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. Last Updated: 07/27/2016

Sowing the Seeds for the Rebirth of Farming

ROGOVATOYE, Southern Russia -- Change is afoot at the Rogovatoye farm, 11,200 hectares of fertile fields and cow pastures in this southwestern corner of Russia.

Farm managers show off new purchases: a stainless-steel Swedish milking line, a Danish flour mill, new American and Russian combines. But for Tamara Zhelnikova, 50, a milkmaid with a kerchief on her head and thick felt boots inside her galoshes, the biggest improvement is a strip of concrete.

"This," she said, pointing a calloused finger downward as she walked from her cows to a washing station, "used to be mud."

The pavement that lifted Zhelnikova out of the muck is emblematic of the quiet but profound changes rolling through Russia's huge agricultural sector.

For the first time in nearly a century, Russian entrepreneurs are beginning to work the land as a business. A big business.

"Those with money are now investing in agriculture," said Yevgenia Serova, an economist specializing in agriculture at the Institute for the Economy in Transition in Moscow. "This is a very clear trend in the economy, and it is business motivated."

The evidence is in this year's grain harvest, nearly completed and weighing in at a robust 83 million metric tons, back to the levels before the Soviet collective-farm system collapsed. It can also be seen in the bustling new market for farm equipment: John Deere, the American machinery maker, says sales in Russia have increased tenfold this year.

Russia was among the world's largest grain exporters around 1900, but it became a net importer under the Soviets.

Though the surplus this year is relatively small and is unlikely to affect European and U.S. producers, many industry analysts expect excess volume in Russia to rise in the coming years along with investments in farmland and export capacity. Russia remains an importer of meat and dairy products, though local production is rising.

It is too early to call this a turnaround, but it does reflect the first big positive changes in a sector that has been Russia's poorest and least reformed in the decade since communist rule and the Soviet Union disintegrated.

The collective system, brutally imposed on the countryside by Stalin in the late 1920s and early 1930s, brought mechanization and economies of scale, but it was allowed to decay in the 1970s and 1980s and became hugely wasteful and inefficient.

After 1991, supply and marketing networks broke down, and the state, weakened by the chaos of economic transition, withdrew financial support. Forbidden to sell their land and unable to borrow against it, the farms struggled in vain to make their payrolls and pay their bills.

Soon, unpaid workers were pilfering everything from milk to gasoline to tractor parts, and many of the ablest were migrating to cities. By 1998, 84 percent of Russia's farms were bankrupt, and over the last decade one-third of Russia's farmland was simply abandoned.

Rogovatoye, though working, was little more than signposts, rusting equipment and old debts when Metalloinvest, a Moscow-based holding company with a metals plant nearby, decided to take it over.

Businesses are cobbling together land holdings even though parliament has not yet passed legislation to allow ownership of farmland to change hands.

Metalloinvest is technically leasing the farm from the collective's former members and paying them with grain supplies.

But in practice, Metalloinvest controls the farm, and it spent $70 million last year overhauling Rogovatoye and 23 others that it has taken over in three Russian regions, including Belgorod, which encompasses Rogovatoye.

The metals company, awash with cash and looking for places to invest it, says farming is now worth the risk. A ruble devaluation three years ago drove up the prices of imported food, clearing the market for domestic producers, and tax breaks have sweetened the situation further, making it economically viable to build a business selling farm produce to Russia's food industry. The first profits are expected in a few years, when investments in equipment and cleanup begin to pay off.

"We're not a charity," said Nikolai Klyuka, the president of Stoilenskaya Niva, the farm management company that he jointly owns with Metalloinvest. "We did all the calculations, and found that it would be profitable."

The farm was in such sorry shape that even simple improvements like paving the walkways, upgrading cattle feed, having fertilizer delivered at the right time and buying new combines made a huge difference. The farm's grain harvest doubled this year, to 15,635 tons, and milk production is up 50 percent.

Rich energy and metals companies are important new investors in farm country, but not the only ones.

Two hours drive west of Rogovatoye, a budding agribusiness is bringing in its first harvest. The company, Rusagro, began as a sugar trading house trying to cope with erratic deliveries; now it is investing "upstream" in farms of its own to lock in a steady supply of sugar beets.

Reliable labor is the biggest problem on its farms, said Yury Kostyuk, Rusagro's chief of farming. Stealing to survive and drinking are such ingrained habits, he said, that it takes a former army tank commander like him to keep workers in line.

Some new farm investors, like Agrico, a grain startup in the Krasnodar region, have given up on hiring locals for important positions on their farms, and have flown in Israelis to do the work instead.

"These farms were lying on their sides -- everything about them was bad, beginning with the management," said Kostyuk, whose regional headquarters buzzes with Muscovites using mobile phones and computers. "There was no discipline. Motivation was zero."

Big hurdles remain. The new investors will have to grapple with the social legacy of Soviet times, when collective farm management ran schools and social services.

The company that took over a small seed farm in the Kursk region has, for example, been obliged to pay for funerals for destitute residents.

"We do what we can afford, so as not to lose those who are able-bodied and willing to work: small repairs at the school, partial financing for gas supplies to homes," said Alexei Koshenkov, manager of the seed farm. "But for business, this is craziness."

The entrepreneurs now rushing into farming have themselves not set a pattern of tightfisted cost control. Klyuka's new office building at Rogovatoye, glittering with tinted windows, polished stone floors and chandeliers, would raise eyebrows on Western corporate farms.

Following the trajectory of past booms in other businesses, some of the new farm entrepreneurs will probably prove to have taken on too much, too fast.

Speaking of all the farmland that Metalloinvest controls, which, at 280,000 hectares, is the largest private holding in Russia, one of Klyuka's many suppliers recalled an old Russian saying: "If you step too widely, your pants will rip."