT reported a bombshell story alleging that Rosenstein had tried to recruit administration officials to secretly tape conversations with the president in order to help justify removing Trump under the 25th amendment. Rosenstein vehemently denied the story, which was largely based on confidential memos written by former Deputy FBI Director Andrew McCabe. And others who were reportedly in attendance at meeting between McCabe and Rosenstein said the Deputy AG was being “sarcastic” when he suggested that the president be taped.

Meanwhile, Trump allies including Ohio Congressman Jim Jordan and Florida Congressman Matt Gaetz are saying that the story should be treated with suspicion. Jordan and Freedom Caucus leader Mark Meadows once filed articles of impeachment against Rosenstein. But now, both Meadows and Jordan intend to proceed with caution, telling Politico that he would like to see the memos that the story was based on.

House Freedom Caucus leaders Mark Meadows and Jim Jordan, who led a charge to impeach Rosenstein this summer, have said they want to hear from Rosenstein and see documents allegedly describing the comments before they decide what to do.That’s awarded Rosenstein a courtesy they’ve never given him in the past.

“I think Rod needs to come before Congress this week and explain under oath what exactly he said and didn’t say,” Meadows said at the Values Voters Summit Saturday.

The newfound hesitation to oust Rosenstein highlights a cautious approach Trump allies have adopted as the Republican party barrels toward a potential bloodbath in the midterms. Some Republicans fear Trump firing Rosenstein now would only further energize Democrats making the case to voters that the president is corrupt and needs to be reined in by a Democratic House.

[…]

In a Friday interview, Jordan, one of Rosenstein’s fiercest critics in Congress, sidestepped questions about whether the House should revisit Rosenstein’s impeachment or try to hold him in contempt of Congress. Rather, he said, a more focused push to obtain sensitive documents from the Justice Department — which Trump’s allies say would expose anti-Trump bias and corruption the FBI — is the most urgent priority.

“I want to see those memos and evaluate them,” said Jordan, who has clashed publicly with Rosenstein over access to documents and accused him of threatening House Intelligence Committee staffers, an allegation Rosenstein denied.

Politico cites two possible explanations for lawmakers’ hesitation: Republicans are running out of time before members devote themselves full-time to their reelection campaigns. Republicans are worried that the story could have been intentionally planted to provoke Rosenstein’s firing in order to improve Democrats’ chances of retaking the Senate AND the House (Trump actively moving to crush the Mueller probe would be quite the propaganda win for the Dems).

Sean Hannity took this latter theory a step further during his show on Friday evening, where he urged Trump not to fire Rosie and instead insisted that the story could have been a “trap”. He added that he had been told by “multiple sources” that the story was planted by unspecified “enemies of Trump.”

“I have a message for the president tonight,” Hannity said Friday night. “Under zero circumstances should the president fire anybody…the president needs to know it is all a setup.”

Still, a handful of conservative commentators, including Laura Ingraham, urged Trump to fire Rosenstein immediately. And for Trump’s part, he hinted at a rally Friday night in Missouri that he planned to “get rid” of the “lingering stench” at the DOJ, which many interpreted as a hint that his firing is imminent.

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