Farming Makes a Comeback in Russia

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He can't wait to show off the farm's latest acquisition: a $300,000 Canadian Bourgault cultivator. In recent years the farm has replaced most of its rusty old Russian tractors and harvesters with equipment from Illinois-based John Deere. "There's simply no comparison," says tractor driver Nikolai Yaroslavtsev, who complains that his old Russian model was forever breaking down. These days a GPS navigation device helps the tractor stay on course as it traverses the fields. All the new technology means the company employs 340 people on land that was farmed by 3,000 during the collective farm days—and Agro-Invest grows more crops.

Throughout Russia, there's huge potential for similar productivity gains. Grain yields in the country average around 1 ton per acre, only about a quarter of what farmers in Western Europe get, says investment bank Troika Dialog. But Russian land averages $400 per acre—a mere 10% of the cost in France, and 20% of the price of land in Brazil.

In the countryside, Russia's capitalist revolution is still a work in progress. A communist-era ban on the sale of agricultural land wasn't scrapped until 2003. Even now, local authorities suspicious of outside investors often find ways to block land sales. About three-quarters of farmland is still controlled by the former collectives, and 10% belongs to small farmers. And there's always the risk—as with Russia's oil and gas industries—of a backlash against foreign ownership. Foreigners are barred from buying farmland, although companies such as Black Earth Farming have circumvented the restrictions by creating a Russian subsidiary, while Alpcot Agro and others hold long-term leases on their land. "Business is very local in Russia, and you need to have support from the local authorities," says Bjorn Lindstrom, investment manager for Alpcot.

Local farmers in Usman have no shortage of gripes, especially when it comes to the soaring costs of fuel and fertilizer. Domestic grain prices, meanwhile, are 40% below international levels because the Kremlin has placed restrictions on exports to keep a lid on inflation. If Russia wants to boost food exports, it will need to invest billions to upgrade ports and railways.

Such pitfalls explain why investment in land may not be the safe bet it might seem. "If grain prices were to fall, a lot of these companies would face real problems," warns Kingsmill Bond, an analyst at Troika Dialog. But there's still no denying the potential: "The land is cheap," he says. "And there's lots of it."

Bush is BusinessWeek's Moscow bureau chief .