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Far Eastern virgin land for Rusagro
General Director of the agricultural holding Maxim Basov spoke about projects in Primorye and the difficulties of their implementation
A few years ago, Rusagro was the first of the three largest federal pork producers to develop Primorye. The agricultural holding decided to build a pig farm in the Mikhailovsky TOP and faced purely Far Eastern problems: poor roads, weak contractors, and lack of people. Rusagro CEO Maxag Basov spoke about the fate of the future pig farm and work in the Far Eastern Federal District in an interview with EastRussia.
- Maxim Dmitrievich, at what stage is the implementation of the project in the Mikhailovsky TOP?
- Now construction is underway, but with a lag. The first object is launched - this is an elevator. The next facility - a feed mill - will be launched next spring. And after that, in the summer, a breeding farm and two or three commercial complexes will be launched. In the summer, as the feed mill will be launched, we will transport the animals. The three remaining complexes will be completed and settled before the end of the year.
- How strong is the backlog?
- From the last terms, the backlog is about six months. If we take from the terms that were laid down at the beginning of the construction of the project, then the lag is about a year, but for different facilities in different ways. The slaughter will start in early 2021. We will populate the animals in the spring, and not now, because FMD infection occurred in Primorye, animals at all large complexes died, and African swine fever also entered the pig farms. Therefore, we decided to settle animals for biosafety only after our own production of feed was launched. And this, as I said, will happen in the summer.
- What other problems did you face when implementing the project in Primorye?
- The main problems are in construction. We had a lot of problems with the infrastructure, we still haven’t received gas, we are working on liquefied gas. Now the elevator and the feed mill are almost connected, and we hope to start receiving gas in the very near future. In the design, not all the specifications of Primorye, land problems were taken into account, as a result, everything dragged on for two years. The issue of connecting gas to complexes and a slaughterhouse has not yet been resolved. Who did almost everything perfectly, is the company that connected us to electricity. Everything was done very well, there were, of course, roughnesses, some mistakes on both sides, but on the whole, I think, the energy sector worked perfectly.
There were a lot of problems with roads and Vodokanal, but these problems, in general, are being resolved. With roads, things are more complicated, control over contractors has been incorrectly carried out, many criminal cases have already been opened. Now the work is ongoing, and I think that all these issues will be resolved.
From our point of view, the main problem is working with construction organizations: we have already changed quite a lot of contractors and are now completing complexes and slaughter with foreign companies, today Turkish builders are carrying out large volumes. Unfortunately, the construction organizations of the Far East turned out to be rather weak, unable to carry out such large, complex projects with the quality we needed. Foreign companies are expensive, but, unfortunately, we have no other choice.
- Earlier, you indicated that the project in Primorye is focused on the market of mainland China, are there any prerequisites for opening the Chinese market for Russian pork?
- Your information is not quite correct. We are doing the first phase of the project with an eye on the Russian market. Now we are completing it, we will build further lines only after the markets of Southeast Asia open. In the near future, we expect that the European part of the country will receive the right to sell pork to Vietnam, and then we look forward to the opening of the Chinese market. In order to open shipments from Primorye, we must launch our seaside slaughter and obtain favorable animal health status, but first we must get rid of foot-and-mouth disease and ASF in Primorye.
- That is, if China does not open its market, then you will not launch the second phase?
- Now we are building a complex of about 20 thousand sows. In the future, we can increase the capacity by 50% with a fairly high payback. If we see that the market of China and Vietnam is open, and the prices are good there, it is possible that we will quickly build additional capacities - these are about two or four pig farms.
A further increase in capacity will require gigantic investment, and we will go for it, not only if the Chinese market opens for us, but also if some major Chinese investor appears. We are currently negotiating with COFCO.
- What part does the company plan to occupy in the domestic pork market of the Far East?
- We continue to expect 30-35%, and then everything will depend on the situation in export markets. If they are opened, part of the production will go there, and this is natural, because pork processing results in a lot of different cuts: offal, which in Russia is not very fond of, but love in Asia, the neck, which is very loved in Russia, brisket, which in Russia they love less. All these offal must find their consumer.
- If you still decide to build the second phase, then where will you recruit employees? Already, some are traveling from central Russia.
- It will also be with the second stage. To launch the current project, it will be necessary to bring at least 20% of employees either from other regions of Russia or from other regions of the world. But little by little we will reduce this indicator to 2%.
- In your opinion, why the oil and fat business line in Primorye did not “shoot”? What is the fate of the Primorskaya Soya plant?
- There are three obstacles to the work of Primorsky Soya: the price of raw materials, the price of finished products and the unfavorable situation with animal diseases in the Primorsky Territory. In principle, we have achieved all our goals to improve the plant’s efficiency. Today it works like it never did. We have significantly reduced costs, improved its efficiency. And I believe that the management of Primorsky Soya works very well.
Unfortunately, the situation on the market unfolded in a negative scenario for us. In the Far East and even in Siberia there is insufficient consumption of soybean meal, these are regions that are poorly developed in terms of animal husbandry. And in order for Primorskaya Soya to work in at least two lines, we need soybean meal to be sold, including in the Urals and in the European part. We have to transport it over long distances. In recent years, the production of soybean and soybean meal in the European part has been very actively developing, the growth is gigantic, the quality of soybean has become high, and today the Far Eastern and Siberian soybean meal in the European part is weakly competitive, because their own producers have already appeared. Moreover, in the coming years, significant growth is expected both in soybean production, and in the quality of soybean production, and in the volume of meal. Only soy plants will be built three.
Far Eastern producers of soybean meal are simply not competitive because there is no market for products. There are no problems with oil, today it goes well to China, Korea and Russia. But, unfortunately, soybean processing produces very little oil and a lot of meal, because meal is the main processing product.
Because of the trade war with the United States, China also raised the price of soybeans, and we are not brought soybeans to farmers at prices at which we can work without loss. Seaside Soybeans fell into a situation where the price of soybeans increased and the price of meal decreased significantly. It turns out that the plant, even with record-high performance and efficiency, cannot operate profitably. Management continues to fight for the plant, it continues to work, but will be stopped in 2020. Employees were offered work for the period of a stop in our other divisions. We will mothball the plant, consider launching it in the spring, if we see that there are volumes of soybeans that farmers are willing to sell to us and which we can process without loss for ourselves.
There will be no social problems with the suspension of the plant. This is a rather strategic problem for Primorye and the entire Far East. Since the population is small, and there is China nearby, which pursues its wise, cunning, but profitable industrial policy only for them, it turns out that there are very few opportunities for investment in processing.
We see that recently in the Far East there is no such improvement in the situation in food production (except for fish), as in the European part. The progress in agricultural development in the European part is very serious, we get yields of 2,5 tons and above, as well as very high quality protein. In Primorye, unfortunately, this does not work, due to the fact that, on the whole, the infrastructure of agriculture is very poorly developed. If in the European part we were able to deoxidize almost all of the soil, then in the Far East there is a problem with ameliorant, with spacing and application, and normalization of the soil.
- Please explain what it means to deoxidize the soil?
- In order to have a good yield and achieve the target fertility, we need to have normal soil. Due to the fact that fertilizers are often applied for other other reasons, the soil becomes acidic and does not give such a good return. It is necessary to deoxidize them. This means that it is necessary to introduce special ameliorants into the soil. In Central Russia, the average cycle lasted from seven to nine years. There we deoxidized all the land, so there are good results.
In Primorye, the lands are very acidic. It takes time and seeds that are bred specifically for this region.
- What seeds are preferable to use?
- Must be allowed to use Chinese, Japanese, Canadian seeds. To date, the number of permitted seeds is very small. And those with whom we have to work are morally 20 years old. The ban on the use of imported seeds is associated with the underdevelopment of Far Eastern agriculture - few companies are engaged in just such seed breeding. The best seeds in the world for the Primorsky Territory are from China. But it also limits the ability to use its seeds. In general, the work of the entire ecosystem is required - both agricultural producers and Russian authorities, in order for the right quality seeds to appear.
In the European part, foreign seed companies and the Rosvetnadzor service for the introduction of new soybean seed varieties are more active. In the Far East, unfortunately, there is often no way to work with modern international soybean varieties: they are not yet certified. Therefore, in general, of course, the development of agriculture in the European part is far ahead of the situation in the Far East.
- What are the problems or the specifics of Far Eastern agriculture?
- Well, and in general, very big problems with people. Unfortunately, people are not used to working on modern technology, are not interested in working for long periods, preferring to work seasonally. Such specifics exist only in the Far East.
- Do you plan to expand the land bank in the Primorsky Territory?
- Now, all the same, we will focus on putting things in order, improving the quality of the return on what we have already bought. Our land bank is already quite large, and we do not plan to expand extensively. We will strive for point-to-point intensive improvement in the region.
“Are you still looking at territories other than Primorye?”
- In the Far East, we are not looking. We need to finish everything and achieve the results that we expected in Primorye.
- Earlier, you said that you were considering the possibility of holding an SPO before the end of the year, but you did not dare to take this step. Is it possible in the future?
- Everything is possible, we are a public company, we are constantly considering opportunities for working in the stock market. We see that the investment cycle in our main businesses in Russia is coming to an end, and further, if we do not go for international expansion, we will have a positive free cash flow. We will be not so much interested in offering securities as in increasing dividend payments. On the other hand, we have projects, including those abroad, which we are counting on. In general, a lot will depend on the decision of the board of directors. We see that in the world growth is only in two regions - Asia and Africa. If the board of directors decides to move there, then perhaps we need new capital. But so far there is no such solution, so, unfortunately, I can’t say anything in more detail.
- There was information about the plans for the construction of a pig complex in China. Is the decision already made?
- So far, the board of directors has not yet decided on this issue. We are waiting for the conclusion of land leases, this is the most difficult in China. We are also engaged in pre-project preparation.
- And do not regret that you decided to launch a project in the Far East?
- We do not regret it. When they decided to go to the Far East, they considered different scenarios. Now our task is to launch all our projects and implement them. Unfortunately, everything is not going the way we wanted from the point of view of construction time and cost, but in any case, the project will be completed and it will be the basis for our further development in this region. Therefore, we are still optimistic. The Far East, rather, is a region of potential, and it has not yet been realized in many respects due to its remoteness and sparseness, proximity to giant China, and the region’s ecosystem is rather weak. Many difficulties remain, but in any case, this region will develop.