Russia eyes Japan investment in farms, ports

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Location of the Siberian Federal District within Russia

Reuters | 31 August 2009

By Robin Paxton and Kiryl Sukhotski

MOSCOW, Aug 31 (Reuters) - Russia is in talks with Japanese companies to secure investment in Siberian farmland and Pacific ports that would allow the world's No. 3 wheat exporter to carve a greater share of Asian markets, a senior grain official said.

Russian Grain Union President Arkady Zlochevsky said Russia was aiming for a significant increase in grain exports to East Asia from the 2010-2011 marketing year, provided it could build the infrastructure to move Siberian grain further east.

"There is not a single export port in the Far East. Now, there is work under way to build such a terminal and we're already starting test shipments," Zlochevsky told Reuters in an interview on Monday.

"Negotiations are taking place with Japanese companies," he said. "In principle, shipments could begin next season."

Large economies, including Japan, South Korea, China and Saudi Arabia, are leading a global search for farmland to guarantee food supplies after rampant food price inflation last year drove home the need to reduce dependence on imports.

Foreign and local companies have bought large tracts of arable land in Russia at relatively low prices, encouraged by a government keen to resuscitate a sector crippled by the legacy of collectivisation and a decade of post-Soviet neglect.

Zlochevsky said Japanese companies were interested in acquiring land in the fertile Siberian regions of Novosibirsk, Omsk and Altai to grow crops that could be delivered east by rail and ship.

He declined to name the companies. He also would not say how much money the companies wanted to invest, or how much land they were targeting.

"There's lots of good land, but yields are low. The climate is good, but the low yields are a result of underinvestment," he said. Wheat and barley are the main crops grown in the region.

Preferential rail tariffs would ensure the profitability of delivering Siberian grain to the Pacific coast, about 5,000 km (3,125 miles) to the east, Zlochevsky said.

EXPORT POTENTIAL

Russia, with a tenth of the world's arable land, has plans to double grain exports within 15 years. It also plans to boost harvests by bringing 20 million hectares of derelict farmland into use -- an area the size of West African nation Senegal.

There is a precedent for Asian investment in Russian soil. South Korea's Hyundai Heavy Industries spent $6.5 million in April for a 67.6 percent stake in Khorol Zerno LLC, which operates a 10,000-hectare farm growing maize and soybeans near the Pacific port city of Vladivostok.

Russia's grain exports, however, will remain concentrated through ports on the Black Sea and Azov Sea. Zlochevsky said record carry-over stocks would ensure the country's export potential would remain the same, despite a lower 2009 crop.

Russia harvested 108.1 million tonnes of grain last year, its biggest haul since 1990. The Agriculture Ministry forecasts a 2009 crop of 85 million tonnes, though Zlochevsky said this estimate was conservative.

He forecast Russian grain exports in the current season at 15-16 million tonnes, should demand remain subdued, and at 20 million tonnes should demand for Russian grain recover, perhaps with the assistance of export subsidies.

Demand for Russian grain had dropped by 4-5 million tonnes, he said, due to bigger harvests in some of the countries that traditionally buy large quantities of Russian grain.

Russian grain exports in July totalled 1.33 million tonnes. Although this was less than the 1.43 million tonnes shipped in June, it was still a record for the first month of the season.

Zlochevsky said a trade row with Egypt, which bought nearly 40 percent of Russia's grain exports in July, would not affect shipments in the current season.

"There are no objective reasons for it," he said. "Egypt can, of course, buy Canadian or American grain, but it's significantly more expensive than Russian grain." To see other Reuters stories on food security, please double-click on (Editing by Sue Thomas)
Original source: Reuters
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