Agibusiness in Siberia

Siberia Agribusiness Industry Overview

Prepared by Azim Mamanov, BISNIS representative in Novosibirsk

October 2006

Summary

Agribusiness in Siberia plays important role in Russian economy. Having rich resource base for raw milk, pork, beef, and grain, Siberia attracts investments in agribusiness. A large number of meet-processing and dairy plants are operating in the region. There are numerous opportunities for US companies in the industry such as investing in construction of production facilities, providing modern services and technologies in breeding and exporting modern equipment for agribusiness.

Agribusiness Development National Project

The Russian Federal government is actively participating in implementation of the Agribusiness Development national project in Siberia. The national project is aimed at stimulating the development of agribusiness by:

a) Reducing the interest rates (2/3 of refinancing rate set by the Russian Central Bank) for up-to-8-year- loans from commercial banks for farms construction and renovation projects. The Federal government has allocated RUR 3.45 billion (approx. US$128 million) in 2006, and plans to spend RUR 3.18 billion (approx. US$118 million) in 2007 to reduce the rates.

b) Stimulating leasing operations in agribusiness;

c) Adjusting customs tariffs on imported equipment and agribusiness products;

d) Stimulating the development of individual farms and agribusiness cooperatives (by reducing the interest rates (95 percent of refinancing rate set by the Russian Central Bank) for loans from commercial banks.

As a result of the project, meat production is expected to increase by 7 percent, and milk – by 4.5 percent by the end of 2007 compared to the level of production in 2005.

The largest Agribusiness Holdings in Siberia

Quite a large number of agribusiness holdings are based in Altai region. Altai region is ranked the third in Russia in cattle growing, and over 225,000 tons of meat is produced (Altai is one of top ten Russian regions producers of meat). Also, the region is the third largest producer of milk in Russia (1.3 million tons of milk), and the largest milk producer per capita (500 kilograms). In addition, it is the largest producer of cheese (43,000 tons) and butter (11,000 tons).

Altai Region

- AleyskZernoProduct - main assets are three grinding mills, grain processing facility, butter manufacturing plant, macaroni manufacturing facility, poultry farm Komsomolskaya, Chistogorsky pig farm, and a number of other agricultural enterprises.

- Grana – main assets are Kortoyaksky Elevator, Tabunsky Elevator, Tretiakovsky Elevator, Krasnoschekovskoe HPP, Zmeinogorskoe HPP, Grana-Khabary enterprises, and a feed mill.

- Melnik – main assets are macaroni producing factory, three grain processing facilities, and two feed mills.

- Pava – main assets are two grinding mills in Altai region, a grinding mill in the city of Achinsk, Zauralsky Krecker company. Pava is one of the largest players on the Russian grain and grain processing market and was the first Russian grain company to hold an initial public offering. As a result of the placement, the company's market capitalization was over RUR 2.1 billion (approximately US$78 million).

- Russkoe Pole – main assets are Almak macaroni producing enterprise, AltaiAgroInvestStroi, Altai-Zlak, and Russkoe Pole companies.

Krasnoyarsk Region:

- Sibirskaya Gubernia – main assets are five poultry factories (three in Krasnoyarsk, one in Abakan, and one in Kemerovo region) with overall annual production capacity of 58,000 tons of poultry, two feed mills, and ALPI chain of hypermarkets (the chain’s 2005 revenue is estimated US$212 million). In addition, the holding recently acquired the Tomskaya poultry complex in Tomsk consisting of three factories. The complex’s share in the Tomsk regional hen eggs market is 80 percent.

- Nazarovskoe holding.

Omsk Region

- Omsky Beckon – main assets are Omsky Beckon JSC, Omsky meat-packing plant, Luzinsky feed mill, Sibirskaya poultry factory

Novosibirsk Region

- Sibersky Agrarny Holding (SAHO) – main assets are Khlebnik and Formaks bakeries, Iskitimsky Bakery, SAHO-Khleb company, and concentrated juices producing plant.

- The Siberian Bread Corporation (SHK) – main assets are Voskhod bakeries in the cities of Novosibirsk, Ufa, and Moscow; chain of 500 retail outlets, selling bakery products.

Tomsk Region

-The Siberian Agrarian Group (S-AGRO) – Main assets are two meat-packing plants, pig farm (120,000 pigs), a feed mill, Asinovsky dairy factory, Siberian Beer company, chain of retail stores (over 60 outlets in Tomsk region). Net profit of the holding in 2005 is estimated US$8.8 million.

Meat

The largest producers of meat are Altai, Omsk, and Krasnoyarsk regions.

Structure of Population of Pigs in Siberian Regions:

Region Population Share, Percent

Altai 594,400 20.3

Omsk 578,700 19.7

Krasnoyarsk 407,000 13.9

Novosibirsk 344,200 11.7

Kemerovo 326,300 11.1

Other 680,300 23.3

Total 2,930,900 100

Source: Expert-Sibir Newspaper

S-AGRO holding (Tomsk) recently announced its plans to become a key player in Siberia meat market. According to the holding’s estimations, production of sausages and intermediate products by the holding will triple by 2011, and total 43,000 tons. The holding plans to invest RUR 340 million (approx. US$12.6 million) in renovation of existing meat-processing facilities, and invest RUR 980 million (approx. US$36.3 million) in construction of stock-raising complex in Sverdlov region (Ural Federal District).

The holding is dominating the sausage and meat products market segment of Tomsk: the holding’s share in the segment is 61 percent. In the entire Siberia, the holding’s share is 3 percent, but the company plans to increase the share up to 14 percent by 2010.

Omsk region is the third largest in pig-breeding in Russia: about 500 thousand pigs are in breeding farms in the region. In addition to two existing pig farms of the Omsky Beckon company, two more farms will be constructed by Orbita and Titan companies. The farms will be designed to breed 100,000 pigs each. Titan company plans to invest EURO 43 million into the project.

RIKI group of companies (Altai region) put into operation the first stage of the new meat-processing plant with the capacity of 100 tons of meat products daily. Investments in project totaled over US$4.6 million. RIKI plans to increase its market share in Altai region from 30 to 45 percent.

Leading company in the meat market of the region is the Kuznetsky Pischevoi Kombinat (KPK) company based in Kemerovo region. The company’s share in the meat market of Altai region is 43 percent. In 2007, the company plans to establish a meat-processing plant in Altai region with the capacity of 40-50 tons of sausages monthly.

Another large producer in Altai region is Ovchinnikovsky meat-processing plant, holding 16 percent of the market.

One of the largest pig-breeding farms in Novosibirsk is Kudryashovsky. The plant was acquired by Rukom company in 2005.

The Largest Meat-Packing Plants in Siberia in 2004

Company Region Production, US$ million

Omsky Omsk 139.2

Novosibrsky Myasokonservny Novosibirsk 57.5

Sibirskaya Prodovolstvennaya Novosibirsk 56

BuryatMyasoProm Buryatia Republic 37.2

Irkutsky Irkutsk 35.1

Padunsky Irkutsk 20.9

Kuzbassky Kemerovo 19.6

Krasnoyarskaya Prodovolstvennaya Krasnoyarsk 19.3

Angarsky Irkutsk 17.3

RIKI Altai 16.8

KOMPUR Omsk 15.2

Kapachinsky Omsk 14.2

Karasuksky Novosibirsk 13.1

Torgovaya Ploschad Novosibirsk 12.9

Myaso Krasnoyarsk 12.2

Cherepanovsky Novosibirsk 12.1

Kemerovsky Kemerovo 11.1

Ovchinnikovsky Altai 10.2

Source: Expert-Sibir Newspaper

Poultry

The Tomskaya poultry factory (belongs to the Sibirskaya Guberina holding headquartered in Krasnoyarsk) produces 250 million eggs, and 2,000 tons of broiler meat. In 2007, the factory will produce up to 400 million eggs, and 35,000 tons of broiler meat. In addition to that, the holding put into operation a turkey farm with the capacity of 15,000 tons of turkey meat annually. Over US$40 million were invested into the project.

Also, the holding put into operation a turkey farm in Kemerovo region designed to breed 400,000 turkeys. By 2008, the farm is planned to produce 40,000 tons of turkey meat. About US$130 million were invested into the project.

The only other producer of broiler meat in Tomsk region is Mezheninovskaya poultry factory. In 2006, the factory plans to produce 10,000 tons of broiler meat, in 2007 – 18,000 tons, and in 2008 – 25,000 tons.

Another poultry factory that belongs to the holding, Kamyshevskaya factory (located in Kemerovo region, was purchased by the holding in October 2005 for US$1 million), will be producing up to 30,000 tons of broiler meat within the next five years. To reach this goal, about US$50 million will be invested in the factory by the holding.

Two more large poultry factories are operating in Kemerovo region: Inskaya, and Yashkinskaya.

Over 200 million eggs are produced in Altai region annually. Eggs are mainly produced by two poultry factories: Molodyozhnaya, and Komsomolskaya. Share of these two factories in the regional market is 60 percent. Other major egg producers are Eniseiskaya and Pavlovskaya poultry factories.

Dairy Products

Milk produced in Siberia constitutes 15-17 percent of the total volume of the product in Russia. Leading regions producing milk are Altai, Omsk, and Novosibirsk regions:

Structure of Milk Production in Siberian Regions in 2005:

Region Raw Milk Production, thousand tons Share, Percent

Altai 1,297.0 23.5

Omsk 857.2 15.6

Novosibirsk 822.9 14.9

Krasnoyarsk 651.5 11.8

Irkutsk 517 9.4

Kemerovo 436.8 7.9

Other 928.9 16.9

Total 5,511.3 100

Source: Expert-Sibir Newspaper

Within the framework of the Agribusiness Development national project, launched by the Russian Federal government, six new stock-raising plants will be constructed in Altai region. Existing 25 stock-raising facilities, specialized in milk production, will be renovated.

Dairy products market in Siberia is attractive for large Russian holdings. Thus, Unimilk holding (based in Moscow) has acquired a number of dairy plants in Siberia: Kemerovo Dairy Plant (Kemerovo region), Tomskmoloko dairy plant (Tomsk region), Chanovsky Maslokombinat plant (Novosibirsk region), and Milko dairy plant (Krasnoyarsk region).

Another large player in Russia is Wimm-Bill-Dann (WBD) company, headquartered in Moscow as well. The WBD has two dairy plants in Siberia as well: Nazarovskoe Moloko plant (Krasnoyarsk region, produces mostly canned dairy products), Sibirskoe Moloko plant (Novosibirsk region).

The largest dairy producer in Omsk region is Manros-M. The company has four dairy plants in the region. Other major dairy companies in the region are Vita, Lyubinsky MKK, and Kormilovsky MZ companies.

In Altai region, the largest dairy producers are the Barnaul Dairy Plant, Slavgorodsky Dairy Plant, Rubtsovsky Dairy Plant, and Pospelikhinsky Dairy Plant.

Best Opportunities For US Companies

US companies have a unique opportunity to establish a production facility in Siberia. As an example, a famous American entrepreneur in Siberia, Eric Shogren, is in the process of constructing a diary farm that will sell high-quality raw milk to regional processors. The farm’s capacity is over 25,000 tons of milk annually. It should be noted that, in March 2006, OPIC (Overseas Private Investment Corporation, www.opic.gov ) agreed to provide political risk insurance for the project.

To make meat production more profitable, breeding companies need to improve the quality of their stock. As an example, Omsky Beckon company signed a contract with PIC company (Great Britain) to provide genetically improved pig stock. As of today, Omsky beckon has 258,000-pig genetically improved stock. In 2005, the company produced 41,000 tons of meat.

Another example is the Sibirskaya Gubernia holding that purchased turkeys in Great Britain to be bred in the newly established farm in Kemerovo region. Equipment for turkey feeding was bought from Big Dutchman company (Germany).

US companies that provide modern agribusiness equipment, innovative breeding and genetics products and services have excellent opportunities in Siberian market.

As the Russian dairy market is growing, milk-packing segment is expected to grow by 40 percent with the nearest 5 years. Leading foreign companies in this segment are Tetra Pak, Elopak, and SIG Combibloc. US companies that sell modern technologies in milk processing and packaging have lucrative opportunities to gain significant market share in the segment.

Trade Promotion Opportunities

A number of trade shows focused on agribusiness are conducted in Siberia:

- AGROSIB (Organizer: Siberian Fair www.sibfair.ru , Novosibirsk; main focus – agricultural products and technologies), conducted in the beginning of October each year;

- ProdSib. ProdMash (Organizer: Siberian Fair, Novosibirsk; main focus – agricultural and food-processing machinery), conducted in the beginning of December each year;

-Altaiskaya Niva (Organizer: Altai Fair www.altfair.ru , the city of Barnaul; main focus – agricultural products, technologies and machinery), conducted at the end of October each year;

- AgroProdSelMash (Organizer: Intersib www.intersib.ru , Omsk; main focus – agricultural machinery, products, and technologies), conducted at the end of October each year;

- Siberian Agribusiness Week (Organizer: KrasExpocenter www.krasexpocenter.ru , Krasnoyarsk; main focus – agricultural/food-processing products, technologies, and equipment), conducted at the end of October each year.

US companies have a great opportunity to get better understanding of the industry and promote their products by participating in any of these trade shows.

Azim Mamanov: Azim.Mamanov@gmail.com

For more information on the Novosibirsk region, visit BISNIS online at http://bisnis.doc.gov/bisnis/country/siberia.cfm

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).