Russian farmers still struggling despite embargo on Western produce

A vendor (R) takes Russian rouble banknotes from a customer buying sausage produced on a local private farm, at a street food market in the Siberian city of Krasnoyarsk, Russia, July 29, 2015.
PHOTO: Reuters

NOVOYE SELTSO, Russia - As she milks a stubborn goat at her farm just outside Moscow, Larisa Sukhanova says she's worried about the future of her milk business as a year-old embargo on Western foodstuffs fails to yield a promised bonanza for local farmers.

While authorities present the embargo enacted in reprisal for Western sanctions over Ukraine as an opportunity to develop the country's flagging farming sector, analysts say the crippling economic crisis roiling the country, and years of the state's neglect of agriculture, have seen local producers struggle to make gains.

"The government has been paying more attention to us farmers," Sukhanova, 68, told AFP as she stroked one of her 120 white goats. "But I can't say I see much of a difference." The authorities have pledged some $3.8 billion (3.5 billion euros) to help Russian farmers bolster their production of substitutes for the long list of embargoed goods, which range from luxury French cheeses to Spanish hams and Polish apples.

But Sukhanova - who produces some 200 litres of milk a day - says that a 10-million-ruble ($159,000) grant she was promised in March to expand her farm has yet to materialise.

"I needed that grant money months ago," she said. "Now I'm afraid I will have nowhere to keep my goats this winter."

Struggling to fill the gap

Agriculture is one of the few bright spots in the Russian economy, growing in the first quarter of 2015, despite the economy as a whole sinking into recession on the back of Western sanctions and low oil prices.

Meat production increased by 6.4 percent in comparison to the first quarter of 2014, official statistics show, and producers like Sukhanova added an additional one percent to the country's milk output.

A bullish agriculture minister Alexander Tkachyov has gone as far as to predict that Russian products will have replaced all foreign foods on supermarket shelves within a decade.

But the increase in production has still fallen well short of filling the gap left by the embargo and experts are doubtful that the ban is spurring genuine improvements in the industry.

"The embargo did eliminate some serious competitors from the Russian market, but the pre-existing problems in the agriculture industry have not disappeared," Leonid Kholod, a former deputy agriculture minister, told AFP.

Insufficient credit for farmers, underdeveloped infrastructure, outdated equipment and the absence of a comprehensive technology policy are enduring problems plaguing Russian agriculture.

"If we want to be able to substitute anything in ten years, there are lots of other things that need to be done," he said.

Tatyana Bobrovskaya, associate director at Fitch Ratings in Russia, said that given no one knows how long the embargo will last, few are willing to make investments in sectors like beef and milk production that take a long time to pay off.

Rusagro, one of Russia's largest agricultural holdings, recently said it would not undertake new projects until it secured additional state support.

The shortfall on the market has added to the hardship of ordinary Russians, with food prices surging due to the embargo as well as the plunging value of the ruble.

In the dairy sector, while Russian cheese makers have boosted production, they are stymied by an undersupply of milk, with local producers unable to make up for a 65 percent drop in imports.

Meat production was up 18 percent in the first two months of the year compared with the same period in 2014, but with imports down 62 percent local producers still have a gap to fill there also.

Meanwhile, the weak ruble is driving up the cost of key inputs like feed and fertiliser.

"For Russian food companies, the benefits of temporarily reduced competition from banned products have been muted by the adverse effects of the ruble depreciation," Bobrovskaya said.

Goat farmer Sukhanova said the price of fodder had increased by 60 percent and that of obligatory testing on the quality of the milk had increased more than sevenfold.

"This is insanity," she said.

Patriotism served cold

While Russian producers are struggling to fill the gap, the Kremlin has ramped up its rhetoric on the importance of buying local and the dangers of embargoed products.

Authorities plan Thursday to start destroying hundreds of tonnes of banned produce allegedly smuggled into Russia, after an order from President Vladimir Putin.

It's not just officials that are keen to crackdown on Western goods.

On a recent afternoon a handful of pro-Kremlin youngsters from a group called "Eat Russian!" conducted a spot inspection at a high-end Moscow supermarket, slapping stickers on products they claimed were being sold illegally.

"The group was founded ahead of the embargo because it was tough to find Russian products in grocery stores," Margarita Cherkashina, an activist from the group, told AFP.

"Now we want to protect the population from dangerous embargoed products that come into the country without the required safety checks."