Wednesday 16 January 2008

Russian farmland yields rich prospect

It’s a brave firm that pins its fortunes on setting up business in Russia. Ever since Vladimir Putin came to power, Moscow in particular has developed a nasty habit of simply bulldozing private firms if they get too big for their boots.

Oil, gas and metals firms all live a perilous existence in the former Soviet Union, as BP and Royal Dutch Shell , among others, have found no their cost.  But there’s one sector that Moscow has left to its own devices farmland.

In past few years, a number of European companies have been allowed to buy up land in the Black Earth region, which stretches from Ukraine into Central Russia.

As the Wall Street Journal puts it, agriculture in Russia, “has fared so poorly for so long that it isn’t on the Kremlin’s radar”.

But agriculture is rapidly becoming more important to the Russian authorities. Raising food bills are becoming a real problem in Russia and everywhere else in the world. The cost of grain and wheat has rocketed in recent years, as the world’s farmers struggle to keep up with population growth, farmland is diverted to biofuel production and a new cosmopolitan class in Asia discovers an appetite for Western food.

Just to keep up with demand, agricultural production will have to grow 3.3% a year, say Credit Suisse analysts. But grain production has only grown by 1.3% a year during the past 20 years. With the world’s population set to swell to 7.7 billion by 2020, farmland is becoming a precious commodity.

And as Robert Monk of Heartland Farms noted in The Daily Telegraph earlier this year, “Russia is one of the few places in the world where are vast areas of land up for sale.”

That’s great news for the firms that have managed to get in early to pick up Russia’s hitherto-neglected farmland at bargain prices. In the Black Earth area, you can get a hectare of farmland for $500.

Of course, one concern is that as food prices become more of a problem in Russia, the government might start throwing its weight around.

Compare the true cost of over 100 Share Dealing Accounts including the cost per trade and broker's admin charges.