Asian companies seek greener pastures in Russian Far East

Asahi Shimbun | 20 February 2012
Chinese farmers shovel soybeans into a selector in Babstovo, Russia, on Jan. 15. (Photo: Daisuke Nishimura)

BABSTOVO, Russia--The sounds of a kitchen knife chopping pig ribs echoes through the frigid minus 20 degree air in Babstovo in the Jewish Autonomous Oblast of the Russian Far East.

Soybean fields that have been harvested stretch to the horizon.

In an old hut, Qi Liming, a 38-year-old Chinese man, is eating meat off a pig rib and washing it down with paijiu, or sake with a high alcohol content. He is indicative of a growing trend for Chinese and South Korean companies seeking greener pastures on Russian farmland, with Japanese companies about ready to join in.

“Since I came to Russia, my income has increased five to 10 times,” Qi said.

In Qi's hometown in China, his family of three had only two hectares of farmland. Now, he and seven other people, including his relatives, are harvesting about 300 hectares of fields.

The area is part of 4,700 hectares of farmland operated by the Chinese company Baoefengshou, based in Baoqing county in Heilongjiang province, northeastern China. The company obtained the rights to work the farmland. Currently, about 60 Chinese farmers are mainly cultivating soybeans there.

In northeastern China, more than 100 million people are living in the three provinces of Heilongjiang, Jilin and Liaoning. In the neighboring Far Eastern Federal District of Russia, only 6.3 million people are residing there, despite the district being seven times larger than the three Chinese provinces.

“If Chinese people harvest Russian land, it brings benefits to both (China and Russia),” said Baoefengshou President Wang Xinyou, 62.

This year, the company also obtained the rights to use an additional 4,000 hectares of farmland.

Since food prices jumped in the period from 2006 to 2008, efforts to borrow land in the Russian Far East for agriculture have spread rapidly.

In a suburb of Ussuriysk in Primorsky Krai, also in the Russian Far East, a farm that has 10 new cylinder-shaped silos has introduced an advanced South Korean-made automated system for storing and managing soybeans and other agricultural products.

The farm is operated by a South Korean corporation set up in 2008.

“South Korea does not have land but has the funds and technologies. We and Russia can develop together,” the corporation’s president said.

The parent company of the corporation is a parts maker. Borrowing 7,000 hectares of land from a local government, it is harvesting about 5,300 tons of soybeans, oats and other farm products.

The corporation differs from Chinese companies in that all its 40 employees, except for executives, are Russian. In the future, the corporation also plans to export harvested products to South Korea.

“If South Korea and North Korea are unified in the future, the problems of food (shortages) will become serious. So, a big business opportunity will be born,” the president said.

According to the South Korean consulate general in Vladivostok, also in Primorsky Krai, 11 South Korean companies, including Hyundai Heavy Industries, are working about 70,000 hectares of farmland in Primorsky Krai. In addition, several other South Korean firms, including one that belongs to Lotte Group, plan to follow suit.

This month, the North Korean government and Amur Oblast, also in the Russian Far East, concluded an agreement to set up a joint investment group. According to the Amur Oblast government, North Korean farmers will cultivate soybeans and potatoes on 1,000 hectares of farmland from 2013.

Japanese companies are also considering working farmland in Russia.

About 10 agricultural organizations and agriculture-related companies in Hokkaido plan to jointly operate a farm of 1,000 hectares in a suburb of Khabarovsk, also in the Russian Far East, under the initiative of Hokkaido Bank.

Their goal is to build a model farm that utilizes Hokkaido’s cultivation techniques that are more efficient, environmentally friendly and increase the harvest. The techniques include land reforms, which have continued since the Meiji Era (1868-1912), and agricultural methods that lessen the use of agricultural chemicals.

In and around Khabarovsk, the level of local farming technique is low. This results in the volume of agricultural products harvested from a farm totaling only about one-third that of a similar-sized farm in Japan.

“We want to stimulate demand for Hokkaido’s agricultural techniques in Russia,” said Yasumasa Nishiyama, adviser to the bank.

Since the collapse of the Soviet Union in 1991, a large amount of land is not being farmed, about a quarter of the entire farmland in Russia. In the Russian Far East, subsidies and other favors were abolished. As a result, as much as 20 percent of the population there has moved to other areas.

Today, local governments in the Far East are leasing this unused farmland to foreign capitals. For example, the government of the Jewish Autonomous Oblast concluded a contract with the Baoqing county government of China’s Heilongjiang province in 2005. Based on the contract, the county government has employed farmers through screening of their lifestyles and other factors, and sent them to the Jewish Autonomous Oblast.

Prior to the Asia-Pacific Economic Cooperation (APEC) forum to be held in Vladivostok in September, the Russian government plans to expand cooperation with other countries on food security. Based on the plan, the government has shown that it will also address the leasing of farmland to foreign capitals.

In January, an executive of the Russian government’s Ministry of Economic Development said that the farmland to be leased will be restricted to the Far East. The executive added, “We will call on other countries to make investments (in the Far East) in the APEC meetings.”

In Russia, there is a strong criticism that leasing of farmland to other countries means encroachment of its native soil. In spite of that, however, Moscow supports leasing farmland to foreign companies and governments because it is expecting to benefit from their investments.

“In the past 20 years, the amount of (Russian) central government’s investment in agriculture was small. The government has changed its stance to one that develops agriculture in the Far East by inviting foreign capitals,” said Anatoly Chaika, chairman of the Far Eastern Scientific Center of the Russian Academy of Agricultural Sciences.

Some countries around the Russian Far East are trying to shore up their agricultural sectors before cheaper foreign farm products enter their domestic markets due to the signing of free trade agreements (FTA) or the Trans-Pacific Partnership (TPP) agreement.

China also needed jobs for Chinese farm workers. In addition, the jump in food prices from 2006 to 2008 heightened Beijing’s sense of crisis over food security.

According to the agricultural magazine Nongjing, which is affiliated with the Chinese government, companies in Heilongjiang province were operating about 347,000 hectares of farmland in Russia as of the end of 2009. That marked an increase of 23.8 percent from a year ago.

The South Korean government headed by President Lee Myung-bak is supportive of signing FTAs with other countries. Because of that, a South Korean government official said, “It is unavoidable that the country’s domestic agriculture will subside.”

The self-sufficiency rate of grain in South Korea is now about 26 percent. The country imports about 99 percent of its feed.

Recently, the South Korean government changed its policy to one that places importance on the “independence rate” instead of self-sufficiency rate. The independence rate includes the agricultural products of farms operated by South Korean companies in other countries.

The South Korean government started a program to support overseas agricultural development projects in 2009, and has since used up to 10 percent of its budget for agricultural production for overseas projects.

At present, Seoul is supporting 25 projects in eight countries, including five in Russia.

As for the Japanese government’s move toward participation in the TPP talks, Nishiyama of Hokkaido Bank said, “If the move continues, Hokkaido’s agriculture will become weaker. We have to change it to a competitive industry.”

However, companies that are making inroads in Russia point out some problems. Though farmland rent is cheap, the growing season is short. Some South Koreans also cast doubt on the profitability of agriculture in the Russian Far East compared to similar projects in other countries.

Meanwhile, in Russia, some Chinese companies have been criticized for using large amounts of agricultural chemicals for short periods to increase harvests and, as a result, making the farmlands less fertile.

“It is important to make the leasing of farmland one that can lead to the development of local communities,” said Boris Frumkin, a senior official of the Institute of Economy of the Russian Academy of Sciences.

(This article was compiled from reports written by Daisuke Nishimura , Ryosuke Ishibashi, Masami Ono and Yoshihiro Makino.)
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