Money Growing: No Interest in Agricultural Complexes of the Moscow Suburbs

A decrease in imports of foreign agricultural products and promised benefits from the state may also contribute to this. However landlords are not in a hurry to invest seriously in the agriculture of the Moscow region, and only support their own enterprises.

It was unprofitable

Practically all agricultural enterprises in the Moscow region are in private hands. In 2001-2003 collective farms were bought by financial and raider structures, which expected the price of the land to increase. At that time it was typical for weak collective farms to go bankrupt and for the land assets to be transferred to front companies. Strong enterprises that were bought by new owners, usually maintained or reduced the volume of manufacturing and staff.

As a result, when in 2005-2006 the value of land increased 100% in a year, many enterprises were divided into separate plots, the land was transferred into different categories of purpose and it was then sold in parts. This first of all concerned collective farms in the near Moscow suburbs, and after 2006 until now collective farms further our from Moscow have shared the same fate. As the head of the sales and development department at Eko-Land Sergey Grinev says, at the moment 40-60% of agricultural land in the Moscow region has not been cultivated. According to realtors and market operators, the developed situation can be explained by mathematics.

According to Maxim Leshchev, general director of Geodevelopment, one of the strongest enterprises in the medium-distanced Moscow suburbs this year made about $5 million from growing grain on 3,000 hectares due to high productivity. Thus, one sotka made $17 a year. "In this way it is possible to calculate the profitability of every land plot with a certain development model. On land plots on Kievskoye shosse 30 km from the MKAD costing $8,000 per sotka, it will take 470 years to recoup your costs, which can in no way be justified in an economical sense," he says.

In the opinion of Leshchev, it is worth being engaged in the agro business in fertile territories in the remote areas of the Moscow region that cost $50 per sotka. The rise in price for land has forced agricultural manufacturing to move further and further out of Moscow over time. In the region closest to Moscow there are only a few strong enterprises with competent managers and well-established financial results left. For example, Moskovsky agricultural enterprise or Belaya Dacha, which besides its successful activity in the agricultural-industrial field it has sold parts of its land for the construction of IKEA and Mega profitably.

However real estate prices stopped rising in 2007 in Moscow and later in the Moscow suburbs, and fears of the influence of the global financial crisis on the Russian economy universal have affected the market. Landowners have stopped making the returns that they have got used to. Many land plots in the region closest to Moscow have already been sold by them and the land plots left further out have either stopped growing in price or are falling. Demand for land has also fallen.

In these circumstances many landlords have again begun to look for profitable use of the land. As development projects on remote areas are not really interesting, landowners have become more interested in their own enterprises that they were supporting. "The business of land becomes less profitable every year – there is a lack of energy capacities and other engineering communications, and agricultural production promises to bring stable income as it is a stable part of the economy," says Alexei Tonkonogov, head of the development department at MDK-Group. "If the predicted financial crisis hits, agricultural manufacturing will remain one of the most reliable spheres for investment," he is sure. However, not everyone agrees with this forecast.

Now it is less profitable

There are not many companies actively engaged in agriculture among the large landowners in the Moscow suburbs. "A lack of experience in the development of large territories, a deficit of professional employees and the low development of agriculture in Russia considerably reduces the appeal of this segment of the economy and increases the investment risks," says Evgeny Ruban, a leading analyst at MDK-Group.

There are other harsher opinions. "Agriculture in the Moscow region sustains losses in most cases as the majority of enterprises were bought with the purpose of reorganization and develop the territory in a different way," says Leshchev. "Enterprises are supported for two reasons: first, to avoid accusations of non-purpose use of land, and secondly, to cover expenses regards the payment of land tax," Grinev is assured. "There are profitable enterprises, but they are more an exception to the rule. If the owner of a land plot is offered a good price for it, the owner will sell the land. This is the main goal of those who bought the farms at the start of the noughties," summarizes Leshchev.

Agro-holdings, that recently became well known and which are now Latifundia around the whole country, also avoid the Moscow region. They prefer to buy up cheap enterprises in chermozenic zones for kopeks, which is economically justified. "The Moscow region is part of the so-called risky agriculture zone, which creates a certain specificity on the development of local agricultural and industrial activity. The main trend for the development of agricultural and industrial activity in recent years has became the increasing economic polarization of agriculture. The most economically successful regions form a rather compact zone from the Belgorod region and the Krasnodar region through the Volga region and Southern Ural Mountains up to the Altai region," shares Grinev.

Egor Rzhevsky, general director of Upiter Kapital also agrees: "the land market in the Moscow region is supersaturated. Even the areas in the Moscow suburbs furthest from the center raise doubts about profitability. Already now there is an intensive outflow of landowners to adjacent regions. The Moscow region has strong competitors. For example, the north and northwest of the Ryazan region neighbours the Serebryanoprudsky area of the Moscow region –they have the same motorways, the same infrastructure and practically the same degree of remoteness from Moscow. But the prices are much lower." According to Rzhevsky, in the Moscow region agricultural land costs from $500-$700 per sotka, and in the Ryazan and Tula regions it is much cheaper. "One hectare of land, suitable for agricultural activity, can be bought for $5,000. Plus, here there is the possibility to buy a really big land plot – the Moscow region doesn’t have such large plots," he says.

Among the big players in the agricultural market today are Platinum Bank, which has established production at its own enterprise in Fedyukovo, and also has several facilities in the Mozhaisky area and Prechistoye agricultural company in the Istrinksy area. These enterprises make a profit, though not what the owners initially planned.

Promsvyaznedvizhimost has several enterprises in the Sergieyevo-Posadsky area. According to the managing director of one of the enterprises of this company, a collective farm with 2,500 hectares, made an annual profit last year of $1 million. Vizavi Group also maintains their enterprises in the Volokolamsky area in operational order. Znak corporation, which recently divided its business into several fields, is trying to make profit in agriculture through the creation of the Dmitrovskoye agro-industrial society. Moreover Znak has set up Organik (Organic) a project on the development of organic agricultural products using Spartak agricultural facilities, located in the Shatursky area of the Moscow region. For this business model to start working, a specialist from Switzerland was invited. The same corporation has started to construct a large-scale hi-tech farm on a 590-hectare land plot, located in the Ramensky area of the Moscow region.

The shareholders of RDI, besides development, are also engaged in agriculture through their company Agroosnova." Before Vasily Boiko was disgraced by the authorities he established a milk manufacturing enterprise in the Ruzsky area of the Moscow region.

Kommunarka, a former largest enterprise in the Moscow region but now much smaller, still produces milk. Masshtab, which owns Kommunarka is also engaged in livestock farming. Although all these enterprises have made considerable money from the sale of land since 2004 until now, they are in no hurry to invest in the agricultural development of the Moscow region. "Land owners act cautiously and precisely, and their main efforts are directed at maintaining the operational efficiency of their own enterprises. The main reason, according to their representatives, is that they doubt whether it is worth investing large sums and hope for prices of land to rise again and increase sales," says a representative of a landowner. Nevertheless it is possible to allocate two new and prospective agro-industrial complexes in the region, that are at the stage of development and realization. These are an agro-industrial park in the Dmitrovsky area of the Moscow region (Agropromyshlenny Park holding; a producer of vegetables and potatoes) and an agro-industrial park in the Shakhovsky area of the Moscow region (Novaya Ploshchad), which is a livestock farmer and grows crops. Once construction has been completed, according to experts, they will be able to check the theory of the profitability of agricultural enterprises in the Moscow regions.

The prospects are not clear

Thus, despite the authorities’ promises about grants and privileges, the increase in world prices for foodstuff and a reduction in imports, the prospects of agriculture in the Moscow region remain flimsy. In the opinion of experts, that which makes real money will be realized. "The dynamics of development of agriculture in the Moscow region looks positive, but changes are extremely slow," Ruban says.

In recent years in agriculture in the Moscow region there have been significant structural changes, following the reforms whereby a multi-structural economy was formed. collective farms and state farms were reorganized, and in their place there were three main groups of agricultural commodity producers: agricultural enterprises, peasant farming and the food producing population. But this segment of the economy is growing extremely slowly and is mostly unprofitable. "Precise policy, reforms and the support of the state are necessary for the development of agriculture in the Moscow region," Ruban is assured.

The most probable model of development in the farthest areas of the Moscow region is the occurrence of single projects directed at modern farming, which makes significant income. A good example is Znak’s Organik project and hi-tech farm. And if the agro-industrial parks in the Dmitrovsky and Shakhovsky areas of the Moscow region are successful then agricultural development in the Moscow region will be much more dynamic.

Agriculture is also being promoted by an of the Moscow region government "On the development of the long-term target program of the Moscow region. Development of agriculture in the Moscow region from 2009-2012." The purpose of the program is to increase the competitiveness of agricultural production in the region; preservation and reproduction of agricultural land and other natural resources; and the steady development of rural territories. This project will have government support in accordance with the Moscow region governmental program "Development of industrial districts till 2020." "In view of the prospects of an increase in the level of development of agriculture in the region, financial stability and support of the state, land owners will be expected to increase their attention on agriculture and the development of projects in this field," Ruban predicts.