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. Last Updated: 07/27/2016

Stavropol Farmer Reaps Benefits of Inflation

MTA row of harvesters parked at the Ternovsky farm. Located 100 kilometers northeast of Stavropol, it is roughly half the size of Andorra and employs 600 people.
TRUNOVSKOYE, Stavropol Region -- Ivan Bogachyov says the rapid growth of food prices this year saved his farm.

"If prices hadn't risen, that would have been the end of agriculture," said Bogachyov, director of the Ternovsky collective farm, which sprawls over 20,000 hectares of southern Russia.

Here in the country's agricultural heartland, the outlook on rising food prices is markedly different than it is in the cities, where price increases became a much-discussed topic in the recent State Duma elections and even sparked a street protest of 1,500 people in St. Petersburg in November.

Over the first 10 months of 2007, the price of bread went up 21.3 percent, the price of butter rose 31.9 percent and the price of sunflower oil grew a whopping 47.9 percent, according to a report released by the Economic Development and Trade Ministry in November, the most recent month for which data are available.

The price increases -- which have been especially hard on pensioners -- are part of a global trend. In particular, grain prices have reached record highs this year, driven by factors such as the growing world population, increased demand for biofuels and drought in major wheat-producing countries such as Australia.

And Russia isn't the only country where rising food prices have spurred protests: In September, activists in Italy called for a one-day pasta boycott after pasta prices jumped by as much as 20 percent in two months.

But what has hurt consumers has meant bigger profits and increased investment in Russian agriculture, which has often seemed to be in dismal condition since the collapse of the Soviet Union in 1991.

Alexander Osipovich / MT
Bogachyov, still energetic at 78, rules this small agrarian empire from an office decorated with a portrait of Lenin.

Five years ago, 55 percent of Russia's big farms operated at a loss, and as recently as last year, about one-third were still unprofitable, according to the State Statistics Service. This year, that number has dropped to about 25 percent, based on data available through August, according to Agro-Business, a monthly trade journal.

Dmitry Rylko, head of the Institute for Agricultural Market Studies, argued that the improvements amounted to more than a peak in the business cycle. "Conventional wisdom around the world is that these prices are here to stay," he said. "So that creates hope that development will continue."

Alexander Osipovich / MT
Andrei is pleased with growing wages.
Nikolai Lychyov, editor of Agro-Business, said the big winners had been wheat and sunflower growers -- some of whom have reported 100 percent profits -- while meat producers are struggling, since the price of meat has not grown as rapidly and since most of their expenditures are on grain-based livestock feed.

"In general, meat producers are losing money while crop growers are profiting," said Lychyov, whose journal is published by Independent Media Sanoma Magazines, the parent company of The Moscow Times.

High prices have been good news for companies like Agro-Invest, an agribusiness backed by foreign investors that has plowed money into modernizing farms in seven Russian regions, mostly in the south.

Boris Rozenvald, a spokesman for Agro-Invest, said the company had revised its estimates for when its farms would begin to turn a profit. Farms that were expected to become profitable in eight years are now expected to make money in six, he said, adding that the improvements had caught the eye of private investors.

Alexander Osipovich / MT
Some of the newest additions to the Ternovsky collective farm's herd of 12,000 pigs. With growing food prices, it has been a good year for the farm: It made a profit of 94 million rubles, or $3.8 million, more than double the amount from 2006.
"Agribusinesses are becoming more attractive to banks that want to invest in them or loan them money," Rozenvald said.

Total investment figures for the agriculture sector are not yet available for 2007, but experts point to promising signs. Imports of agricultural machinery are up by more than 10 percent compared with last year, Rylko said.

Much of the investment has come from the government's "national project" to improve the state of Russian agriculture, headed by First Deputy Prime Minister Dmitry Medvedev, whom President Vladimir Putin endorsed as the next president last week.

Critics of the national project, which helps farmers in the form of subsidized loans from commercial banks, say it is illogical, supporting both efficient and inefficient producers. Lychyov, the editor of Agro-Business, said many smaller farms taking out loans from the national project would not be able to pay them back, which could lead to foreclosure.

Alexander Osipovich / MT
Bogachyov visiting with workers at the farm's cafeteria. The average salary has shot up 41 percent from last year.
Bogachyov, who has headed the Ternovsky collective farm for more than 30 years, said the national project's loans came with unattractive conditions. For instance, a bank might require him to spend a loan on machinery and then punish him if he used it to pay salaries, he said.

Luckily, it has been a good year for Bogachyov's farm: It made a profit of 94 million rubles, or $3.8 million, which is more than double the amount from 2006. The rising cost of fuel and fertilizer took its toll, but overall Bogachyov said he was satisfied with the year's results.

"I don't have to ask anyone for anything," he said. "We live on our own funds. I just bought eight tractors."

Though he criticized the national project, Bogachyov stressed that it represented an improvement over the 1990s, when the state neglected agriculture and his farm barely stayed afloat. "Letting things fall apart was a crime," he said.

Located 100 kilometers northeast of Stavropol, the Ternovsky farm is roughly half the size of Andorra, employs 600 people and is also home to 12,000 pigs.

Bogachyov, who is still energetic at 78, rules this small agrarian empire from an office decorated with a portrait of Vladimir Lenin. Besides managing the farm, he represents the Communist Party in the Stavropol regional legislature.

"You're probably going to write about this with irony because you're a capitalist," he told a reporter upon entering his office. "But here I am, a real living communist, a supporter of Vladimir Ilyich Lenin."

Despite his adherence to Leninist ideals, Bogachyov spoke knowledgeably about free-market economics and European farm subsidies as he tooled around his farm in a Chevrolet sport utility vehicle, stopping occasionally to greet groups of farm workers.

"Look at these ladies. Aren't they beautiful?" he asked after pulling up to a group of female workers.

It is unclear how much the current upswing in agriculture will help Russia's ordinary rural dwellers, who have long suffered from poverty and high rates of alcoholism. But Rylko, the agriculture analyst, said benefits should trickle down to ordinary farm workers because they are typically paid a share of the profits.

At Bogachyov's farm, the average monthly salary has grown 41 percent from last year thanks to profit sharing. But it is still less than $390 per month.

Andrei, an employee at the Ternovsky farm, expressed satisfaction -- if not enthusiasm -- when asked about his salary. "We don't earn as much as they do in the towns, of course," Andrei said. "But it's enough to get by in the village."