Harvesting the potential…
…in Russian farming
Annual Report 2009
General Shareholder Information
Annual General Meeting
Black Earth Farming Ltd (“Black Earth Farming”) hereby invites shareholders to participate in the Annual General Meeting on Wednesday, May 26, 2010 at 2 p.m at Summit Grev Ture (Room: Razorfish) at Grev Turegatan 30 in Stock- holm, Sweden.
Participation
Holders of Swedish Depository Receipts (“SDRs”) wishing to attend the Annual General Meeting shall be recorded in the register of shareholders maintained by Euroclear (for- mer VPC AB) on Thursday 20 May 2010, and must notify the Company of their intention to attend the Meeting no later than 20 May 2010 at 1 pm. The holder of the Swedish De- pository Receipts shall state his name, personal or company identification number, address as well as telephone number.
Notice of participation
Holders of Swedish Depository Receipts can give their notice of participation:
– by mail at the address:
Annual General Meeting, Black Earth Farming Ltd, c/o Computershare, Box 610,
182 16 Danderyd Sweden
– by telephone +46 (0)771 24 64 00 – by fax +46 (0)8 588 04 201
– by e-mail to agm@blackearthfarming.com Nominee-registered shares
Holders of Swedish Depository Receipts which hold their receipts through nominees (Sw. förvaltare) must request a temporary registration of the voting rights in order to be able to participate at the General Meeting. Holders of Swedish Depository Receipts that want to obtain such registration must contact the nominee regarding this well in advance of 20 May 2010. Voting forms (Sw. röstkort) will be distributed to the holders that have complied with the above require- ments and the voting form must be brought to the Annual General Meeting.
Proxies, etc.
If a holder of Swedish Depository Receipts intends to be rep- resented by proxy, the name of the proxy holder shall be stat- ed. For holders of Swedish Depository Receipts who will be represented by a proxy at the Meeting, a proxy form is avail- able at the Company’s website on www.blackearthfarming.
com. The signed proxy form should be sent or mailed to the company at the above stated valid addresses.
Calendar of events in 2010
– Interim Report, January–March: May 25 – Annual General Meeting: May 26 – Interim Report, January–June: August 27
– Interim Report, January–September: November 26
Investor Relations Gustav Wetterling + 44 (0) 2071 178 100
gustav@blackearthfarming.com Internet website
www.blackearthfarming.com SDR tickers
– NASDAQ OMX Stockholm: BEF SDB – Reuters: BEFsdb.ST
– Bloomberg: BEFSDB SS
Disclaimer
This report contains “forward-looking statements”. All state- ments other than statements of historical facts included in this Presentation, including without limitation, those regard- ing the Company’s financial position, business strategy, the Company’s management’s, or as appropriate the Directors’, plans, objectives, goals, strategies and future operations and performance and the assumptions underlying these state- ments are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncer- tainties and other factors which are or may be beyond our control, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future.
Supplementary USD* equivalent figures found in this report in relation to company financial information are pro- vided solely for the convenience of users as described in Note 2(d) to the Consolidated Financial Statements and do not form part of the audited consolidated financial statements.
Some numerical figures included in this Presentation have
been subject to rounding adjustments. Accordingly, numeri-
cal figures shown as totals in certain graphs or tables may not
be an exact arithmetic aggregation of the figures that preced-
ed them.
1
Contents
The Year in Brief . . . 2
Word from the CEO . . . 4
Black Earth Farming . . . 6
Business Concept, Vision, Strategy . . . . 11
Macro and Industry Overview . . . 12
Market Review . . . . 16
Financial Performance . . . . 23
Operational Performance . . . 29
The Black Earth Farming Share . . . 34
Consolidated Financial Statements . . . 36
Statement of management responsibilities . . . 37
Independent auditors’ report . . . 38
Consolidated Statement of Comprehensive Income . . . . 39
Consolidated Statement of Financial Position . . . . 40
Consolidated Statement of Changes in Equity . . . . 41
Consolidated Statement of Cash Flows . . . . 42
Notes to the Consolidated Financial Statements . . 43
Board, Management and Auditors . . . 66
Corporate Governance Report . . . 69
Internal Control report . . . 74
Corporate Citizenship/Responsibility . . . 76
Four Year Summary . . . 79
Terms and Definitions . . . 80
– Substantial production track record of harvesting over 183 thousand hectares
– Substantial land bank with control of over 330 thousand hectares
– Strong position in one of Europe’s most expanding agricultural markets
– Goal to develop into one of the world’s leading vertically integrated and diversified agricultural companies
Black Earth Farming Ltd is a company whose business concept is to acquire, develop and farm agricultural land assets in the Black Earth Region in Russia.
The Black Earth Region is endowed with what perhaps is the
world’s most fertile soil.
d1: Land holdings per 31 December, hectares d2: Operational storage capacity, tons Revenue
from sales of crop production 98%
Revenue from sales
of milk and meat 1% Revenue from sales of other goods and services 1%
Sold 58%
Still held in inventory by year end 42%
350,000 2008 2009
300,000 250,000 200,000 150,000 100,000 50,000
Land under
control Long term
leases Land in regis- tered ownership 0
Revenue from sales of crop production 98%
Revenue from sales
of milk and meat 1% Revenue from sales of other goods and services 1%
Sold 58%
Still held in inventory by year end 42%
250,000 2008 2009 75%
200,000 60%
150,000 45%
100,000 30%
50,000 15%
On farm
storage Grain elevator
storage
Total capacity as % of gross commer-
cial production 37%
57%
0 0%
Significant events
– Completion of fourth harvest with production of over half a million tons, however, average lower yield than 2008
– Challenging market environment for soft commodities – Disappointing financial result for 2009
– Slight increase in total controlled land, but significant progress in land title registration, over 65% of total land now owned
– Internal crop storage, cleaning and drying capacity significantly increased and construction of 3 new grain elevators initiated – Divestment of some non-core assets
– On 22 June 2009 the Company’s shares were successfully listed onto the Mid Cap segment on NASDAQ OMX Stockholm
– Company has recruited a team of sales and logistics professionals to execute export sales of company products
– Several cost cutting initiatives initiated in second half of 2009, lowered head count already achieved
– No proposed dividend for 2009
Black Earth Farming Limited Harvesting the potential…
…in Russian farming
The Year in Brief
3
d3: Revenue versus gross profitability (RUR million, left)
and gross profit margin (%, right) d4: Sales volume (tons, left) versus average received price (RUR, right)
2009 in figures 2009 2008 Change
Production
Harvested area (hectares) 183,423 141,933 29%
Total Gross harvest (ton) 534,686 460,056 16%
Commercial Gross Harvest (ton) 531,305 437,127 22%
Land holdings (thousand hectares)
Land under control 330 317 4%
Whereof
Land in ownership registration 75 214 –65%
Land in registered ownership 216 95 127%
Land in long term lease 39 8 388%
Profit & Loss (USD* thousand)
Revenue 79,180 23,109 243%
Total revenue and gains 75,500 28,157 168%
Gross profit/(loss) (1,083) 10,402 –110%
EBITDA (25,673) (18,593) 38%
Operating profit/(loss) (38,395) (26,156) 47%
Net profit/(loss) (44,613) (24,257) 84%
Cash Flows (USD* thousand)
Cash flows utilised by operating activities 160 (64,169) –100%
Cash flows utilised by investing activities (41,625) (49,117) –15%
Cash flows from financing activities (11,655) 13,266 –188%
Margins (%)
Gross margin
13.3% 23.2% –86%
Operating profit margin Neg. Neg. n/a
Net profit margin Neg. Neg. n/a
1. Gross margin on goods sold – excluding gain on revaluation of biological assets
Ratios
Basic profit/(loss) per share (USD*) (0.36) (0.2) 80%
Equity per share (USD*) 2.32 2.67 –13%
Debt/Equity 21.0% 19.3% 9%
Full-time employees at the end of the period 1,527 1,942 –21%
Outstanding shares at end of period 124,601,667 124,521,667 0%
Revenue from goods sold
3.3%
23.2%
Gross profit on
goods sold* Gross profit margin of goods sold, %*
Amount of tons sold
3,795
5,586 Average received price (RUR) Revenue from goods sold
3.3%
23.2%
Gross profit on
goods sold* Gross profit margin of goods sold, %*
Amount of tons sold
3,795
5,586 Average received price (RUR)
Jan–Dec 2009 Jan–Dec 2009
* Excluding gain/loss on revaluation of biological assets and agricultural produce
Jan–Dec 2008 Jan–Dec 2008
0 0% 0 0
3,000 30% 700,000 7,000
2,500 600,000
2,000 500,000
20% 5,000
25% 6,000
1,500 400,000
1,000
300,000 10%
3,000
15% 4,000
5%
2,000 1,000
500 100,000
200,000
Word from the CEO
Increasing .grain .consumption .over .the .past .decade .has .chal- lenged .the .world’s .ability .to .produce .enough .crops . .This .has . put .stress .on .grain .supplies .and .raised .crop .prices .around .the . world . to . well . above . historical . levels . in . 2007/2008 . . Farm- ers . everywhere . responded . accordingly . increasing . planted . area, .which .together .with .excellent .weather .in .key .growing . areas .produced .great .harvests .in .the .past .two .years . .How- ever, .they .will .need .to .grow .a .large .crop .by .historical .stand- ards .every .year .in .order .to .keep .pace .with .the .expected .long . term . consumption . growth, . and . exceptional . growing . con- ditions .will .not .happen .every .year . .In .the .developed .world . the .capacity .for .significant .output .increases .are .limited .in . the .long .term . .Russia .is .one .of .the .few .places .in .the .world . where .there .are .vast .areas .of .agricultural .land .which .is .not . being .utilized .today .and .that .which .is .being .utilized .is .still . underperforming . due . to . outdated . agronomy . and . farming . techniques . . Unlocking . that . potential . is . what . Black . Earth . Farming .is .all .about .and .has .been .since .its .inception . .
The . agricultural . sector . in . Russia . has . historically . been . ignored .by .investors .or .has .not .been .open .to .them . .The .new . Russian .Land .Code .from .2003 .and .the .creation .of .a .cadas- tre . now . allow . the . establishment . and . registration . of . title . to .land, .solving .the .property .rights .issue .which .previously . worked . as . a . deterrent . for . investments . . Black . Earth . Farm- ing .realized .this .opportunity .at .an .early .stage .and .has .today . built .up .an .impressive .operational .platform .and .strong .pres- ence .throughout .Russia’s .Central .Black .Earth .belt, .endowed . with . among . the . world’s . richest . soil . . The . focus . now . is . to . fully .unlock .the .potential .in .acquired .land .assets .and .estab- lish .a .world .class .industrial .farming .business . .The .Company . is .already .well .under .way, .already .being .one .of .the .largest . farming .companies .by .area .under .crops . .Russia .has .all .the . potential .to .play .an .ever .increasing .role .in .the .global .agricul- tural .market .and .the .Russian .government .has .now .deter- mined .the .development .of .agriculture .a .priority .and .Black . Earth . Farming’s . goal . of . developing . Russian . agricultural . assets .are .aligned .with .the .government’s . .The .expansion .of . domestic .agricultural .output .will .create .great .value .for .the . Russian .population .and .economy .
In .2009 .Black .Earth .Farming .increased .the .total .amount . of . controlled . land . by . about . 4% . to . 330 . thousand . hectares . . The . Company . however . focused . almost . exclusively . on . obtaining .full .free .hold .ownership .to .its .already .impressive . land .portfolio, .the .amount .of .hectares .in .full .ownership .sta- tus .increased .127% .year .on .year .to .216 .thousand .hectares . . Black . Earth . Farming . also . substantially . increased . produc- tion .during .the .course .of .2009, .harvesting .a .29% .larger .area . than . .in .2008, .with .a .Gross .Commercial .Output .in .2009 .of . above .half .a .million .tons . .2009 .revenue .amounted .to .USD . 79 .2 .million .versus .USD .23 .1 .million .in .2008, .representing . a .243% .increase . .Full .year .2009 .Gross .Profit, .excluding .loss .
from .revaluations, .amounted .to .USD .2 .6 .million .versus .USD . 5 .4 .million .last .year, .representing .a .51% .decrease .
Primary .reasons .for .the .above .decrease .in .Gross .Profit .are . as .follows; .Whilst .Cost .of .Goods .Sold .per .ton .has .decreased . by . 15% . year . on . year . (from . USD . 144/ton . to . USD . 122/ton), . average .selling .price .per .ton .has .decreased .by .32% .in .rubles . year . on . year . (from . RUR . 5,586/ton . to . RUR . 3,795/ton) . and . by .34% .in .dollar .terms .for .the .same .period .(from .USD .190/
ton .to .USD .125/ton) . .Sunflowers .and .Corn .have .been .profit- able .crops .this .year .while .Barley .has .been .extremely .disap- pointing .due .to .a .63% .drop .in .prices .year .on .year . .Wheat, .the . Company’s .single .largest .crop .could .have .tipped .the .balance . in .a .positive .way .but .the .prices .just .could .not .find .the .final . upward .push .needed, .resulting .in .small .negative .gross .con- tribution .per .ton .
Operating .Loss .in .2009 .amounted .to .USD .38 .4 .million; . representing .a .47% .decrease .in .operating .profitability .year- on-year .as .compared .with .2008 .results; .Loss .from .Continu- ing . Operations . in . 2009 . amounted . to . USD . 42 .7 . million; . showing .a .80% .negative .increase .in .losses .year-on-year .as . compared .with .2008 .results .
As .evident .from .the .financial .result .and .market .devel- opments, .2009 .has .been .a .challenging .year .for .Black .Earth . Farming . and . the . entire . grain . producing . sector . . A . fairly . bountiful . production . year . in . our . region . is . not . a . blessing . when .the .regional .and .global .stocks .are .near .its .historically . high .levels .
The . Company . is . aggressively . pursuing . multiple . strate- gies .in .order .to .further .improve .efficiency .and .lower .cost .of . production .and .overheads .down .to .levels .that .will .ensure . Black .Earth’s .position .in .the .top .quartile .in .terms .of .lowest . cost .producers .worldwide . .Full-time .employee .count .(excl . . temporary . & . seasonal . staff) . has . decreased . by . 21 .4% . from . 1,942 .to .1,527 .year .on .year . .In .the .last .quarter .of .2009 .the . General . and . Administrative . expenses . were . down . USD . 1 .1 . million .or .15%, .as .the .savings .from .earlier .initiatives .have . began .to .impact .the .bottom .line . .Further .savings .in .General . and . Administrative . expenses . are . expected . from . Q1 . 2010 . and . onwards . . Furthermore, . Distribution . expenses . in . the . last .quarter .were .28% .lower .than .corresponding .period .in . 2008, .despite .much .larger .volumes .handled .and .stored . .The . Company’s .investment .into .own .storage .is .showing .effect . by .materially .reducing .the .costs .for .external .storage . . .
In . the . beginning . of . 2010 . the . Company . recruited . Mr .
.Alexei .Bnatov .as .new .General .Manager .of .its .Russian .oper-
ating .entity, .Agro-Invest .and .before .that .in .the .end .of .2009 . .
a . team . of . grain . sales . professionals . were . hired . who . have .
already .proven .their .proficiency .while .executing .the .Com-
pany’s .first .ever .export .deal . .Secondary .trading .opportuni-
ties .will .be .considered .once .the .Company .has .finished .con-
structing .its .elevators . . .The .closer .interaction .between .the .
5
production .and .sales .teams .has .already .resulted .in .signifi- cant .fine .tuning .in .terms .of .spring .crop .production .
In .the .months .to .come, .the .Company .will .continue .to . grow .and .strengthen .its .operational .platform . .Black .Earth . Farming .has .recognized .the .enormous .potential .in .Russian . farming .and .will .continue .to .unlock .it .to .reap .the .extraordi- nary .rewards .that .are .present .for .a .local .pioneer .in .best .prac- tice . agronomy, . industrial . farming . scalability . and . western . management .practices .
With .the .addition .of .Mr . .Bnatov, .our .new .sales .and .logis- tics .team .and .the .continued .efforts .of .other .employed .sen- ior .executives, .the .Company .now .has .an .excellent .manage-
ment .team .in .place .– .with .a .clear .focus .on .creating .value . through . improved . sales . and . a . tight . cost . control . aimed . at . making . Black . Earth . Farming . one . of . the . world’s . best . run . agricultural .companies .
On .behalf .of .the .Board
Sture Gustavsson
CEO .and .President . .
Black .Earth .Farming .Ltd
12 .April .2010
MONGOLIA BELARUS
UKRAINE
bl ac k s ea
FINLAND SWEDEN
NORWAY
ESTONIA
LATVIA LITHUANIA
KAZAKHSTAN
R U S S I A
TURKMENISTAN AZERBAIJAN
GEORGIA ARMENIA
U ZB EK IST AN Moscow
Samara Lipetsk
Tambov Voronezh
Kursk Ryazan
Kursk Region
Planted area 2007: 25,423 ha Planted area 2008: 35,963 ha Planted area 2009: 53,272 ha Main Crops: Wheat, Barley, Spring Rape
Elevator capacity: 60,000 ton under construction Lipetsk Region
Planted area 2007: 7,700 ha Planted area 2008: 31,314 ha Planted area 2009: 43,461 ha Main Crops: Wheat, Barley Elevator capacity: 60,000 ton
Voronezh Region
Planted area 2007: 15,590 ha Planted area 2008: 49,225 ha Planted area 2009: 50,520 ha Main Crops: Wheat, Sunflowers, Corn Maize
Elevator capacity: 55,000 ton under construction Tambov/Ryazan Region Planted area 2007: 4,597 ha Planted area 2008: 21,992 ha Planted area 2009: 30,875 ha Main Crops: Wheat, Barley Elevator capacity: 20,000 ton
Samara Region
Planted area 2007: 0 ha
Planted area 2008: 3,133 ha Planted area 2009: 5,291 ha Main Crops: Sunflowers, Corn Maize
2005 2006 2007 2008 2009 2010
The Company was founded in April and started operations directed towards securing control of agricul- tural farm land in the Kursk region in Russia.
The Company gains control of its first land areas. By year end Black Earth Farming controls about 100,000 hec- tares. It executes its first ever harvest on 5,900 hectares.
Company con- tinues to acquire control of land and obtains its first free hold titles to land.
Production area is increased 8 fold and crop output 11 fold. The Company successfully lists its shares on the First North marketplace in Stockholm. By year end it controls 289,000 hectares.
The Company continues its rapid production expan- sion and pace of ownership registra- tion increased. The Company acquired its first elevator storage capacity and is well estab- lished with consid- erable production in especially four Rus- sian regions; Kursk, Lipetsk, Tambov and Voronezh.
The Company had 65% of land in own- ership by year end.
The Company sig- nificantly increased its internal crop storage capacity, as well as started construction of additional 3 eleva- tors. The Company harvested above half a million tons of crops.
Focus on finishing land registration and improving three key areas, 1. Revenue gen- eration – through export and forward sales and finishing elevators construc- tion. 2. Cost levels – through leaner organization, merg- ing legal subsidiary entities and other cost cutting initia- tives. 3. Improved productivity.
A major grain producer with a strong operational platform
Black Earth Farming
7
Black Earth Farming (The Business)
Black .Earth .Farming .was .established .in .2005 .and .was .among . the .first .foreign-financed .companies .that .undertook .consid- erable .investments .in .the .Russian .agricultural .sector . .Black . Earth .Farming .provides .its .investors .with .a .unique .exposure . to .one .of .the .fastest .growing .agricultural .markets . .Because . of . its . early . establishment, . Black . Earth . Farming . . has . now . gained .a .strong .market .position .in .several .Russian .regions, . richly .endowed .with .black .earth .soil . .Black .Earth .Farming . . continues .to .build .up .the .already .impressive .land .bank .of . first .class .soil .while .ramping .up .agricultural .operations .
Organisation
The .Black .Earth .Farming .Group .consists .of .the .Jersey .par- ent .Company: .Black .Earth .Farming .Limited .a .limited .liabil- ity . company . incorporated . in . Jersey, . Channel . Islands, . on . 20 .April .2005 . .Black .Earth .Farming .Limited .is .the .holding . company . for . a . number . of . legal . entities . established . under . the .legislation .of .Cyprus .and .the .Russian .Federation . .Those . entities .together .are .referred .to .as .the .Black .Earth .Farming .
“Group” . . The . organization . of . Russian . subsidiaries . goes . by . the .joint .name .Agro-Invest . .The .total .number .of .employees . in .the .Group .as .at .31 .December .2009 .was .1,527, .while .aver- age .number .of .employees .for .12 .months .2009 .was .2,041 . Main Activities
The .Company’s .main .business .is .crops, .which .in .turn .con- sists .of .several .elements .such .as .foremost .on-field .Produc- tion . but . also . pre- . and . post-harvest . Logistics, . Handling . & . Trading . . In . addition . to . the . cropping . it . is . also . involved . in . Dairy .farming .& .Meat .farming, .which .is .however .currently . only .conducted .on .a .small .scale . .Lastly .the .Company .is .also . engaged .in .Land .Acquisition .& .Registration, .at .this .point .it . has . however . already . amassed . a . considerable . land . bank . of . prime .soil .and .instead .focuses .on .title .registration .
CROPS Production
Black .Earth .Farming’s .crop .production .is .focused .on .gener- ating .high .yields .of .good .quality .to .as .low .costs .as .possible . given . certain . external . conditions . such . as . soil . quality . and . climatic .zone . .The .choice .of .which .specific .crops .to .grow .is . mostly .governed .by .operational .factors .such .as .crop .rotation . needs, .maximum .usage .of .machinery, .weather .and .climatic . conditions .and .harvest .and .drilling .periods . .The .Company . can .however .adjust .the .crop .mix .somewhat .if .it .is .expected . that .a .certain .culture .will .be .especially .profitable .given .mar- ket .conditions . .The .climatic .zone .in .the .central .Black .Earth . Region .in .Russia .where .the .company .operates .allows .for .one . harvest .each .year .during .the .summertime, .however, .differ- ent .seasonal .classes .of .crops .are .used .to .spread .the .planting . and .preparation, .as .well .as .harvesting .work . .Winter .crops . such . as . winter . wheat, . triticale . and . winter . rape . seed . are . planted .in .the .autumn .of .the .preceding .year .to .any .given . harvest .and .are .subsequently .harvested .in .July .and .August . . Spring .crops .such .as .spring .barley, .sunflowers, .corn, .spring . rape .seed, .Soya .and .spring .wheat .are .planted .in .the .spring . within .the .same .calendar .year .as .they .are .harvested . .Har- vesting .of .these .spring .crops .normally .starts .in .late .July .with . Spring .Barley .and .finishes .off .with .sunflowers .in .October .
Land Acquisition &
Registration
Dairy &
Meat Farming – Production – Logistics
– Handling
– Trade
CRopS
Despite .the .generally .very .fertile .soil .in .the .Black .Earth . Region, .the .farmland .which .Black .Earth .Farming .acquires . has . generally . been . laying . fallow . for . many . years . and . is . in . such .a .state .that .it .cannot .be .planted .immediately . .In .order . to .fulfill .the .task .of .generating .high .yields .at .low .costs .the . Company . must . therefore . first . take . extensive . actions . to . restore .and .improve .the .condition .of .the .land .as .well .as .to . determine .the .optimal .chemical .strategy . .The .methodology . which .is .extensive .and .resource .consuming .includes .steps . such .as: .Chemical .analysis, .Disk .tilling .and .Levelling .
When .the .fallow .has .been .broken .and .the .fields .restored . to .cropping .condition .starts .the .task .of .raising .yields .well . above .Russian .standard .levels .and .utilizing .the .economies .of . scale .opportunities . .The .improvements .are .made .by .imple- menting . international . best . practice . agronomy, . utilizing . state .of .the .art .western .machinery .as .well .as .western .man- agement .disciplines .
Black .Earth .Farming .currently .focuses .on .eight .crop .cul- tures .– .in .descending .order .of .magnitude .of .planted .area: . .
1) WINTER WHEAT
is .used .for .food .and .livestock .feed . .Black .Earth .Farming .uses . a . combination . of . mainly . different . winter . wheat . varieties . . Winter .wheat .is .like .other .winter .crops, .higher .yielding .com- pared . to . the . corresponding . spring . crop . since . winter . crops . have .more .well-established .root .systems . .Winter .wheat .can . be . planted . during . a . relatively . long . period . (approximately . 20 .days) .which .enables .the .Company .to .cultivate .large .land . areas .with .this .crop . .
2) BARLEY
is .a .grain .mainly .used .for .food .and .livestock .feed . .Barley .is . considered .a .profitable .crop .provided .that .Black .Earth .Farm- ing .can .achieve .a .good .malting .quality .which .commands .a . price .premium . .
3) SUNFLOWERS
are .primarily .used .in .food .products .and .livestock .feed . .Due . to .the .sunflower’s .drought .resistant .characteristics, .it .fills . an .important .role .in .the .overall .crop .mix . .Sunflower .is .nor- mally .reaped .a .week .or .so .after .spring .rape .and .just .requires . a .simple .addition .to .the .combine .header .for .harvesting, .thus . reducing .additional .capital .expenditures . .
4) WINTER RAPE
is .primarily .used .for .producing .vegetable .oil .and .biodiesel . . Winter .rape .generates .a .higher .yield .than .spring .rape .due .to . a . more . well-established . root . system . . If . successful, . winter . rape .seed .is .generally .a .very .profitable .crop .but .it .is .however . more .sensitive .than .winter .wheat .to .low .winter .tempera- tures .which .might .kill .the .plant . .Furthermore, .winter .rape . characteristics .enable .a .crop .rotation .system .which .ensures . that .winter .wheat .can .be .sown .the .following .Agricultural . year . .
5) CORN MAIZE
is .a .major .food .grain .grown .throughout .the .world .in .temper- ate .and .warm .climates . .The .Company .cultivates .this .grain . primarily .in .the .southern .regions .where .rainfall .is .more .lim- ited .and .the .summer .temperature .is .higher . .
6) SPRING RAPE
is .grown .for .two .reasons . .The .first .reason .is .that .it .has .the . same . advantageous . crop . rotation . characteristics . as . winter . rape .and .the .second .is .that .the .spring .variety .hedges .some . winter .kill .risk .from .the .winter .variety . .
7) TRITICALE
is .a .hybrid .of .wheat .and .rye . .Generally, .Triticale .combines . the . high . yield . potential . and . good . grain . quality . of . wheat . with .the .disease .and .environmental .tolerance .of .rye . 8) SOYA or SOYBEAN
is .one .of .the .most .popular .and .widely .grown .oilseeds . .The . derived .product .Soybean .meal .is .a .primary, .relatively .low- cost, .source .of .protein .for .animal .feeds .or .rations; .soy .vegeta- ble .oil .is .another .valuable .product .of .processing .the .soybean . crop . .Soybeans .can .produce .at .least .twice .as .much .protein . per .acre .than .any .other .major .vegetable .or .grain .crop . .Soy- beans, .like .most .legumes, .also .perform .beneficial .nitrogen . fixation .in .the .soil .
Logistics, handling and trade
Logistics .becomes .very .important .for .an .industrial .farming . operation .the .size .of .Black .Earth .Farming’s, .since .no .matter . the .size .you .still .have .the .same .limited .seasonal .timeframes . when .cultivation, .planting, .harvesting .and .other .field .work . is .to .be .carried .out . .Increasing .the .area .on .which .these .tasks . are .to .be .performed .increases .the .challenge . .Logistics .in .this . context . therefore . involves . everything . from . timely . deliv- ery .of .machinery, .fertilizer, .chemicals .and .other .inputs .to . farm, .to .timely .field .work .operations .and .lastly .harvesting . and . grain . offloading . . For . example, . a . Combine . harvester . is . a .piece .of .expensive .machinery .which .is .only .used .once .a . year, .hence, .during .this .period .of .usage .it .should .never .stand . still .in .order .to .maximize .its .limited .use, .for .this .to .happen . a . chain . of . grain . offloading . trucks, . fuel . trucks . and . drivers . needs .to .be .working .optimally .
After . the . crop . has . been . harvested, . it . is . transported . to .
storage .and/or .drying .facilities .such .as .elevators . .The .access .
to . storage . and . drying . is . very . important . since . especially .
humid . grain . can . only . be . left . in . the . open . for . a . short . time .
without . loosing . quality . characteristics . . . Having . access . to .
drying .capacity .also .extends .the .harvesting .period .since .it .
enables .harvesting .in .more .humid .conditions, .assuming .the .
crops . are . taken . straight . to . the . dryer . . Furthermore, . grain .
prices .fluctuate .with .weather .conditions .and .they .tend .to .be .
at .their .lowest .during .the .harvest .season .since .farmers .with-
out .access .to .storage .facilities .must .sell .their .grain .immedi-
ately, .thereby .substantially .increasing .the .supply . .The .Rus-
sian .agricultural .sector .suffers .from .a .deficit .of .agricultural .
9
Land in registered ownership Long term leases Land in ownership registration
d3: Gross Commercial Harvest, tonnes
600,000 500,000 400,000 300,000 200,000 100,000
2009 2008
2007 2006
0
531,305 437,127
109,724 9,000
Land in registered ownership Long term leases Land in ownership registration
d2: Total planted area, hectares
200,000 175,000 150,000 125,000 100,000 50,000 75,000
25,000
2006 2007 2008 2009
0
183,423 141,933
53,451 5,900
Land in registered ownership Long term leases Land in ownership registration
d1: Land holdings, hectares
350,000 300,000 200,000 250,000
100,000 150,000 50,000
31 D ec 0 6
31 M ar 0 7
30 J un 0 7
30 S ep 0 7 31 D
ec 0 7 31 M
ar 0 8
31 M ar 0 9 30 J un 0
8
30 J un 0 9 30 S ep 0 8
30 S ep 0 9 31 D
ec 0 8
31 D
ec 0 9
0
infrastructure .such .as .elevator .storage .capacity . .The .deficit . of .storage .created .though .competition .for .the .existing .facili- ties, .with .price .increases .for .storage .as .a .consequence . .Black . Earth . Farming . is . therefore . currently . building . up . its . own . portfolio .of .storage .and .drying .capacity . .It .consists .of .both . elevator . complexes . and . so . called . “‘on . farm’ . storage . capac- ity”, . the . quality . of . which . varies . from . “lean-to” . (which . is . more .or .less .a .roof .over .asphalt) .to .closed .warehouses .with . built .in .ventilation .
Black . Earth . Farming . has . previously . sold . all . products . domestically .in .Russia . .The .list .of .customers .however, .varies . from .local .breweries .and .oil .crushers .to .large .international . grain . traders, . which . consequently . export . the . grain . . The . Company .today .has .the .capability .to .engage .in .export .trans- action, .which .it .will .utilize .in .2010 .and .onwards .
Land acquisition and registration
Agricultural .land .in .Russia .is .usually .comprised .of .a .number . of .farm .lots .and .can .be .classified .as .state .and .municipal .or . private . property . . Acquisition . of . lots . of . agricultural . land . is . effected .through .transactions .with .parties, .who .in .accord- ance . with . current . Russian . legislation . have . the . property . right, .including:
– . .agricultural . land . subject . to . state . or . municipal . property . rights .
– . .agricultural .land .subject .to .ownership .of .legal .entities .and . – . .agricultural .land .subject .to .ownership, .in .group .or .individ-
ually, .of .natural .persons .
With . the . reorganization . of . the . Russian . Kolkhozes, . the . former .employees .obtained .a .part .of .the .agricultural .land .in . common . .The .Russian .legislation .offers .a .number .of .alterna- tive .ways .to .perform .transactions .regarding .acquisition .of . ownership . rights . to . the . plots . mentioned . . All . of . the . stipu- lated .ways .of .acquisition .of .ownership .rights .to .agricultural . lands .are .complicated .as .well .as .time-consuming .and .associ- ated .with .certain .risks .
Black .Earth .Farming’s .land .acquisition .approach .is .mainly . directed . towards . acquisition . of . agricultural . land . owned . by . a . group . of . natural . persons . . The . rationale . behind . using . this . approach . is . that . acquisition . of . agricultural . land . owned . by . states .bodies, .local .authorities .or .legal .entities .require .larger . financial .expenditures, .administrative .limitations .from .state . authorities, .and/or .the .areas .of .available .land .are .limited . .Cur- rent .focus .is .not .on .significant .expansion .of .the .land .portfolio, . but .on .receiving .full .ownership .for .the .land .already .controlled . by .having .purchased .ownership .registration .rights .and .having . entered .into .leases .for .the .time .until .completion .of .ownership . registration . . Russian . agricultural . land . is . in . the . Company’s . view .still .undervalued, .both .in .comparative .terms .and .in .rela- tion .to .its .inherent .production .potential, .especially .in .the .fer- tile .Black .Earth .Region .
Dairy and meat farming
Black . Earth . Farming . operates . small-scale . production . of . meat .and .milk .in .the .Ryazan .and .Lipetsk .Oblasts . .The .Com- pany .may .amplify .the .magnitude .of .the .meat .and .milk .pro- duction . to . diversify . its . operations . and . thereby . reduce . its . business .risk . .Cash .flows .generated .from .milk .and .meat .are . continuous .as .opposed .to .cash .flows .from .crops . .
Dairy . farming . and . meat . production . will . also . reduce . the .
Company’s .exposure .to .adverse .weather .conditions . .Moreover, .
there .are .synergistic .potentials .in .the .agricultural .operations .
since .manure .is .a .beneficial .fertilizer .and .any .marginal .land .
not .optimal .for .crop .farming .may .be .used .as .grazing .grounds .
for .cattle . .Pay .back .periods .are .however .often .rather .long . .The .
Company .is .currently .reviewing .its .Dairy .and .Meat .options .
11
Business Concept, Vision, Strategy
Business concept
Black .Earth .Farming’s .business .concept .is .to .acquire, .devel- op . and . farm . agricultural . land . assets . in . Russia, . primarily . in .the .Black .Earth .Region .and .secondarily .in .other .regions . endowed .with .fertile .agricultural .land . .
Vision
Black .Earth .Farming .seeks .to .leverage .off .its .unique .skill .set . and .first-mover .advantage .to .rapidly .develop .a .critical .land . mass .and .generate .robust .profitability .in .one .of .the .fastest . growing . agricultural . markets . in . the . world, . with . the . long . term .vision .to .develop .into .one .of .the .world’s .leading .verti- cally .integrated .and .diversified .agricultural .companies, .thus . creating .substantial .wealth .for .its .shareholders .over .time . . We .share .the .Russian .Government’s .belief .that .Russia .has . all .the .potential .to .become .an .agricultural .market .player .of . great .importance .and .we .are, .and .will .be .a .large .contributor . to .this .development .
Strategies
Black .Earth .Farming .seeks .to .maintain .a .balance .between . seizing .land .acquisition .opportunities .and .cultivating .land . already . under . its . control . . To . acquire . and . cultivate . land . require .considerable .capital .and .management .resources .but . constitute .the .foundation .in .realising .the .vision .of .creating . shareholder .value . .With .a .view .to .optimize .the .absorption . of .resources .the .Company .applies .the .following .strategies:
Control over land: . The . Company . takes . every . measure . to . ensure . that . the . acquisition . processes . of . land . are . closely . monitored . and . in . compliance . with . all . the . relevant . legis- lation . . The . Company . prioritizes . land . which . is . geographi- cally . close . to . existing . production . clusters . . Additionally, . Black .Earth .Farming .examines .the .existence .of .elevators .in .
proximity .to .the .land .area .and .assesses .the .infrastructure . in . general, . e .g . . regarding . railroad . and . loading . capabilities . . .Currently .the .Company .focuses .almost .exclusively .on .reg- istration .of .title .to .its .existing .controlled .land .holdings .
Economies of scale: . .To .create .logistic .efficiencies .and .other . synergies .the .Company .has .formed .several .production .clus- ters .on .the .controlled .land, .each .being .governed .by .profes- sional .management .with .support .from .the .central .organi- zation . . The . central . organization . coordinates . investments . and .purchases .of .seed, .fertilizers .and .other .inputs .to .benefit . from .scale .discounts . .The .cluster .model .optimizes .the .utili- sation .of .management .resources .since .the .production .clus- ters .consist .of .consolidated .land .areas .
Best practice/technology: . An . important . part . of . the . best . practice . approach . is . to . perform . soil . analyses . which . will . determine . the . selection . of . crops . and . the . optimal . amount . of . fertilizers . needed . for . each . farm . . Black . Earth . Farming . seeks .to .significantly .increase .productivity .by .introducing . modern . agricultural . farming . practices . . Hence, . to . increase . crop .yields .the .Company .hires .internationally-experienced . expertise .and .adopts .efficient .farming .methods .supported . by .western .technology .
Vertical integration: .To .further .improve .margins, .increase .
cash .flow .diversification .and .reduce .exposure .to .commod-
ity .price .volatility, .Black .Earth .Farming .evaluates .selected .
processing .such .as .production .of .rape .and .sunflower .oils . .For .
the .purpose .of .increasing .the .profit .margin .it .is .part .of .the .
Company’s .long .term .strategy .to .gain .control .over .a .larger .
part . of . the . value . chain . through . investments . in . elevators .
and .in .specific .industrial .processing .capacity .
Macro and Industry Overview
Global environment
The . latest . great . industrialization . process . is . underway . within . the . agricultural . sector . . The . current . development . is . towards . bigger . and . more . industrial . farms . and . farming . companies, .some .producers .will .likely .boost .volumes .pre- viously .reserved .for .international .grain .trading .companies . . The . structure . of . the . industry . will . change . dramatically . . Now .we .are .witnessing .a .shift .of .agriculture .from .high-cost, . inefficient . producers . to . low-cost . producers . such . as . Brazil, . .Argentina, .Russia, .Ukraine .and .Kazakhstan, .which .in .most . cases .also .coincides .with .large .pools .of .dormant .or .undevel- oped .farmland . .These .countries .have .the .potential .to .signif- icantly .shift .the .agricultural .power .landscape .
In .the .Agricultural .year .2009/2010, .the .five .largest .grain . (excluding . rice) . producers . – . China, . the . United . States, . the . European .Union, .India .and .Russia .(Table .1, .page .13) .– .account- ed .for .about .67 .percent .of .the .world’s .total .grain .output . .The . United . States . is . the . world’s . largest . overall . grain . producer . if .you .exclude .rice, .where .China .has .the .overwhelmingly . dominant .position . .2009 .grain .harvest .was .lower .than .2008 . record .levels .but .still .large .in .a .historical .perspective . .World . wheat .production .increased .almost .12 .percent .in .2008 .com- pared .to .2007, .amounting .to .a .record .683 .million .tonnes
1. .At . the .same .time .global .wheat .consumption .increased .only .5 .5 . percent . . In . 2009 . global . wheat . . production . declined . about . 1 percent, .that .was .however .much .less .of .a .contraction .than . initially . expected . and . global . production . still . landed . on . a . whopping .678 .million .tones .
The . United . States . is . the . leading . trading . nation . in . the . world .market .for .grains .(not .including .rice) .and .during .the . Agricultural .year .2009/2010 .the .United .States .is .expected . to . reach . a . market . share . of . 32 . percent . of . the . world . grain . export .and .18% .of .global .wheat .export .volumes . .The .United . States .has .however .lost .footprint .on .the .global .wheat .mar- ket . to . such . producers . as . EU-27 . and . Russia . . Five . years . ago . EU-27 .was .ranked .3rd .in .the .world .in .terms .of .global .wheat . trade, .with .13% .market .share . .For .the .2009/2010 .marketing . year .EU-27 .ranks .second .with .and .increased .market .share .of . 15 .percent . .Russia .has .also .substantially .improved .its .global . trade .footprint; .five .years .ago .Russia .was .not .even .among . the . top . 5 . exporters, . of . neither . overall . grain . nor . wheat, . but . in . the . 2009/2010 . marketing . year . Russia . ranks . fourth . among .wheat .exporters .with .also .almost .15 .percent .market . share .according .to .the .USDA .(Table .1, .page .13) . .Other .large . grain .and .wheat .exporters .are .Canada .and .Argentina, .Aus- tralia .and .Ukraine .
. Japan . is . the . largest . importer . while . other . large . grain . importers .are .Mexico, .Egypt, .Iran .and .Saudi .Arabia . .
Economic . distortions . and . political . interference . will . remain .at .the .heart .of .the .industry’s .problems . .A .free .market . with . transparent . pricing, . enforceable . property . rights . and . liberalised .trade .would .solve .just .about .every .agricultural . problem . . The . record . high . prices . in . the . beginning . of . 2008 . was .largely .brought .about .by .a .historically .low .ending .stocks . following .some .years .of .consumption .overshooting .supply, . this .was .then .followed .by .a .significant .drop .in .prices .driven . by .a .record .harvest .in .2008 .and .a .very .good .one .in .2009 .as . well, . coupled . with . global . financial . turmoil, . among . other . resulting . in . a . large . net . sell . off . of . soft . commodity . instru- ments . .Last .two .years .volatility .in .soft .commodity .markets . can .result .in .much .more .vertical .and .horizontal .integration . among .the .large .soft .commodity .producers, .aimed .at .reduc- ing .risk .levels . .Black .Earth .Farming .is .also .gaging .different . options, .some .secondary .grain .trading .using .its .grain .infra- structure .might .be .the .first .development .
Russian environment
Russia .has .undergone .extensive .structural .changes .in .the . last . two . decades . . The . Russian . economic . recovery . began . after . the . sharp . devaluation . of . the . Russian . rouble . in . 1998 . and . since . then, . great . progress . has . been . made . in . restruc- turing . the . Russian . economy . . Stimulated . by . strong . export . growth .and .high .prices, .especially .in .the .oil .and .gas .sector, . Russia .has .experienced .several .years .of .real .GDP .growth .in . the .very .high .single .digits . .
Russia’s .real .GDP .increased .about .5 .6 .percent .in .2008 .but . declined .7 .9 .percent .in .2009 .(Table .2, .page .15) . .The .consen- sus .estimates .for .GDP .growth .in .2010 .is .4 .1 .percent, .How- ever, .according .to .the .Russian .Central .Bank .the .agricultural . output .index, .which .is .an .indicator .of .the .development .of . agricultural . value . output . from . one . period . to . another, . the . sector . experienced . as . much . as . a . 10 .8 . percent . increase . in . 2008 .and .even .showed .a .growth .of .1 .2% .in .2009 .while .the . economy .as .a .whole .contracted . .(Diagram .1) . .
In .terms .of .agriculture .Russia .is .historically .a .significant . global .player .in .wheat . .Russia .has .significant .land .resources . and .a .legacy .of .industrial .size .farming .land .plots .since .the . Soviet .days’ .large .collective .farms . .The .sector .is, .however, . struggling . with . lack . of . sufficient, . modern . agricultural . infrastructure, .such .as: .Storing .and .Drying .facilities, .Seed . production .facilities .and .technology .and .Export .chain .infra- structure .capacity .
There . are . about . 120 . million . hectares . of . arable . land . in .
Russia . . According . to . the .Institute . for . Agricultural . Market .
Studies . (IKAR) . two . thirds . of . the . land . is . today . in . private .
hands . .According .to .statistics .from .Rosstat, .the .state .owned .
some .42 .percent .of .Russia’s .agricultural .land .in .2003 . .Given .
.1 . .USDA13
[russian agricultural output] [government budget expenditures]
[planted hectares w grain & oil seeds] [world pop & meat cons]
[global arable land growth]
d1: Russian agricultural output, year on year change (%) 15%
10%
5%
0%
–5%
–10%
19 95 19 97 19 99 20 01
20 03 20 05
20 07 20 09 –15%
Source: Russian Central Bank
* As of January 2010
[russian agricultural output] [government budget expenditures]
[planted hectares w grain & oil seeds] [world pop & meat cons]
[global arable land growth]
d2: Government budget expenditures for agriculture, million USD
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500
20 04 20 05
20 06 20 07
20 08 20 09 E
20 10E
20 12 E 20 11 E 0
Source: Goskomstat, Russian National Program
t1: Russia’s global production and export footprint – 5 year comparison
All Grains excl. rice – Global Export
2004/2005 2009/2010
Share Country Ranking Country Share
37.8% USA 1 USA 32.9%
12.7% Argentina 2 EU-27 9.5%
9.2% EU-27 3 Canada 9.5%
9.1% Australia 4 Russia 8.7%
8.3% Canada 5 Ukraine 8.5%
All Grains excl. rice – Global production
2004/2005 2009/2010
Share Country Ranking Country Share
23.0% USA 1 USA 23.2%
19.1% EU-27 2 EU-27 16.4%
14.0% China 3 China 15.6%
6.4% India 4 India 6.4%
4.6% Russia 5 Russia 5.3%
Source: USDA
Wheat – Global Export
2004/2005 2009/2010
Share Country Ranking Country Share
26.0% USA 1 USA 18.1%
13.3% Canada 2 EU-27 15.3%
13.2% EU-27 3 Canada 14.9%
13.2% Australia 4 Russia 14.5%
10.5% Argentina 5 Australia 12.1%
Wheat – Global production
2004/2005 2009/2010
Share Country Ranking Country Share
23.5% EU-27 1 EU-27 20.4%
14.7% China 2 China 16.9%
11.5% India 3 India 11.9%
9.4% USA 4 Russia 9.1%
7.3% Russia 5 USA 8.9%
Source: USDA
Barley – Global Export
2004/2005 2009/2010
Share Country Ranking Country Share
28.6% Ukraine 1 Ukraine 35.1%
28.3% Australia 2 Australia 22.2%
21.6% EU-27 3 Russia 12.9%
7.7% Canada 4 Canada 8.8%
7.2% Russia 5 EU-27 8.8%
Barley – Global production
2004/2005 2009/2010
Share Country Ranking Country Share
42.0% EU-27 1 EU-27 41.6%
11.3% Russia 2 Russia 12.0%
8.2% Canada 3 Ukraine 7.9%
7.3% Ukraine 4 Canada 6.4%
5.1% Australia 5 Australia 5.6%
Source: USDA
Sunflower & Rapeseed oil – Global Export
2004/2005 2009/2010
Share Country Ranking Country Share
29.9% Argentina 1 Ukraine 31.6%
24.7% Canada 2 Canada 23.2%
18.8% Ukraine 3 Argentina 13.2%
7.3% EU-27 4 Russia 10.5%
5.8% Russia 5 UAE 5.3%
Sunflower & Rapeseed – Global production
2004/2005 2009/2010
Share Country Ranking Country Share
30.6% EU-27 1 EU-27 31.3%
20.6% China 2 China 16.3%
10.8% Canada 3 Canada 13.2%
10.8% India 4 Ukraine 9.3%
7.1% Russia 5 India 8.4%
Source: USDA
19 96 19 98 20 00
20 02 20 04
20 06 20 08
20 10E *
that .the .land .laws .were .changed .just .prior .to .that .date, .it . is .clear .that .the .law .changes .have .induced .a .transfer .from . state . to . private . hands . . Of . Russia’s . 120 . million . hectares . of . arable . land, . only . about . 75–80 . million . hectares . are . actu- ally . cropped, . meaning . 40–45 . million . hectares . of . unused . fallow .land .in .Russia .(Table .3), .which .is .comparable .to .the . total .amount .of .arable .land .in .Canada .or .somewhat .less .than . Australia . .
Revival . and . development . of . the . Russian . agricultural . sector .is .a .government .priority .and .monetary .support .meas- ures .have .been .established .(Diagram .2) . .According .to .Agri- culture .Minister .Yelena .Skrynnik, .in .2010 .the .Ministry .of . Agriculture’s .funds .for .the .implementation .of .the .State .Pro- gram .for .Development .of .Agriculture4, .including .subsidies . and . direct . federal . investments . into . development . of . some . agricultural .industries, .will .be .107 .6 .billion .rubles .($3 .6 .bil- lion) . .In .2010 .interest .rate .subsidies .will .be .the .major .part . s . of . the . budget, . especially . subsidies . for . new . agricultural . projects . .There .is .indeed .a .momentum .of .consolidation .and . growth .within .the .Russian .agricultural .sector, .brought .on . by . the . Government’s . land . title . establishment, . previously . easily . available . capital . and . rising . soft . commodity . prices . . It . was . further . stimulated . by . the . Government’s . increased . spending . from . the . Federal . Budget . in . the . form . of . certain . input .material .subsidies, .credit .subsidies .and .favorable .tax . rates .for .producers . .
On .the .1st .of .February .2010 .president .Medvedev .signed . the .“Doctrine .for .Food .Security .of .the .Russian .Federation”; . the .main .thesis .of .this .doctrine .is .continued .development . of .internal .agricultural .and .food-processing .capabilities .and . resources .with .the .aim .of .minimizing .imported .foodstuffs .
Primary . goals . – . to . be . achieved . by/before . 2020 . – . are . as . follows:
– . .Internal/domestic . grain . production . must . reach . 95% . of . Russia’s .total .domestic .consumption
– . .Sugar .production .– .80% .of .total .domestic .consumption – . .Vegetable .oil .production .– .80% .
– . .Meat .& .meat .products .– .85%
– . .Milk .& .dairy .products .– .90%
– . .Fish .products .– .80%
– . .The .total .investment .required .towards .implementing .the . above . doctrine . varies . between . USD . $55–$65 . billion . (for . example, .only .grain .infrastructure .investment .est . .at .USD .
$27 .billion) .
In . 2008 . the . Russian . Ministry . of . Agriculture’s . announced . plans .to .transform .the .Agency .for .the .Regulation .of .Food . Markets . (AFM) . into . a . joint-stock . company . – . OAO . United . Grain . Company, . consolidating . shareholdings . in . as . many . as .28 .grain .terminals .into .one .Company . .The .United .Grain . Company .(OOO “Объединенная Зерновая Компания”) .was . set .up .in .March .2009 .with .the .(then .unclear) .aims .of .play- ing .a .major .role .in .the .grain .production .and .distribution . .At . the .end .of .December .2009, .those .aims .have .be .clarified .with . the .official .publication .of .the .Strategic .Development .of .the .
United .Grain .Company .through .2015 .(approved .by .Agricul- ture .Minister .and .Chaiman .of .the .Board .of .the .United .Grain . Company .E . .Skrynnik) .
United Grain Company
The . United . Grain . Company . . is . slated . to . become . the . key/
critical .player .in .the .process .of .implementation .of .the .Doc- trine .for .Food .Security . .The .dual .goal .of .the .United .Grain . Company .is .to .serve .as .the .main .conduit .of .the .government . policy . towards . development . of . additional . grain . handling . capabilities . (e .g . . inland . and . sea-port . elevators . and . related . infrastructure) . as . well . as . becoming . the . major/dominant . national . grain . exporter . The . following . two . charts . outline . United . Grain . Company’s . planned . leading . role . – . with . est . . grain .exports .of .16 .million .tons .out .of .Russia’s .total .38 .mil- lion .tons .by .2015 .– . .towards .fulfillment . .Russia’s .stated .goal . of .becoming .a .major .grain .exporting .player .
The .United .Grain .Company .is .slated .to .play .the .leading .role . in . resolving . Russia’s . widening . grain . handling . & . storage . capacity .deficit .which .– .if .left .unchecked .– .can .reach .up .to . 30 .million .tons .in .deficit .storage .capacity .by .2015 . .The .Unit- ed .Grain .Company .will .be .heavily .investing .into .the .follow- ing .areas:
– . .Additional .in-land .elevator .capacity .from .current .1 .8 .mil- lion .tons .to .8 .4 .million .tons .by/before .2015;
– . .Additional .sea-port .elevator .capacity .from .current .3 .5 .mil- lion .tons .to .16 .million .tons .by/before .2015;
– . .Increase . dedicated . logistics . and . delivery . capability . from . current .1 .0 .million .tons .to .6 .0 .million .tons .by/before .2015;
– . .Creation .of .owned .cargo .railcar .park .of .3000 .units .
Reaching .16 .million .tons .in .grain .exports .(or .9% .of .the .total . world-wide .grain .exports; .breakdown .as .follows:
– . .Exporting .(through .Black .Sea .ports) .up .to .11 .5 .million .tons . towards .North .Africa .and .Middle .East;
– . .Exporting . (through . Far . Eastern . ports) . up . to . 4 .0 . million . tons .to .South .East .Asian .countries;
– . .Exporting .(through .Baltic .ports) .up .to .0 .5 .million .tons .to . West .Africa .and .Latin .American .countries .
The .Group .has .signed .a .comprehensive .cooperation .agree-
ment . with . the . United . Grain . Company, . aiming . at . jointly .
developing . infrastructure . and . logistics . within . the . Black .
Earth .region .
15
t3: Russian land statistics
(000 hectares) 1992 1995 2000 2003 2004 2005 2006 2007 2008
Arable land 132,008 127,500 124,374 122,559 122,146 121,781 121,574 121,574 121,574 Total planted area 114,591 102,540 85,419 79,596 78,785 77,478 75,277 74,759 76,923 Fallow land 17,417 24,960 38,955 42,963 43,361 44,303 46,297 46,815 44,651
Source: FAO Stat, Rosstat, World Bankt4: Value added to Russian Economy from Agriculture
1992 1995 2000 2003 2004 2005 2006 2007 2008 2009
% of GDP 7.0 7.0 6.0 5.5 5.0 4.5 4.1 3.6 3.6 3.9
Source: World Bank, Rosstat
t5: Russian grain market development (million tons)
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Beginning balance 23.8 22.3 18.0 17.0 16.0 15.0 15.0
Production 93.0 95.0 100.0 105.0 110.0 115.0 120.0
Consumption 75.5 77.8 78.6 80.2 80.9 81.7 82.2
Ending balance 22.3 18.0 17.0 16.0 15.0 15.0 15.0
Export 19.0 21.5 22.4 25.8 30.1 33.3 37.8
United Grain Company’s target for share in export 16.0
t2: Russian economic indicators
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E Real GDP growth, percent p.a. 6.4 10.0 5.1 4.7 7.3 7.2 6.4 6.7 8.1 5.6 –7.9 4.1
1Inflation, percent 85.7 20.8 21.5 15.8 13.7 10.9 12.7 9.0 11.9 13.3 11.7 7.5
2Unemployment, end of period, percent 12.4 9.9 8.7 9.0 8.7 7.6 7.7 6.9 6.1 7.7 8.2 9.2
3Real disposable income
(1999=100 percent) 100.0 112.0 122.1 135.5 155.8 171.4 190.3 209.3 232.3 238.6 244.1 n/a International Reserves of the
Russian Federation, end of period
(USD billion ) 12.5 28.0 36.6 47.8 76.9 124.5 182.2 303.7 478.8 427.1 439.0 444.0
4External Debt, end of period
(USD billion) 178.2 160.0 146.3 152.3 186.0 213.5 257.2 310.6 465.4 484.7 471.6 473.7
4 Sources: Bank of Finland, IMF, Goskomstat, Russian Central Bank, Russian Ministry of Economic Development and Trade1. Concensus GDP forecast 2010 2. Inflation for January–February 2010 3. As of end of January 2010
4. As of end of March 2010
