Alpcot Russian Land Fund AB (publ) Corporate registration number: 556710-3915
Visiting and postal address:
Birger Jarlsgatan 2, SE-114 34 Stockholm, Sweden www.alpcotagro.com
info@alpcotagro.com
Alpcot Capital Management Ltd.
Visiting and postal address:
3rd Floor, Cardinal House
39–40 Albemarle Street, London W1S 4TE, UK www.alpcot.com
info@alpcot.com
Annual Report 2007
The year in brief
Carl Aschan became CEO on 1 February 2007.
During the year, Alpcot Agro acquired land in four regions in Russia; Volgograd, Voronezh, Tambov and Lipetsk. At the end of the year the Company controlled approximately 93,000 hectares and owned, pri- marily through land certificates, approximately 44,000 hectares.
At the beginning of May the Company seeded approximately 1,000 hectares of barley with new Western equipment in one municipality in Voronezh. The purpose of the spring seeding was mainly to demon- strate the Company’s intent to invest and operate there. This municipality later became one of the Company’s key focus areas.
The Company harvested around 10,500 hectares, which resulted in a harvest of approximately 12,600 tonnes of grain and revenues of around SEK 16 million. The poor harvest was partly due to the warm, dry summer but also due to the fact that it mostly consisted of crops from acquired farms where old Russian seeding techniques had been used. Wheat made up approximately 4,900 tonnes of the harvest, barley around 4,200 tonnes, rye around 800 tonnes and sunflower around 2,600 tonnes.
The mild autumn in Voronezh and Volgograd made it possible to extend the seeding period to the first week of October. The Company seeded around 18,300 hectares; 14,600 hectares of wheat and 3,600 hectares of rye. There was also a limited trial seeding of 90 hectares of rapeseed.
The Company completed three successful capital raisings in 2007 totalling around SEK 862 million. The first capital raising took place in January and amounted to around SEK 228 million, the second took place in October and amounted to around SEK 274 million and the third capital raising took place in December and amounted to around SEK 360 million.
During the year, investment in new Western machinery and equipment amounted to around SEK 30 mil- lion, while investment in new Russian machinery amounted to around SEK 2.4 million. The value of the machinery and equipment the Company took over in connection with acquisitions was around SEK 9.7 million.
At the end of the year the Company had 299 employees. A managing director and financial manager have been recruited for the Russian management company and operating managers have been appointed for Voronezh and Volgograd. The Company has also emphasised theoretical education and practical training for the employees to provide them with a fundamental understanding of the new agri- cultural techniques and how to use the machinery and equipment.
In 2008 the Company has been continuing its expansion and at the beginning of March Alpcot Agro controlled around 109,000 hectares in six regions in Russia: Voronezh, Volgograd, Tambov, Lipetsk, Kursk and Kurgan.
At the time of writing the Company is in the process of completing the spring seeding of around 30,000 hectares.
The shareholders in Alpcot Russian Land Fund AB (publ), 556710-3915, (“the Company” or “Alpcot Agro”) have been given notice to attend the Annual General Meeting on 13 May 2008 at 4.30 p.m. in Markelius Hall, Norrlandsgatan 11, Stockholm, Sweden.
The Board of Directors of Alpcot Russian Land Fund AB proposes that the name of the Company be changed to Alpcot Agro AB. The name change is intended to clarify the line of business, emphasize the Company’s long-term operational objectives and reflect the planned expansion of the Company’s opera- tions into Ukraine.
This is an unofficial translation of the Company’s Swedish annual report. In the event of any discrepancy between the Swedish original text and this English translation, the Swedish text shall prevail.
Intellecta Finanstryck 0827725
Table of contents
Alpcot Agro in brief 2
CEO’s comments 4
Market and market environment 7
Agriculture in Russia 11
Operations 16
Focus areas 22
Organisation 28
Employees 31
Environment and social responsibility 32 Share capital and ownership structure 35
Board of Directors report 37
Consolidated income statement 39
Consolidated balance sheet 40
Consolidated statement of changes in equity 42
Consolidated cash flow statement 43
Notes 44
Parent Company income statement 63
Parent Company balance sheet 64
Parent Company statement of changes in equity 66 Parent Company cash flow statement 67
Supplementary information 68
Audit report 71
Board of Directors, senior executives and 72
Investment Managers 72
Definitions 74
AlPCOT AgRO | ANNuAl REPORT 2007
Alpcot Agro in brief
BUSINESS IDEA
To generate an attractive return on invested capital by acquiring and farming agricultural land in Russia and other CIS states.
HISTORY
Since the Company was founded in 2006 by Alpcot Capital Management (“ACM”), Alpcot Agro has expanded at a rapid pace. From the Company’s operational launch in connection with the first share issue in January 2007 to March this year, the Com- pany has taken control of more than 109,000 hec- tares and currently has more than 500 employees.
The Company completed two additional capital raisings in 2007 and the three capital raisings attracted a total of SEK 862 million.
The expansion has progressed according to the established land acquisition plan, and in 2007 the Company took control of and acquired, directly or indirectly, agricultural land in four regions in Russia:
Voronezh, Volgograd, Tambov and lipetsk. In the beginning of 2008 the Company also acquired agri- cultural land in two additional regions: Kursk and Kurgan. As of 31 December, 2007 the Company had around 93,000 hectares in land under control and had, directly or indirectly, around 44,000 hectares in ownership.
In 2007 the Company also established offices in Volgograd, Voronezh and Tyumen and recruited key personnel for management positions.
ORGANISATION
under a management agreement, the Company has access to ACM as Investment Manager in the implementation of the Company’s investment strat- egy. ACM provides proposals and recommenda- tions regarding investments and other significant business issues and executes Alpcot Agro’s invest- ment decisions. (For more information on the man- agement agreement and ACM’s primary responsi- bilities see pages 29 and 58.)
The distribution of responsibilities is such that the main focus of Alpcot Agro’s management is to develop the organisation and the agricultural busi- ness while ACM focuses mainly on the land acquisi- tion process, recruitment of key personnel and of overall strategy issues.
Alpcot Agro’s head office is in Stockholm where the management team, which consists of the CEO, Financial controller and Chief Agronomist, is located.
The management team manages the organisation through the Russian management company which in turn manages the local farms. The Company today operates in six regions: Voronezh, Volgograd, Tambov, lipetsk, Kursk and Kurgan. At farm level, the operation is divided into two parts, one admin- istrative part run by the farm managers and one crop production part made up of the local agrono- mists and the farm tractor teams. A tractor team consists of two drivers responsible for one tractor and the auxcillary equipment.
INVESTMENT STRATEGY
Alpcot Agro’s expansion is being managed by Alpcot Agro’s Investment Manager, ACM. ACM is overseeing the registration of leases and is at the same time working on acquiring the land that Alp- cot Agro is farming.
Investment opportunities are evaluated based on the below set of criteria with the objective of building an efficient agricultural company:
The quality of the soil and precipitation The size of the focus area
Proximity to population centres Proximity and access to infrastructure geographical diversification geographical extension
Relationships with local politicians
Alpcot Agro aims to control around 200,000 hec- tares of agricultural land in Russia by the end of 2008.
ANNuAl REPORT 2007 | AlPCOT AgRO Alpcot Agro in brief
OPERATIONAL STRATEGY
Alpcot Agro’s strategy is to operate an efficient, modern agricultural business according to Western best practices. The Company’s value chain has three links: crop production, storage and sales.
Crop production
After acquiring agricultural land, the Company breaks fallow where this is necessary and then focuses on improving the yields. This is done by increasing the use of modern machinery and equip- ment and by using modern Western agricultural techniques.
Cultivating fallow land. The land acquired by Alpcot Agro is often fallowed. To cultivate this land, Alpcot has mainly opted to work with a so- called plough-free technique, which is less labour-intensive and costly than traditional Russian methods. The Company also uses sev- eral different techniques to restore and prepare the fields for seeding.
Increasing the yields. Once the land is in cultiva- tion the focus is on maximising productivity.
Alpcot Agro works according to a simple princi- ple that aims to maximise the financial perform- ance within the natural restrictions determined by the crop rotation. Fertilizers and plant pro- tection are used in accordance with the estab- lished crop production plan combined with field visits to make adjustments as needed during the growing season.
Machinery and equipment. Alpcot Agro plans to use mainly Western farming equipment with only a limited amount of Russian equipment where this is economically justified. During 2007 and in the spring 2008 the Company invested around SEK 240 million in new equipment and the Company now has adequate machinery to handle both the spring seeding and harvesting and most of the planned fall seeding campaign of 50,000 hectares in 2008.
Grain storage
Having its own storage capacity is an important ele- ment of Alpcot Agro’s value chain as it allows the Company to maximise revenues. The Company can, for example, choose to sell its harvest during the winter when the prices are usually higher than during the actual harvesting period.
Sales
The Company intends to establish its own central sales organisation and sees potential in optimising and increasing the efficiency of the sales process.
During the year the Company sold its grain to local and national grain buyers, mainly at spot prices, but the Company is assessing the option of selling por- tions of future harvests under futures contracts, for example by trading on the futures exchange that has opened in Moscow.
AlPCOT AgRO | ANNuAl REPORT 2007
CEO’s comments
I became CEO of Alpcot Agro on 1 February 2007.
This past year has been both intense and exciting.
It has also been a year full of strong contrasts. One day I was meeting financial investors in the big cities of Europe, the next I was in the Russian countryside meeting kolkhoz workers. Out of everything I have done and that has happened during the year, I re- member in particular two occasions that made a significant impression on me. One was when I for the first time saw all of these enormous fields and realised how much unexploited potential there was in the black earth just a three-hour flight away from Munich. The other occasion was in September at an inspection of the Company’s fall seeding of more than 18,000 hectares. As far as the eye could see there was winter wheat and winter rye which had just started to sprout from the ground in well pre- pared and levelled fields. This made me think back to what some of these fields looked like when they were in fallow just a few months earlier – uneven and covered with weeds.
A key success factor has been the distribution of responsibilities between the Company and the Investment Manager, ACM. The Investment Man- ager has many years’ experience of doing business in Russia and has established good relationships with the local administrations in the various regions.
This has made it possible to acquire land at a fast pace at the same time as the Company has been able to focus on the operational aspects of the business.
At the beginning of the year I spent a lot of my time establishing the Company, opening local branch offices and implementing the legal structure as well as the administrative routines. I also made numerous trips to Russia accompanied by Invest- ment Manager representatives to assess new invest- ment opportunities. As the Company has acquired land, my focus on the agricultural business has increased and I have spent more time implementing and developing the Company’s operational farming strategy.
The Company decided at an early stage to use a plough-free farming strategy. First and foremost, this plough-free strategy involves less driving in the fields, which saves diesel and labour. I believe that the plough-free strategy is also particularly well- suited for the black earth belt since it preserves the ground moisture and leads to a good ground struc- ture, which in turn helps to ensure strong crop development.
In the summer we held training sessions in the fields with agronomists and tractor drivers at the
newly acquired farms. The purpose of the training was to teach and demonstrate the benefits of the plough-free technique compared to the traditional Russian method of farming. It also included lessons in the practical use of the newly purchased Western equipment.
Summer work focused on cultivating the fallow fields; removing the weeds and preparing the fields for the winter seeding. I carried out numerous field inventories with our regional managers and the local kolkhoz directors and farm agronomists. We analysed and discussed different problems in the field and decided what needed to be done to address, for example, the weed situation. The deci- sions made were followed up on a regular basis in the field later on during the year.
At the time of writing, the spring seeding of around 30,000 hectares is under way. The most important crops are barley, wheat, sunflower and maize. During the winter the Company made addi- tional investments in new Western machinery and trained and certified more than 120 employees in the new farming techniques and equipment. The Company’s current machine capacity is essentially sufficient for the planned winter seeding of around 50,000 hectares in 2008.
A strategically important aspect of the Compa- ny’s value chain is to ensure that there is adequate storage capacity for the summer and autumn har- vests. The Company is therefore also involved in several parallel projects to acquire its own storage capacity.
The Company’s goal is to control 200,000 hec- tares and to own, directly or indirectly, 100,000 hec- tares in Russia by the end of 2008. In order to grow at this pace while maintaining control, the focus this year is on reinforcing the Company’s various man- agement functions and developing reporting and cost-control routines.
Our expansion plan also includes listing the Company’s share on an established marketplace.
Our objective is to list the Company’s share on First North in the second half of 2008, and we are aiming to apply for a listing on OMX Nordic Exchange Stockholm at the end of 2009.
I am optimistic about the years ahead and hope that through skill, hard work and with the weather on our side, we will have many successful harvests to look forward to.
Carl Aschan
Chief Executive Officer
ANNuAl REPORT 2007 | AlPCOT AgRO Photo above:
CEO Carl Aschan presents the Company’s new techniques to the mayor of a municipality Photo below:
Winter seeding 2007
AlPCOT AgRO | ANNuAl REPORT 2007
Photo above:
210 hectares of winter wheat in Volgograd Photo below:
Some of the new tractors in Volgograd
ANNuAl REPORT 2007 | AlPCOT AgRO
Market and market environment
GLOBAL SITUATION
The global conditions for agriculture production are currently very beneficial. As a result of popula- tion growth in the world, increasing prosperity, changes in diets and demand from the biofuel sec- tor, the markets for several agricultural products have gone from supply-driven to demand-driven.
The production of agricultural products will, of course, increase in the future as a direct result of the higher price levels, but in general it seems that many of the positive trends will be sustained. Climate change may also impact production of agricultural products in the future, although it is not clear how it will impact total production.
Population growth
Today there are some 6.8 billion people in the world and this figure is expected to grow by an average of 1.1 per cent per year over the next decade. The uN predicts that the world’s population will reach 9.2 billion by 2050, an increase of 35 per cent on today’s level.
The strongest population growth is expected in the developing countries, mainly in Africa, latin America and parts of the Middle East and Asia, while the population in the CIS states over the next decade is expected to be essentially steady.
Economic prosperity
The global economy is growing strongly and according to the IMF, the world’s gross national product will increase by an average of 4.5 per cent a year between 2008 and 2013. The growth will mainly be driven by the world’s developing coun- tries and particularly by the so-called BRIC nations (Brazil, Russia, India and China), which are expected to play an increasingly important role in the global
economy. These countries are growing at a very rapid pace and according to the investment bank goldman Sachs, their combined economy may in 40 years be larger than the economy of the g6 nations
1)combined. Of today’s g6 nations, perhaps only the uS and Japan will remain among the world’s six largest economies by 2050.
Changing eating habits
As people become more prosperous, their diets change. The main change is a shift in eating habits to foods that are higher in calories and protein, such as meat. Population growth and increased economic prosperity thus lead to an increase in meat consumption.
Meat consumption per capita in China and Russia according to FAPRI is expected to increase by 2.9 per cent and 2.7 per cent respectively between 2003 and 2010. In developed countries, such as the uS and the Eu area, meat consumption is growing much more slowly (0.3 per cent and 0.1 per cent respectively over the same period).
Meat production requires large quantities of grain as feed. According to FAO three kilos of grain are needed to produce a kilo of chicken, four kilos of grain for a kilo of pork and eight kilos for a kilo of beef. An increase in the consumption of meat thus acts as a multiplier for grain demand.
New sources of energy
Interest in biofuels has increased as a result of rising oil prices. Biofuels are used to replace fossil fuels such as petrol and are divided into two categories:
bioethanol (based on wheat, maize, sugar cane or sugar beet) and biodiesel (derived from rapeseed, palm or soya oil).
1) uSA, uK, germany, Japan, France and Italy.
Meat consumption
per capita, kg 2003 2004 2005 2006 2007 2008e 2009e 2010e
CAGR 2003–2010e
Brazil 76.8 78.1 82.9 84.7 85.5 86.2 87.2 88.1 2.0%
India 2.9 3.1 3.2 3.3 3.4 3.3 3.3 3.4 2.4%
China 49.0 50.5 53.0 55.5 56.4 57.5 58.5 59.7 2.9%
Russia 44.9 44.0 49.9 50.6 51.6 52.4 53.2 53.9 2.7%
ukraine 26.2 33.7 31.9 32.9 34.6 35.7 36.8 37.8 5.4%
Eu 81.2 80.4 80.3 80.9 80.8 81.1 81.5 81.7 0.1%
uSA 115.3 117.2 116.8 117.3 117.0 117.2 117.2 117.3 0.3%
Source: FAPRI
AlPCOT AgRO | ANNuAl REPORT 2007
Biofuel consumption has increased significantly and the OECD (Organisation for Economic Co-opera- tion and Development) estimates that biofuel use in Europe will grow by 170 per cent between 2006 and 2010. An Eu directive sets the target for biofuel use to 5.75 per cent of total transport fuel consumption by 2010 and 10 per cent by 2020. The development is similar in the uS and according to IFIF, 25–30 per cent of the uSA’s corn crops will be used to produce bioethanol in 2011–2012.
RUSSIA
Economic growth
Economic growth in Russia amounted to 8.1 per cent in 2007. The growth is expected to weaken somewhat in 2008 and 2009 as a consequence of the global credit crunch, a stronger rouble and increased imports. If oil prices remain high, the Russian economy is expected to experience strong growth over the next few years, mainly driven by domestic consumption and investment.
Public finances are strong in Russia which had a surplus in 2007 equivalent to 5.4 per cent of gDP, somewhat lower than 7.4 per cent for 2006. The Russian government is expected to spend a larger portion of the surplus in the next few years, which will stimulate economic growth.
Russia’s surplus in the balance of payments on cur- rent account in 2007 amounted to uSD 76.1 billion, which is 20 per cent lower than in 2006. In 2007 exports rose by 16 per cent, while imports grew by 37 per cent. The trend of falling surplus in foreign trade is expected to continue in 2008 and 2009.
Monetary policy
The Russian central bank’s objective is to fight infla- tion while maintaining the competitiveness of Russian industry. Russia has a floating exchange rate, but the Russian central bank intervenes to influence the rate in the desired direction.
Inflation pressure has gradually increased since 2007 due to higher energy prices, large capital inflows and a less restrictive budgetary policy.
Higher prices for food and services also contributed to drive inflation up to 12.6 per cent in Russia in February 2008 on a rolling 12-month basis.
0 5 10 15 20 25
2009e 2008e 2007 2006 2005 2004 2003
GDP growth Private consumption
Public consumption Investments Source: Economist Intelligence unit
GDP growth in Russia, %
0 20 40 60 80 100
2008e 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 11.00
84.4
20.2
15.1 12.0 11.7 10.9 9.0 11.9 11.5 36.5
18.6
Source: Economist Intelligence unit
Inflation in Russia, %
Market and market environment
ANNuAl REPORT 2007 | AlPCOT AgRO Politics
Russia has enjoyed political stability since Vladimir Putin was elected President in 2000. Dimitry Med- vedev received 70 per cent of the votes in the Presi- dential election in 2008, and will be inaugurated as president in May this year. Criticism has been expressed mainly in the West about the concentra- tion of power around the governing in Kremlin and how, for example, Russian State TV has been used
to present a one-sided picture in favour of Medvedev’s candidature. As long as the Russian middle class is satisfied with the economic develop- ment and their recently acquired prosperity, the internal criticism in Russia is expected to be limited.
The market-oriented policies are expected to con- tinue with some government intervention and con- trol in strategic sectors.
Russia forecast overview (% unless indicated otherwise) 2006 2007 2008e 2009e
gDP growth 7.4 8.1 7.1 6.2
unemployment 7.2 6.2 6.7 6.6
Inflation 9.0 11.9 11.5 9.5
Budget balance (% of gDP) 7.4 5.4 2.5 1.4
Balance of payments on current account (uSD billion) 94.5 76.1 80.8 50.8
Balance of payments on current account (% of gDP) 9.6 5.9 5.1 2.5
Exchange rate RuB:uSD (31 December) 26.3 24.55 25.1 25.7
Source: Economist Intelligence unit
Winter wheat in Voronezh at the beginning of October 2007
Market and market environment
10 AlPCOT AgRO | ANNuAl REPORT 2007
Photo above:
Inspection of the winter wheat in Volgograd Photo below:
A combi seeding machine is refilled with fertilizer,
spring campaign 2008
ANNuAl REPORT 2007 | AlPCOT AgRO 11 INTRODUCTION
Russia has around 125 million hectares of agricul- tural land, which is equivalent to 7.3 per cent of the country’s total surface area. In the Soviet era, pro- duction was largely dependent on substantial sub- sidies. After the fall of communism Russian farmers were forced to pay market prices for input goods such as diesel and fertilizer, which reduced con- sumption dramatically. As a result, production levels and yields fell sharply. Diesel and fertilizer con- sumption fell, for example, from 20.1 and 11.1 mil- lion tonnes respectively in 1990 to 5.0 and 1.4 mil- lion tonnes in 2000.
After declining for ten years, the Russian agri- cultural sector started to show small signs of recov- ery. The transition to a market-driven system involved taking financial responsibility, which led to higher returns as the farmers tried to maintain pro- duction levels at the same time as taking the cost of input goods into account.
The main reason for the recovery in Russian agriculture is the growing role of private farming.
Small-scale family farms and other private farmers accounted for close to 59 per cent of agricultural production in 2006. Agricultural organisations, con- sisting mainly of transformed sovkhozy (state- owned farms) and kolkhozy (collective farms), con- trolled almost three quarters of the agricultural land, but accounted for around 41 per cent of agri- cultural production in 2006.
RUSSIAN LIVESTOCK FARMING
livestock farming also collapsed after the fall of communism, making Russia a major net importer of pork, beef and chicken.
The Russian government has made recovery in live- stock farming a national priority, which is reflected in the national farming programme, one of five national programmes financed by the federal budget. The national programme gives private initi- atives in livestock farming – particularly milk pro- duction – interest subsidies, tax breaks and other benefits for a period of up to eight years.
Agriculture in Russia
0 10 20 30 40 50 60
2007 2006 2005 2004 2003 2002 2001 1996 1993
Cattle Pigs Sheep and goats
Source: Rosstat
Livestock farming, millions of animals
1 AlPCOT AgRO | ANNuAl REPORT 2007
RUSSIAN GRAIN PRODUCTION
Russian grain yields are significantly below yield lev- els in other important grain-producing nations, but a significant recovery in yields has been registered since 1998. Also, there are signs at local level of sig- nificantly higher yields in many Russian regions, where investments have been made and where modern farming techniques are being used.
According to the Minister for Agriculture Alexey gordeyev, the official goal is to increase grain pro- duction in 2008 to 85 million tonnes, an increase of 3.6 per cent from 2007, and to 100 million tonnes by 2012. gordeyev is expecting exports during the agricultural year 2008/2009 to amount to 15 million tonnes, which is a small increase on the current agri- cultural year. By 2010 the Russian government’s goal is to increase grain exports to 25–30 million tonnes.
Sharply rising food prices in Russia have forced the Russian government to put in place a price freeze on certain foods and to impose export duties on certain grains. The export duty measure has slowed grain price increases in Russia, but only temporarily and to a limited extent since the domestic demand is strong. The export duties, which are scheduled to end on 1 July 2008, amount to 40 per cent (but not lower than EuR 105 per tonne) for wheat and rye, and 30 per cent (but not lower than EuR 70 per tonne) for barley.
RUSSIAN OIL SEED PRODUCTION
Russian oil seed production is dominated by sun- flowers. Sunflower production decreased by 1.1 mil- lion tonnes to 5.7 million tonnes in 2007, mainly due to the fact that the land area for growing sunflowers was reduced by 14 per cent. Soya bean production fell in 2007 by 19 per cent to 650,000 tonnes. Rape- seed production, on the other hand, grew by 21 per cent to 632,000 tonnes. The country’s total oil seed production fell to 7.0 million tonnes in 2007 from 8.2 million tonnes the previous year. The positive production trend since 2001 has been temporarily interrupted.
The drop in oil seed production resulted in price levels for sunflowers of around 22,000 roubles per tonne in spring 2008, which can be compared with a price of around 6,300 roubles the same time the previous year. Sovekon believes that the land area for growing sunflowers will increase in 2008 in Russia’s southern regions as a response to the very high price levels.
RUSSIAN SUGAR BEET PRODUCTION
Sugar beet production increased steadily between 2000 and 2006. In 2006 a record harvest of 30.9 mil- lion tonnes was registered. In 2007 production fell to 28.8 million tonnes, partly due to lower yield of 29 tonnes per hectare compared to 32 tonnes per hectare in 2006. Russian farmers are protected by import duties on sugar cane.
Russia will reduce the amount of land area for growing sugar beet in 2008 by just below 7 per cent according to analysts at the Russian Sugar Associa- tion.
0 20 40 60 80 100 120 140
-07 -06 -05 -04 -03 -02 -01 -00 -99 -98 -97 -96 -95 -94 -93 -92 -91 -90
Million tonnes Tonnes per hectare
0.0 0.5 1.0 1.5 2.0 2.5
Harvest Productivity
Source: Sovekon
Past harvests and productivity (Grain)
0 1 2 3 4 5 6 7 8
-07 -06 -05 -04 -03 -02 -01 -00 -99 -98 -97 -96 -95 -94 -93 -92 -91 -90
Thousand tonnes Tonnes per hectare
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6
Harvest Productivity
Source: uSDA Foreign Agricultural Service/Sovekon
Past harvests and productivity (Sunflowers)
Agriculture in Russia
ANNuAl REPORT 2007 | AlPCOT AgRO 1
Sugar beet will be grown on an area of around 994,000 hectares in 2008, which is around 72,000 hectares less than in 2007. The reduction is due to uncertainty of raw sugar imports to Russia in the second half of 2008 and the price of sugar beet dur- ing the period. Also, a sharp increase in the cost of fertilizer has had a restraining effect on sugar beet farming. According to the Russian Sugar Associa- tion, the cost of growing sugar beet may increase by 46 per cent as a result of higher fertilizer costs.
Higher prices on grain and other crops have also been a negative factor for the sugar beet produc-
tion levels.
05 10 15 20 25 30 35
2007 2006 2005 2004 2003 2002 2001 2000
Million tonnes Tonnes per hectare
0 5 10 15 20 25 30 35
Harvest Productivity
Source: Sovekon
Past harvests and productivity (Sugar beet)
0 50 100 150 200 250 300 350 400 450 500
April 2008March 2008February 2008January 2008December 2007November 2007October 2007September 2007August 2007July 2007June 2007May 2007April 2007March 2007February 2007January 2007December 2006November 2006October 2006September 2006August 2006July 2006June 2006May 2006April 2006March 2006February 2006January 2006December 2005November 2005October 2005September 2005August 2005July 2005June 2005May 2005April 2005March 2005February 2005January 2005
Feed wheat (Chicago) Feed maize(Chicago)
Index
Source: Agronomics
Price development wheat and maize THE DOMESTIC GRAIN MARKET
Prices for agricultural products have in general risen sharply on the global markets due to the factors high- lighted in the External environment and markets section.
global wheat stocks have fallen to the lowest levels in modern times, but the london-based Interna- tional grains Council expects global wheat produc- tion to rise from 604 million tonnes in the 2007/2008 agricultural year to 646 million tonnes in 2008/2009.
The high wheat prices have led to a situation where wheat has driven other crops out of the market.
Maize production, for example, is expected to fall by 20 million tonnes to 748 million tonnes 2008/2009.
In general the markets for agricultural products are expected to continue to be demand driven, which should set the stage for high grain prices.
The domestic prices for agricultural products in Russia are strongly linked to global market prices.
In general the prices in Russia follow a distinct sea- sonal pattern, i.e. lower prices during the harvest and higher prices during the winter months. One reason for the distinct seasonal pattern is that the
Agriculture in Russia
1 AlPCOT AgRO | ANNuAl REPORT 2007
infrastructure in the form of storage capacity is not as developed in Russia as in the West, which results in a local surplus during harvest. Also, the introduc- tion of export duties on certain crops have resulted in the local prices in Russia being lower than inter- national price levels.
FINANCING OPPORTUNITIES
land mortgages have not yet been introduced in Russia; however, the banks approve registered long-term leases and accept registered land as a portion of the security when granting long-term investment loans.
The federal authorities in cooperation with the local authorities offer a number of subsidising meas- ures to the agricultural sector, including grants for insurance premiums, subsidies for seed producers and livestock breeders, as well as interest grants for agricultural companies. Depending on the region, grants are also provided for fertilizer and pesticides.
In order to qualify for these subsidies and relief measures, 70 per cent of a company’s revenues must originate from crop production or livestock breeding.
Interest grants are paid out in the amount of 2/3 of the key interest rate from the federal budget and in certain circumstances 1/3 of the key interest rate from the local budgets. The direct grants vary from region to region.
WTO MEMBERSHIP
WTO membership is an explicit objective of the Russian government. In general, a Russian WTO membership will mean that import duties will have to be reduced and that Russian exporters will have better access to the world’s markets. This will have a negative impact on sectors in Russia that are cur- rently protected by high import duties, such as meat producers and the food industry. Membership will have a positive impact on Russian exporters of such products as grain as they will enjoy a more sta- ble and transparent access to foreign markets within the framework of a multilateral regulation- based system. This is unlike the current situation where WTO members can freely introduce non- tariff trade barriers on Russian exports.
Member negotiations are under way and within the agricultural sector the most important ques- tions concern the State agricultural subsidies in Russia. Russia has asked for agricultural subsidies to amount to the equivalent of uSD 9.2 billion.
Russian WTO membership has been delayed by a series of circumstances. One of the most serious obstacles hindering Russian membership today is the Russian export duties on timber, which are hav- ing a negative impact, for example, on the Swedish and Finnish forest industry.
0 50 100 150 200 250 300 350 400 450
March2008February 2008January 2008December 2007November 2007October 2007September 2007August 2007July 2007June 2007May 2007April 2007March 2007February 2007January 2007December 2006November 2006October 2006September 2006August 2006July 2006June 2006May 2006April 2006March 2006February 2006January 2006December 2005November 2005October 2005September 2005August 2005July 2005June 2005May 2005April 2005March 2005February 2005January 2005
Milling wheat Russia (FCA central region) Benchmark from Agronomics (wheat class B delivery Hamburg) USD/tonne
Source: Reuters, Agronomics
Wheat price development
Agriculture in Russia
ANNuAl REPORT 2007 | AlPCOT AgRO 1
Photo above:
Preparing the fields for the winter seeding 2007 Photo below:
Inspection and quality assurance of measures taken in fields
1 AlPCOT AgRO | ANNuAl REPORT 2007
Operations
OPERATIONS IN 2007
Alpcot Agro launched its operations in the Voronezh region in Russia in late spring 2007 and the Com- pany did hence not have the opportunity to spring seed a large area. With the help of newly purchased Western equipment, the Company seeded 1,000 hectares of barley, although most of the land har- vested in the autumn by Alpcot Agro was from farms acquired by the Company before the begin- ning of the harvest period at the end of July 2007.
The Company harvested a total of around 10,500 hectares, of which 8,200 in Voronezh and 2,300 in
Volgograd. There was therefore no active choice made with respect to the distribution of the various crops in 2007; the results were a consequence of the acquisition of farms up to July. As the table on the next page shows, wheat and barley were the dominant crops. The yield per hectare was nega- tively affected by the dry Russian summer.
The Company’s farms in Tambov and lipetsk were acquired in late summer 2007, and conse- quently only minor operations were started there during the year.
Moscow
Kiev
Lipetsk Tambov
Voronezh
Volgograd
0 500 1,000 1,500 km
glacier/
inland ice Tundra Forest Farmed land
pasture land Semi-desert, desert
ANNuAl REPORT 2007 | AlPCOT AgRO 1
Grain Hectares
Tonnes/
hectare
Harvest (tonnes) Voronezh
Wheat 2,298 1.38 3,182
Rye 960 0.88 840
Barley 3,311 1.28 4,247
Sunflower 1,674 1.27 2,133
, 10,0
Volgograd
Wheat 1,078 1.33 1,438
Sunflower 716 0.71 508
Buckwheat 499 0.51 252
, ,1
Total 10, 1,00
Source: Alpcot Agro
The Company’s main focus in the summer of 2007 was on breaking and preparing as many hectares of fallow land as possible for winter seeding. using newly purchased Western tractors and seeding equipment, Alpcot Agro seeded around 18,300 hectares in the fall, of which around 14,600 hectares was wheat and around 3,600 hectares was rye. The breakdown of the fall seeding campaign by region and crop is shown in the table below.
At the time of writing, the spring seeding of around 30,000 hectares is under way. The Company is planning to harvest around 50,000 hectares dur- ing 2008.
Hectares
Winter wheat Rye
Winter
Rapeseed Total
Voronezh 9,830 3,612 91 13,533
Volgograd 4,272 4,272
lipetsk 480 480
Total 1, ,1 1 1,
Source: Alpcot Agro
ELEMENTS OF THE COMPANY’S OPERATIONS Preparing the land
Breaking fallow
Since farming in Russia has been neglected for many years, some of the land acquired by Alpcot Agro is fallowed and in such a poor condition that it needs to be prepared before it can be seeded.
Often the fallow fields are both uneven and over- grown with weeds.
Alpcot Agro has opted to work with a so-called plough-free technique. This means that instead of a plough, the Company uses various types of cultiva-
tors to prepare the fields for seeding. Only in excep- tional cases where the fields have particular packing and structural damages are the fields treated at a deeper level. The land acquired by the Company has often been fallow for several years, which means it often has naturally regained a good ground struc- ture. This often reduces the need for deep treat- ment, which is labour-intensive and costly. Another very important measure to prevent the occurrence of packing and structural damage is a ban on driving vehicles with high pressure tyres in the fields.
Depending on the nature of the fallow land, the Company uses various strategies to restore and prepare the fields for the upcoming seeding period.
To prepare a field for seeding as cost efficiently as possible, the fallow field is evaluated jointly by Western experts and the local agronomists before decisions about machinery use are made. In addi- tion to the usual herbicide treatment, the fallow land is treated at varying depths depending on the type of weeds and soil structure.
In the case of a long fallow period, the Company uses a disc cultivator to effectively cut down the weeds and break up the underlying root systems.
A disc cultivator is used with good results on overgrown fallow land. Following this work proc- ess the seedbeds are levelled out in the field with a lighter harrow.
In the case of a short fallow period, the Company uses a so called TopDown cultivator that can reach depths of between 8 and 25 centimetres to prepare the seedbeds and repack the earth. One or two passes in the field are normally enough to prepare the field using this method.
In order for the Company to reach full capacity utili- sation for all of its machinery in the fields, it is of strategic importance to make the fields leveled.
leveled fields enable production efficiency to be increased; for example, the farming machinery can maintain a higher speed with less risk of damage on machinery and equipment. levelling also ensures that the crops grow more uniformly after seeding, which makes for a more uniform maturity and there- fore also a more efficient harvesting.
Increasing yields
Once the land is being cultivated the focus shifts to maximising yields. This is done by ensuring the
Operations
1 AlPCOT AgRO | ANNuAl REPORT 2007
plant nutrient status and that weeds are controlled among in the growing crops. Fertilizing and weed control are done on a continuous basis in accord- ance with established crop production plans com- bined with field visits to make necessary adjust- ments during the growing season. Ongoing follow-up and adjustment of established crop pro- duction plans are important since fertilizing and weed control are relatively costly processes. The Company works according to a simple principle that aims to maximise the financial performance within the natural restrictions that are determined by the crop rotation, and carries out regular evalua- tions to optimise the use of fertilizer and plant pro- tection on the cultivated land.
Machinery and equipment
In the future, Alpcot Agro plans to use mainly Western farming equipment with only a limited amount of Russian equipment where this is econom- ically justified. In connection with land acquisitions the Company usually takes over Russian equipment, although most of the Russian farming machinery cannot effectively be used for field work. The excep- tion is small tractors, some spraying and spreading equipment and support vehicles for road transports, such as lorries and tank trucks. These types of equipment and machinery are often fully functional and will be used throughout their life span.
In 2007 and spring 2008 Alpcot Agro made con- siderable investments in new Western equipment equivalent to around SEK 240 million. After delivery the Company will own 48 new John Deere tractors, 31 Rapid, Seedhawk and Optima seeding machines adapted for the Company’s crop production plan, 20 TopDown and Carrier cultivators to break fallow fields and prepare seedbeds, 15 sprayers, including Kvarneland and lemken, and 17 spreaders, includ- ing Rau and Bogballe for plant protection processes and fertilizing. The Company has also invested in 20 new Claas combines and, in connection with acquiring farms, has taken over eight used Western combines of good quality. Ten specially equipped field wagons have also been purchased to supple- ment the logistics chain in the field in connection with harvesting. Finally, the Company has purchased 20 new Kamaz trucks. The Company is thus well equipped to handle both the spring seeding cam- paign and harvesting and most of the planned winter seeding of 50,000 hectares in 2008.
The principle applied in the acquisition of new equipment is to use a limited number of models, manufacturers and suppliers. Concentrating pur- chasing in this way results in lower item prices for equipment and makes it easier to train tractor and combine drivers. It also facilitates repairs and the management of spare parts.
All new tractors and trucks have been equipped with separate gPS and SIM systems. The system can locate each vehicle and driver and measure the vehicle’s diesel consumption and the number of hours the vehicle is in motion. Equipment activity is tracked at a central location, which reduces the need for physical monitoring in the field.
Grain storage
It is not unusual for grain prices in Russia to fluctu- ate substantially over the course of a year. The domestic price of wheat, for example, rose from around 5,400 roubles per tonne in August 2007 to 7,300 roubles per tonne in March 2008. This illus- trates the importance of storage capacity as an integrated part of an agricultural operation. Having its own storage capacity is an important aspect of Alpcot Agros’s value chain. It is also important for the Company to be able to dry, store, clean and treat its own seeds in preparation for the next seed- ing period.
Alpcot Agro intends to uses four types of facili- ties for storage:
Flatbed storage is the simplest form of storage and is often used as temporary storage means during the harvesting period. Flatbed storage can be extended into the early autumn pro- vided that the grain’s water content is not too high.
Airtight storage will be used for medium to long-term storage.
Russian silos with their own drying capacity and railway connections for both transporting grain out and input goods in.
New silos built according to Western standards with their own drying capacity for the most valu- able harvest and the Company’s own seeds.
The Company is continuously working to expand its storage capacity as the amount of farmed land increases. In the future the Company expects grain storage to be mainly in Russian or newly built silos
Operations
ANNuAl REPORT 2007 | AlPCOT AgRO 1
and that flatbed storage will only be used to a lim- ited extent as intermediate storage at harvest period.
Sales
The Company’s aim is to establish its own central sales organisation since there is great potential in optimising and increasing the effectiveness of the Company’s sales processes. Access to storage capacity makes it possible for the Company to decrease revenue volatility.
Over the past year the Company has sold its grain to local and national grain buyers. The grain has mainly been sold at spot prices, but the Com- pany is assessing the option of selling portions of future harvests under futures contracts, for example by trading on the futures exchange that has opened in Moscow.
INVESTMENT STRATEGY Background
A land reform was implemented in Russia in the beginning of the 1990s, and more than 115 million hectares of agricultural land was transferred from state to private ownership. A total of 11.8 million Russian people became owners of land certificates, called Pai in Russian. The privatisation did not cre- ate any land owners, instead a pai entitled owners only to indirect ownership of farmland, i.e. after pri- vatisation the former kolkhoz farmers each owned a pai that entitled them to a share in a jointly-owned land mass.
Land acquisition strategy
Alpcot Agro’s expansion is being managed by Alp- cot Agro’s Investment Manager, ACM. ACM is over- seeing the registration of leases and is at the same time working on acquiring the land that Alpcot is farming.
Investment opportunities are evaluated based on a number of established criteria relating to the objective of creating an efficient agricultural com- pany.
The quality of the soil and precipitation. Alpcot Agro is mainly expanding in the fertile black earth belt. The Company regularly takes soil samples which are analysed in Sweden. Precipi- tation is carefully monitored before each invest- ment decision.
The size of the focus area. Alpcot Agro aims to quickly control an area of at least 10,000 hec- tares in the regions where the Company has decided to establish its presence. One of the Company’s biggest challenges is identifying, recruiting and retaining key personnel. By creat- ing large focus areas the Company can effi- cently use the operating management for each focus area.
Proximity to population centres. In addition to key personnel, Alpcot Agro needs to recruit individuals for its basic operations, which is eas- ier close to large villages or small towns.
Proximity and access to infrastructure. It is both time-consuming and costly to build a road net- work or storage capacity. Alpcot Agro therefore prioritises investing in land close to existing infrastructure.
Geographical diversification. The Company’s ambition is to spread its focus areas to reduce exposure to local weather conditions.
Geographical extension. Alpcot Agro aims to a certain extent to extend its acreage in a south- north direction to extend both the seeding and harvest season and thereby also enabling higher capacity utilisation of the Company’s combines.
Relationships with local politicians. Political con- tacts are very important if the Company is to be able to operate and develop its business locally in Russia. The Company prioritises investments in regions where the Company has good rela- tionships with the local authorities. To be regarded as a responsible investor, Alpcot Agro takes social responsibility in its key focus areas.
Alpcot Agro gains control of agricultural land by leasing land from the federal or local authorities and pai owners. The Company only leases land if there is good outlook for buying the majority of the farmland leased. Most of the farmland acquired by Alpcot Agro has been purchased within the frame- work of the Russian pai system, i.e. the Company purchases land certificates that give entitlement to indirect ownership of a piece of land.
“land in ownership” refers to registered land and the indirect ownership of land through the holdings of Pais, which can be registered either in the Company’s subsidiary’s name or in the name of agents acquiring Pais on behalf of the Company within the framework of legally binding contracts.
Operations
0 AlPCOT AgRO | ANNuAl REPORT 2007
“land under control” refers to registered land and land where the Company, either itself or in the name of agents, has registered a lease agreement or is in the process of registering a lease agreement with local authorities
Hectares Land under control
Land in ownership
Voronezh 55,053 22,847
Volgograd 18,574 5,510
Tambov 17,376 6,325
lipetsk 11,440 12,014
Kursk 6,456 2,023
Kurgan 0 6,697
Total 10, ,1
Source: Alpcot Agro, the information reflects the situation on 4 March 2008
At the beginning of March 2008 Alpcot Agro con- trolled around 109,000 hectares of agricultural land in a total of six different regions in Russia. The Com- pany primarily controls land in the central federal district in the regions of Voronezh, Tambov, lipetsk and Kursk. The Company also has a presence in the southern federal district in Volgograd. Finally, the Company has acquired land in the Siberian black earth belt in Kurgan.
The Company also owned, mainly indirectly through so called pais, around 55,000 hectares of agricultural land.
There are no reliable price statistics for agricul- tural land in Russia, but it is the Company’s under- standing that the price of agricultural land is rising sharply. Based on the sharply rising prices, a fast expansion of the Company’s acreage is highly prior- itised.
Future plans
Operational objectives
End of 2008 Number of hectares of land
under control 200,000 in Russia
Number of hectares of land in
ownership 100,000 in Russia
Number of harvested hectares 50,000 in Russia
Expansion in Russia
Alpcot Agro’s objective is to control around 200,000 hectares of agricultural land in Russia by the end of 2008. The Company also prioritises acquiring on a continuous basis and to the greatest extent possi- ble the land the Company is farming. The Company believes a realistic goal is indirect ownership of around 75 per cent of the agricultural land the Company controls, and the Company is constantly making efforts to convert indirect ownership of land through land certificates into registered land. The Company has not announced any long-term objec- tive regarding the amount of land the Company will control in Russia, but if it is still attractive for Alpcot Agro to continue the acquisition process after 2008, the Company intends to continue to expand.
Livestock farming
livestock farming is not a prioritised area in Alpcot Agro’s business plan in the short term. livestock farming, such as milk production and pig farming, is however profitable today in Russia.
The Company’s livestock farming policy is flexi- ble and some operations have already been estab- lished. To satisfy, among others, the wishes of local politicians, Alpcot Agro will gradually expand its livestock farming business in the future. In the regions where farming plays a major role, the gov- ernor often puts pressure on large agricultural com- panies to expand within livestock farming.
Alpcot Agro intends to invest in livestock farm- ing through a separate company with separate management. This is important to ensure that Alpcot Agro’s management and the investment team within ACM do not loose their focus on the expansion of crop production. Also the Company intends to attract both financial and industrial inves- tors to the livestock farming business. This is impor- tant in order to reduce capital tied up in livestock farming and to attract the necessary expertise.
Within the foreseeable future Alpcot Agro plans to keep overall responsibility for this business, but in the long term, it is possible that the business may be spun off to the Company’s shareholders or sold to an external party.
Operations
ANNuAl REPORT 2007 | AlPCOT AgRO 1 Ukraine
Alpcot Agro intends to establish operations in ukraine in 2008. ukraine spans 603,700 square kilo- metres and around 56 per cent of this, or the equiv- alent of 33 million hectares, is agricultural land.
The legal framework in ukraine is different in significant respects from the Russian system. At present there is a moratorium in ukraine that bans the acquisition of agricultural land and the only way to gain control over agricultural land is to lease it from local land owners or from the ukrainian authorities. To stimulate investment in the agricul- tural sector, however, the current moratorium is expected to be cancelled in the near future. It is important to already have established a local pres- ence when this takes place.
Financing
Alpcot Agro’s investments have mainly been financed with the Company’s equity. The Company is working actively to increase debt financing, both locally in Russia and outside Russia. Capital-inten- sive investment in machinery, equipment and stor- age capacity will to a great extent be financed through debts or leases in the future. The Company’s short history has so far made it difficult to raise debts to any significant extent.
Operations
Sunflower field in Ukraine
AlPCOT AgRO | ANNuAl REPORT 2007
Focus areas
Soil in Russia
The two most common types of soil in Russia are podzol and gleysol soils, which cover 22 and 25 per cent respectively of the total area. The most valua- ble soil from an agricultural perspective is cher- nozem or black earth, which covers almost 94 mil- lion hectares or close to 6 per cent of the total land area in Russia.
Black earth
Chernozem is black-coloured clay soil that has a high percentage of humus and is very fertile. Cher- nozem is found in the steppes of Eurasia and the prairies of North America and is a result of the cli- mate conditions in these regions. The black earth belt in Eurasia stretches from Northern ukraine through southern Russia to Siberia.
Soil analysis Voronezh
Test results Clay, (>0.002)% particle size 48.0 Silt, (0.002–0.02)% particle size 39.0 Slit to very fine sand, (0.02–0.2) % particle size 12.0
Sand, (0.2–2) % particle size 0.0
gravel, (2–20) % particle size 0.0
Organic matter 11.6
pH in water suspension 6.6
P-Al, mg phosphorus per 100 grams 2.2 K-Al, mg potassium per 100 grams 26.2 Mg-Al, mg magnesium per 100 gram 66.1 Ca-Al, mg calcium per 100 grams 625.0 NO
3-N, mg nitrate-nitrogen per 100 grams 1.3
Source: Swedish university of Agricultural Sciences in uppsala
Soil map of the European part of Russia
Source: AZON ltd
Plain Soils
Chernozem (black earth) mainly grass-covered Chernozem (black earth) partly forested
Highland soils
grassland Chernozem (black earth)
grass steppe and forest steppe
Highland Chernozem (black earth)
and Kashtan
ANNuAl REPORT 2007 | AlPCOT AgRO
As a result of relatively little precipitation – less than 600 millimetres per year, mainly in the spring and early summer – in combination with cold winters and relatively short and warm summers, grass is the dominant form of natural vegetation. grass can produce up to 6 tonnes of dry root mass per hec- tare annually. The vegetation in the upper layer pro- duces organic matter (humus) from the fibrous roots. This results in soil characterised by a thick, dark humus and nutritious top layer – chernozem.
The chemical and physical properties of cher- nozem are very beneficial. The soil contains a high percentage of nutrients and organic matter. It has a neutral pH value, high porosity and good moisture retention properties. The humus also binds nutri- ents in the soil and helps the crops absorb the nutri- ents.
The analysis in the previous page is of a typical soil sample from the black earth region. The soil has a high concentration of fine particles and a high percentage of minerals in combination with high
humus content. This unique composition means that the black earth stores macronutrients such as phosphorus (P) and potassium (K), which make the soil fertile. The soil structure is particularly benefi- cial for the development of the crop’s root system, which is an important characteristic in drier weather.
Alpcot Agro’s presence in the black earth belt Alpcot Agro invests in the black earth belt where the climate conditions are favourable for farming.
When the soil is treated correctly, chernozem has the potential to yield good harvests. using a plough-free technique to maintain the ground moisture in the seedbeds is an important aspect of preparing and preserving the soil structure, which has in the past been destroyed by less suitable methods of farming in the Soviet era.
Other benefits of black earth are that it is stone- free, easy to cultivate and it does not require any drainage.
Focus areas
Black earth in Voronezh
AlPCOT AgRO | ANNuAl REPORT 2007
Sugar beet production, 2007 The agricultural sector in Voronezh
Voronezh is part of the central black earth belt and the soil in the region can best be described as typical black earth, with a thick layer of 60–100 centimetres and humus con- tent of 6–8 per cent. The total area of arable land amounts to 30,870 square kilometres.
Voronezh is an important agricultural region, particu- larly for the production of sunflowers, but also of sugar beets. Voronezh accounted for 10.5 and 12.1 per cent respectively of the total Russian production of sunflowers and sugar beets in 2007. The same year Voronezh also accounted for 2.8 per cent of the total Russian production of grain. In the region the production of grain and other crops account for around 61 per cent of the agricultural sector, while livestock farming accounts for around 39 per cent.
Alpcot Agro’s presence in Voronezh
Voronezh was the second region in which the Company established operations after Volgograd. Today Voronezh is the geographical hub of the business and the Compa- ny’s most important focus area in Russia.
The Company harvested around 8,200 hectares and seeded around 13,500 hectares in the region in autumn 2007.
In the beginning of March 2008, the Company con- trolled around 55,000 hectares of agricultural land in the region.
Alpcot Agro’s Russian head office is in the city of Voronezh and has just over 20 administrative employees and a number of agronomists. The office is strategically located in relation to the other regions and the employees are close to all of the Company’s farms in Russia. The Company’s agricultural land is mainly in the northern parts of the region along the border with Volgograd, lipetsk and Tambov.
The Company’s main machinery and equipment investments consist of 26 John Deere tractors, twelve Carrier and TopDown cultivators and 22 Rapid, Seedhawk and Optima seeding machines.
The city of Voronezh has a population of over one mil- lion, which makes it easy to recruit employees and to find a local market for the Company’s products.
Voronezh
0 10 20 30 40 50 60 70 80 90 100
Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan
Precipitation Temperature
Precipitation mm Temperature ˚C
–20 –15 –10 –5
0 5 10 15 20 25 30
Average monthly precipitation and temperature Grain production,
2007 Sunflower production, 2007
Voronezh 12.1%
Other regions 87.9%
FACTS – VORONEZH
Area: 52,400 km
2(0.31 % of total Russia)
Arable land: 30,870 km
2Population: 2.4 million
Population density: 45.4/ km
2g NP/capita (2006) uSD: 2,611
growth in gDP/capital 2006: 7.6%
Administrative capital City of Voronezh local government: Voronezh Oblast Duma
governor: Vladimir Kulakov
Annual average precipitation: 525 mm
Annual average temperature: 5.7 C°
Voronezh 2.8%
Other regions 97.2%
Voronezh 10.5%
Other regions 89.5%
Focus areas
Liskij Voronezh
Ertil
Borisoglebsk
ANNuAl REPORT 2007 | AlPCOT AgRO
Volgograd
The agricultural sector in Volgograd
The soil in Volgograd is largely black earth, which is similar in character to the soil in Voronezh and the other regions.
The main difference between the regions is that Volgo- grad has lower average annual precipitation. In recent years, the early summer droughts have resulted in a low yield in the region.
Volgograd is a significant agricultural region, particu- larly for the production of grain and sunflowers. In 2007 the region accounted for 3.4 and 11.0 per cent respec- tively of the total production of grain and sunflowers in Russia. Sugar beet production, on the other hand, is rare in Volgograd.
Alpcot Agro’s presence in Volgograd
Volgograd was the first region in which Alpcot Agro estab- lished operations. The Company harvested around 2,300 hectares and seeded around 4,300 hectares in the region in autumn 2007. In Volgograd there are opportunities to acquire large, adjoining areas of land. At the beginning of March 2008, land under control had increased to around 18,600 hectares.
The Company has established operations in the northern parts of the region around the town of Zhirnovsk, which is an oil town with 18,000 residents.
Volgograd has a slightly drier climate than the other regions in which the Company operates. The crop cycle is therefore different; there is a greater emphasis on oil seeds and relatively low levels of wheat and barley pro- duction.
The lay of the land allows the Company to cultivate the land using fewer machines and fewer types of machin- ery and systems than in the other regions. The investment requirement is therefore lower, which means that the lower productivity levels are compensated for by the fact that operations in Volgograd are less capital intensive.
The main investments in machinery and equipment made by the Company in the region consist of seven John Deere tractors, four TopDown and Carrier cultivators and five Rapid, Seekhawk and Optima seeding machines.
0 10 20 30 40 50 60 70 80 90 100
Dec Nov Oct Sep Aug Jul Jun May apr Mar Feb Jan
Precipitation Temperature
Precipitation mm Temperature ˚C
–20 –15 –10 –5
0 5 10 15 20 25 30
Average monthly precipitation and temperature FACTS – VOLGOGRAD
Area: 113,900 km
2(0.67 % of total Russia)
Arable land: 80,062 km
2Population: 2.7 million
Population density: 23.3/ km
2gDP/capita (2006) uSD: 3,494
growth in gDP/capital 2006: 1.7%
Administrative capital: City of Volgograd local government: Volgograd Oblast Duma
governor: Nikolai Maksiuta
Annual average precipitation: 372 mm
Annual average temperature: 7.6 C°
Sugar beet
production, 2007 Grain production,
2007 Sunflower production, 2007
Volgograd 0.1%
Other regions 99.9%
Volgograd 3.4%
Other regions 96.6%
Volgograd 11.0%
Other regions 89.0%
