Russia:  Estimated Cost of Production for Major Crops

The cost of production (COP) for major agricultural commodities in Russia has increased significantly this year due primarily to higher prices for fuel and fertilizer.  Personnel from the USDA Foreign Agricultural Service gathered cost-of-production data during crop-assessment travel in key grain-producing regions in central and southern Russia in April 2005.  The estimated production costs for wheat and other crops in Russia (Tables 1 and 2) reflect approximate costs derived chiefly from interviews with farm directors, commodity analysts, and federal and local agricultural officials, and are not based on official data.  Costs for U.S. wheat (Table 1) are based on cost and return estimates from the USDA Economic Research Service.  Note that the COP figures in Table 1 were obtained from different sources and that comparisons between U.S. and Russian costs should be made cautiously.  

While the U.S. data are derived from official USDA statistics, the data for Russia are unofficial estimates based interviews with farmers, officials, and independent analysts.  Note also that the table includes only the expenses typically considered “direct” costs of production and does not include interest or general overhead expenses.  The estimates for Russia largely reflect management practices for winter wheat on farms with the financial resources (or access to credit) to obtain fertilizer, pesticides, and certified planting seed.  In Russia's most productive agricultural regions, especially the key Southern District, grain production is dominated by large agricultural enterprises that generally fit this description.  For many farms in Russia, however, input use is limited by severe cash shortages, and total production costs would be lower than the amounts indicated in the table. 

Cost-of-production data for Russian crops are difficult to collect, interpret, and compare.  Total cost of production is comprised of direct costs (including but not limited to seed, fertilizer, chemicals, and fuel) and other expenses such as interest and general farm overhead.  When asked about production costs, farmers typically offer a "total" COP figure without providing a detailed breakdown of expenses.  One estimate may include only direct input costs while another may include additional expenses like machinery-repair costs or land-rental payments to leaseholders.  Depreciation of machinery may be included as a direct cost in one estimate but not in another.  

To further complicate matters, COP can be expressed in terms of cost per hectare or cost per ton.  The cost per hectare will increase under more intensive use of agricultural inputs, but the associated cost per ton will typically decrease due to the resulting increase in yield.  Estimates of per-ton COP vary greatly according to crop, input use, and yield.  For Russian wheat, the average cost of production (including seed, fertilizer, chemicals, fuel, machinery maintenance, wages, and land rental) was roughly $70 per ton in 2004, although individual estimates range from $35 to $110.  

In terms of the percentage of total production costs, the expense for seed, fertilizer, and chemicals accounts for 20 to 25 percent in both Russian and the U.S.  Land rental costs, however, are substantially cheaper in Russia.  With the dismantling of State and collective farms, farm assets were distributed to farm workers in the form of shares.  Most share-holders lease their land back to the agriculture enterprise for a relatively modest annual payment of roughly $20 per hectare ($8 per acre).  The payment is frequently received in the form of grain, sugar, or some other commodity rather than cash.   

Fuel, meanwhile, comprises a higher percentage of total costs in Russia than in the U.S  At the start of the spring planting season in April, farmers and analysts reported that the cost of fuel (and fertilizer) had increased by 20 to 40 percent from the previous year.  Although current per-liter prices for both gasoline and diesel fuel are slightly lower in Russia than in the U.S., the low efficiency of Russia's deteriorating fleet of agricultural machinery boosts total fuel consumption. 

The estimated production costs in Table 2 are derived from data provided by an agricultural enterprise in Belgorod oblast in the southern region of Russia's Central District, and offer an example of the cost breakdowns for major crops grown on a progressive, well-managed farm.