Oane Visser: Russian agroholdings will strongly depend on governmental policies

19 July 2018 - Russia is a major player in global agricultural markets and has vast fertile land reserves. In a decade after the financial crisis of 1998, which some experts referred to as a "blessing in disguise", Russia has achieved rapid economic growth. With real GDP growth reaching 8.3% in 2000 and 5% in 2001, Russia became attractive for investors. Especially, investments in land raised the interest of people with capital. The latter included also the Russian oligarchs who searched for new investment opportunities. Many experts see this as a starting point of the emergence of the so-called agroholdings. Oane Visser, Associate Professor at the International Institute of Social Studies (ISS) of Erasmus University Rotterdam, sheds some light on the development of agroholdings in Russia in an interview to largescaleagriculture.com.

What do you think are the main factors that drive the development of large scale farmingin Russia today?

I think that the development of large scale agriculture in Russia is driven by two major factors. First is the presence of investors, both domestic and foreign, with a wish to invest their capital into profitable business. Domestic investors are also called informally as "oligarchs". Based on the origin of investors, one can distinguish between the so-called “oligarch-led” and “investor-led” agroholdings. The difference between them is that the shares of oligarch-led companies remain in the hands of the founder of the company, whereas the shares of investor-led companies are in free-float trading. And, the second factor is access to credit. It is much easier for a large company than for a smaller one to get a bank loan today. Thus, the development of large scale farms is predestined.

Do you see any differences or similarities between large scale farms in Russia and other parts of the world?

Yes, I do. For example, the main difference is the ownership of land. Whereas in Russia and Brazil land is owned by companies, in some other countries like Ukraine or Argentina, there is no land market, and land cannot be bought, but only leased from existing owners. The similarity between large farms across the world is the problem of monitoring of the processes of a large company. Another similarity is the possibility to exploit economies of scale as large size allows lowering costs per unit of production or land.

Are there any attributes of large scale farms in Russia that make them specific in comparison with large farms elsewhere?

The main feature of large scale farms in Russia is their size. Due to large land reserves and the legacy of large Soviet kolkhozes and sovkhozes, the modern-day agroholdings tend to be rather big. Of course, their size varies, but the top 3 Russian agroholdings operate over half a million of hectares. Another characteristic of Russian agroholdings is their mixed production specialization which includes crops (grain and oilseeds) and livestock production (pork and poultry meat production). The third characteristic is the business model used in Russia: agroholdings are vertically integrated and are generally privately owned rather than publicly listed.

Agroholdings are often criticized in mass media. What are the main problems agroholdings in Russia are publicly associated with?

There is a bunch of problems that can be named as direct consequences of large scale farming in Russia. To name a few: land grabbing, growing rural inequality, unemployment (though it depends very much on the type of an agroholding), and negative environmental effects (such as soil degradation).
At the same time, there is a range of problems that large scale farms face themselves. These problems include but are not limited to large financial debts, financial volatility, difficulties in finding sufficiently qualified employees.

Do you think that large scale farms are more efficient than medium or small scale farms in the long run?

No, I do not believe so. So far there is no sufficient evidence of this. The up-to-date research results draw a mixed picture of performance of agroholdings, despite their much higher capitalization. In some indicators, they perform slightly better, in some – worse. Expansion of agroholdings is often driven by subsidized/preferential credits and market power rather than by efficiency in production.
To this end, there is no much evidence that social benefits of large scale farming are able to outperform the problems they cause, especially if one considers better access to subsidies and credits by large farms than by other types of producers. However, there may be differences among agroholdings in terms of their impacts on society. Further research into this area is needed.

Do you think that agroholdings are just a temporary phenomenon or do they have a long-term perspective?

The longevity of agroholdings will depend very strongly on governmental policies and technological developments (which are rather unpredictable) rather than just economics. I think there will be more differentiation within the large-scale farming sector in the future.

What do you think is the future of small farms?

This again depends very strongly on governmental policies. Small farms can be very efficient in production of certain crops or agricultural products. But if agricultural policies remain quite hostile toward small agricultural producers, as this has been the case in Russia since the late 1990s, this will negatively affect the viability of small scale farms. I think that small farms will play their role in sustainability of food production systems and the shortening of a food supply chain in the future.

What do you think are the most interesting research topics with regard to large scale farming?

Many aspects of large scale farming have not yet been studied in-depth empirically. They include social and environmental effects; corporate social responsibility (CSR); changes in labour relations, work motivation and labor productivity; role of new technologies and their potential to solve monitoring problems; international comparisons among large scale farms as well as many other topics.