Farming Makes a Comeback in Russia

Investors are pouring billions into agribusiness—and trying to reverse decades of Soviet mismanagement

Russian land averages $400 per acre—10% of the cost in France Zhuravlev Ivan/Tar-Tass/Corbis

By Jason Bush

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USMAN, RUSSIA Under a baking sun, two green combine harvesters trundled across a vast expanse of yellow barley, unloading their grain into waiting trucks. It was a bumper harvest in Usman, a rural district some 300 miles south of Moscow. Yields of barley almost doubled this year. And there was plenty more to come. On the endless plains of southern Russia this summer, wheat, corn, and sunflowers towered high above the rich black soil for mile after mile.

Just four years ago the same fields sprouted nothing but wild grasses. Although this land had been farmed for centuries, the tradition nearly died out in the 1990s. The Soviet kolkhozy, or collective farms—hardly paragons of agricultural efficiency—went bankrupt as communism collapsed, and villagers abandoned the land. "When Gorbachev came to power, everything began to fall apart," says Alexander Gulov, a former boss of a collective farm in Usman.

But farming in the area, and across Russia's traditional grain belt, is making a comeback. Commodities traders, food processors, shipping outfits, and others are buying up farms, hoping to cash in on high global grain prices. These new investors are pouring billions of dollars into land, then revamping management and technology in operations that span thousands of acres. Today, large agricultural holding companies control some 10% of Russia's farmland, up from 4% in 2003—though in the most productive areas they have more than a quarter of the land, according to the Institute for Agricultural Market Studies in Moscow. "There's huge potential here," says Robert Coleman, a South African who oversees farms in the region for Agro-Invest, a Moscow group that owns 100,000 acres around Usman. "We've invested in big machines, are applying Western ideas, and are getting great results."

It's easy to see why there's so much interest. The U.N. says Russia has some 480,000 square miles of arable land—an area more than twice the size of France. That's 8% of the world's total, much of it highly fertile "black earth." But owing to decades of agricultural mismanagement, Russia accounts for less than 4% of global crop production and is a net food importer.

Among the biggest of the new outfits is Agro-Invest. Over the past two years it has spent some $350 million and now has nearly 900,000 acres. The company farms wheat, barley, corn, and oilseed across a broad swath of southern Russia. Although it's still operating at a loss, revenue is on track to top $40 million this year, roughly double the level in 2007. "Today only big agro-industrial holdings can be profitable in farming, because it requires huge financial resources," says Zorigto Sakhanov, Agro-Invest's chairman. In December, Agro-Invest's parent company, Swedish-backed Black Earth Farming, raised $256 million with a listing in Stockholm, giving it a market capitalization of roughly $1 billion.

Other investors are joining the land grab. Alpcot Agro, a Swedish company, has invested $230 million in Russia and controls over 120,000 acres. Russia's RAV Agro-Pro, with Israeli, U.S., and British funding, has some 370,000 acres. Danish-backed Trigon Agri has acquired 300,000 acres in Russia and Ukraine since it was established two years ago. All three companies plan public share offerings when global market conditions improve.

Out in Usman, the foreign investors' confidence is shared by locals. "Russia's possibilities are simply colossal," says Viktor Karnushin, Agro-Invest's regional boss. He says the company will boost the acreage under cultivation by 50% in the coming year, and productivity will improve rapidly as the farms use more imported machinery. Wheat yields, he says, should climb by 25%. "People were worried [in the 1990s] about the future, but now they understand that everything will be O.K.," says the former army colonel.