Transcript From Kolhoz to Agro-Holding Company: Rural Russia and

From kolkhoz to holding: Rural Russia and external
modernisation
Dr. Jouko Nikula
Aleksanteri institute
University of Helsinki
Three Russias
Russia’s population can be divided into three
roughly equal in size segments, each consisting of
about one third of Russians.
 1.The most advanced segment of the population
is dispersed among the country’s largest cities
(counting only cities with populations over a
million, this group accounts for 22% of the
population);
 2. The semi-periphery includes smaller and
medium cities where Soviet values predominate
 3. The periphery – the traditional, disengaged
population of Russia’s towns and villages

The rural Russia – 3rd Russia
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A vast peripheral territory of villages, semi-urban villages and small
towns with third of Russia’s population.
Mainly depopulated small towns and semi-urban villages with an
elderly population
A higher concentration in Central Russia, the north-west, industrial
areas ion the Urals and Siberia.
Villages are most common in the south of Russia and the north
Caucasus, where 27% of the country’s rural population is
concentrated.
In many regions the only villages that survive are those on the
outskirts of cities; their population is younger, more mobile and
better off, since many of them commute to the city to work.
Involvement in the shadow economy teaches people independence
from the state, and those who are dependent – pensioners, public
sector workers – have no energy or resources to either leave
Enterprises and community in
Soviet society
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The soviet (agricultural) enterprise was not
just an enterprise, but a basic unit of the
(soviet) society and a basis for social and
economic power
All employees were members in the same
labor collective, which offered not only work
and wages, but also a wide variety of benefits
and services such as medical care, housing,
communal services (heating, roads, water
supply, etc).
Enterprises crucially important also for the
communities where they operated
Russian Agricultural Reform-The
initial situation
1960
1970
1980
1990
The share of
collective farms of
land
99
98
98
98
The share of
private owners of
land
1
2
2
2
The share of
collective farms of
the value of
production
n.a
69
71
74
The share of
collective farms of
grain production
99
99
100
100
The share of
collective farms of
potato production
37
35
35
34
Russian Agricultural Reform
Began already in late 1980’s when new legislation
gave possibilities to start private enterprises and
farms
 In January 1991 land de-nationalisation and land
reform
 The lands of former kolkhozes and sovkhozes
were distributed by means of certificates of
ownership to unspecified land plots to their
former employees.
 Together with land reform began also structural
re-organisation of agricultural enterprises and
promotion of private farmers’ sector
development.

Russian Agricultural reform - Reorganisation of agricultural
enterprises
◦ Workers got chance to choose the form of ownership of the
enterprise,
◦ Received shares of the proprerty and land of the enterprise
◦ Were granted a right to use them as they wished – to invest them in
partent enterprise, start their own farm, sell them to other shareholders
◦ Got a right to leave the enterprise without any special permit
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More than 12 000 000 new land-owners in Russia with
virtual ownership – no legislation on landownership
until 2001.
A large part of collective farms adopted insider
privatisation method, where only the employees of the
enterprise had a possibilities to get shares
As a result most of the enterprises became closed jointstock companies (ZAO) where share-holders cannot
sell their shares to outsiders before offering them to
other share-holders
Main aims of the land reform
The elimination of state monopoly in land
ownership;
 The re-distribution of lands between
different agricultural stakeholders for
equal development of different
organizational forms of agriculture
 Creation of conditions for establishment
of land market and emergence of private
land owners

Aims of the reorganisation were:
Boost effectivity of agricultural
production
 Reduce subventions for agriculture
 Modernize the sector
 Close and merge unprofitable farms
 Promote the development of family
farming alongside large-scale production

BUT
The middle class people were also
committed to large-scale production
 The value of their education, professional
status, income and modern way of life all
depended on a work organisation based on
large-scale production
 Most of the rural workers in Russia did not
have financial recourses or knowledge to
start farms.
 In 2011 only 2% of certificate holders
registered their land rights officially (Rosstat,
2011).
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State withdrawal and it’s consequences
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Radical reduction of agricultural subventions
Ending of price controls
Non-coherent economic policy
Sky-rocketing inflation
Consquences:
Opening of ”price-scissors”
Rapid indebtedness
Practical non-monetization of economy
-10
-15
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
I-IX 2005
-5
1990
1985
Growth Rate of GAO (Gross agricultural output)
10
5
Consequences and reactions
The growth of barter relations due to demonetization and debts.
 Continuation of soft-budget constraints i.e,
debt-settling or even supporting loss-making
and indebted farms
 No investments in agriculture –
decapitalisation of production
 Symbiotic relationship between large farms
and house-hold plots
 Continuation of system of negotiation and
bargaining at enterprise level

Farms structure
GAO shares by type of farms, %
0%
4%
Enterprises
31%
Households
Farmers
45%
51%
69%
1990
2000
Trends in agriculture since 2000
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Putin’s agricultural policy: promote vertical integration
State intervention in grain market and greater use of tariffs
and quotas
Rural projects and programs since 2006 ( rural development
programs, credit systems and investments to rural housing,
medical care)
Introduction of selective subvention policy
Developments in late 2000’s
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Government support for agriculture increased with the launch in
2006 of a two year National Project for agri-food sector
development and its continuation through a five-year state
programme in 2008–2012.
All-Russian Agricultural Census (2006) showed that private farmers
own about 30 million hectares or 13 percent of agricultural land in
Russia
The rest is controlled by large farm enterprises, the successors of
the collective and state farms, and increasingly by agroholdings, both
domestic and foreign
In 2009 that of the 12 million land shareholders, only 400 000
owners had been able to convert their shares to private property.
More than 90 percent of privately owned land is owned as land
shares, not as physical plots of land
Russian agriculture today

Agriculture represents:
◦ 4.8 % of Russia’s total GDP (together with food industry
approx. 10 %)
◦ 9.8 % of total employment
Fairly low rate of growth: 2.7% a year on average
50 % of the total output of the food industry is
concentrated in two districts, the Central Federal
district (33 percent) and the Privolzhskiy district (17
percent).
 Grain (wheat) and processed oilseeds (sunflower)
make up the largest exports
 Russia is still a net importer of foodstuffs.
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New structure of producers
Three types of farms:
1) Agricultural enterprises – mostly heirs of kolkhozes and
sovkhozes
- 27 000 farms
- 11-12,000 hectares of land,
2) Family farms
- 285 000 farms
- 103-108 hectares of land
3) Household plots
- 22 800 000 plots/units
- 0.51 hectares of land
 Source: Russian Agricultural Census 2006
The distribution of land, cattle and production according to types of
farms in Russia 1990-2009 (%)
Indicator
Farm type
1990
1995
2000
2005
2009
Agicultural
Corporate
98
90
87
80
71
land
farms
2
5
6
10
16
Peasant farms
0
5
7
10
13
Corporate
83
70
60
52
17
29
38
44
Peasant farms
0
1
2
4
Corporate
74
50
45
45
45
26
48
52
49
47
0
2
3
6
8
Household
plots
Cattle
farms
Household
plots
Total output
farms
Household
plots
Peasant farms
The key features of development
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The large-scale production develops through
vertical integration and external investments

Simultaneous existence of hyper-large
capitalist farms and “decaying social farms”
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Huge regional differences in the level of
development of agriculture, well-being and
many structural features
The key features of development
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A large share of rural population still
dependent on plot farming as one principal
source of income (wage worker society
underdeveloped)
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The share of family farms has remained very
low throughout 2000’s.
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Appearance of international megafarms
Russian regime?
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Dual structure with strong large farms and
strong household production continues
Plot-farming as a ”social necessity” declines
while its role as a commercial activity
remains
Modernisation of agriculture in the hands of
agroholdings – investments in technology
and product innovations (Serova 2010)
”State capitalism” – a merger of public and
private interests?
22
Key issues
The fate of ”social farms”, former sovkhozes
and kolkhozes (inefficient, indebted)
 Simultaneous labor shortage (skilled
workers) and labor surplus (unskilled)
 Obstacles to migration (housing, labor
market services, poverty)
 Very weak financial basis of local
administrations
 The interdependency of agricultural
enterprises and local administrations

Conflicting tendencies of development of postkolkhozes
A large share still unprofitable ( 55 % – 80 %)
 Symbiotic relationship between (post)kolkhozes and house-hold plots
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◦ A way to compensate low wages
◦ A way to keep specialists and skilled labour
◦ The dilemma between social and economic sides of
the enterprise (employment vs. efficiency)
Conflicting tendencies of
development of post-kolkhozes

Among the most successful enterprises clear
turn towards ”normal business”
◦ specialization and cutting unprofitable
production
◦ reduction of labor
◦ introduction of monetary relations between
enterprise and community and enterprise and
workers (detachment from social nature of the
enterprise)
◦ investments in new technologies
◦ trainings for the core labor
Post-kolkhoz, features of labour
organization
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A strong ideal of Taylorist labour principles .
A high level of standardization is pursued by splitting of the
production process in numerous small and separated tasks.
The labour force is characterized by high levels of
specialization and a stark division between white and blue
collar employees.
The management style in the farm enterprise is very topdown with a close surveillance on workers, who are
expected to be to be obedient and hard working.
Extensive standardization difficult to achieve and shortages
requires flexibility and improvisation of the workers (Dunn
2008).
The regular payment of workers is more an exception than a
normality and informal support acts as the real incentive for
workers.
Supporters of post-kolkhoz
A large part of the local governments and
the rural population (see e.g. Nikulin 2011).
 Local governments try to maintain at least
part of the control over farm enterprises provide social security and sufficient
employment
 Population: secure livelihoods, due to high
job security and socio-economic support
and Soviet knowledge infrastructure
 Maintenance of household plot farming as a
safety-net

Example 1:Failed adaptation, exhaustion of
resources
Former sovkhose from Karelia,
specialized in milk and potato production
 Went bankrupt in 2002
 Was bought by agricultural machine
dealer
 Made ambitious investment program for
renewal of technology
 Rapid increase in productivity
 Got support from Karelian government

Example 1:Failed adaptation, exhaustion of
resources
. No increases in wages
No reduction of labour
 Lack of skilled workers
 Lasting problem with alcoholism
 Continued to help workers with plotfarming
 Continued to maintain infrastructure
(roads, sewage, etc.)

Reasons for failure:
Bad management a) owners distant and
not agricultural producers but spare-part
sellers, b) on-site manager without
decision-making powers (production
manager only)
 Wrong products – unprofitable and
yielding more losses than income
 Loss of key specialists (low-wages, no
prospects, better jobs available in city)

Example 2:Successful transformation
Cattle farm from Nizhny-Novgorod
 One of the biggest farms in the region
 3000 head cattle with 7400 hectars of
land
 Director of the farm main owner (76 % of
shares)
 Provides seeds and products for shareholders as a payment for land shares
 Clear specialization to milk and wheat
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Example 2:Successful transformation
Rents lands from neighbouring farms
 Paternalism towards local community:
 Financial assistance in medical treatment,
weddings, funerals
 Transport services, maintains schools,
kindergartens, culture club and home for
elderly people
 Paid higher education for local children
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Example 2:Successful transformation
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Reasons for success:
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Good economic management
Appropriate product profile
Good relations to regional political leaders
Educated specialists
Agro-holdings
Behind their appearance high indebtness of
the agricultural companies
 Also weak physical and institutional
infrastructure promoted the formation of
agroholdings
 Fear of social consequences of mass
bankruptcies and diminished food security
 Developed rapidly in specific sectors, like
sugar, grains or pork
 Situation in late 2011: 250 private companies
with more than 15500000 hectares of
land
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Agro-holdings
 Rouble devaluation made agriculture
profitable target of investments
 External investors from energy sector,
food processing
 Take-overs of insolvent enterprises
 Radical reorganization of enterprises
(management practices, labor, production,
etc.)
 Specialization of production, investments
and renewal of production capacities
1800000
1600000
Land distribution by
the nature of mother
company (hectares)
1= Diversified
agribusiness,
2= Food industry,
3= Conglomerates
4= Unidentified,
5= Inputs supply,
6= Agricultural trade,
7= Agriculture,
8=Banking and finance
Source: Rylko 2012
1400000
1200000
1000000
800000
600000
400000
200000
0
1
2
3
4
5
6
7
8
9
Agroholdings – features (2011)
Represent 8 % of all farms in Russia
 Employ 9 % of total agricultural
employment
 Produce 15 % of total agricultural
production
 Control 8 % of all agricultural land
 Concentrated to Central Black soil
(Belgorod, Orel) and Volgograd areas
where agroholdings control over 45 % of
land

Agroholdings
Cutting labor costs by using the latest
technology (GSP-operated combines, feeding and
milking robots, etc.)
 Productivity as the key priority
 Listed in stock-exchanges
 Owners mainly urban and interests in subsidies,
privileges, land-conversion, tax evasion, etc.
 Production and economy clearly differentiated –
farm enterprise only a production-oriented unit
 Stricter labor organisation and less benefits
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Work organization
Agroholding is very hierarchically organized; the
private top-management and the shareholders vs.
workers and local community leaders (similar
characteristics with the latifundia)
 A high reliance on cheap labour.
 The primary focus of the agroholding farm model
is reducing costs, especially labour costs by
increasingly replacing labour by machinery
 The management continues to function according
to traditional lines, it is top-down and strictly
detached from the workers
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Management
The property and labour regime has
become stricter than before as limits have
been set for the use of the enterprise’s
resources.
 Salary is becoming more important
motivation for labour.
 The fear to lose one’s job is also an
important motivation

Effects
Bring in new technologies into agriculture
 Effective in lobbying support
 Improves clearly productivity
 Strong partners in making Russia as the key
player in world grain markets
 But, diminishes the farm enterprise autonomy,
increases bureaucracy and monitoring

Supporters of agroholdings
The rural and urban elites who have
gained high positions within the
agroholding-system
 All agribusiness enterprises, like
machinery- and seed traders and financial
institutions
 Make profit from the importance of
technology and financial capital

Consequences of development of
Agroholdings – case from Belgograd area
A clear decrease in a standard of living of
peasants, reasons:
 Reduction of workplaces and unemployment
growth especially among youth.
 Low wages in Agroholdings. The average
salary in agroholding is no more than 12-14
thousand rubles (250-300 euro)
 Low wages and low demand of villagers’
skills in the city.
 Sharp decrease in efficiency of house-hold
plot economy
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Dwindling peasant economy
Tight work schedule in agroholdings does
not allow work in house-hold plots.
 Restrictions and a ban on animal husbandry
and poultry farming for members of families
of those peasants who are working in
agroholdings with similar production profile
(for sanitary reasons).
 No help is available to house hold plots from
the enterprise
 Stricter control over the use of the
resources of agroholdings
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Positive (and negative) results
◦ Rural dwellers willing to start independent
business activity due to lack of any support of
businessmen and farmers in household plot
farming
◦ Essential social and mental changes, such as;
 decrease in alcoholism and theft,
 growth of a personal responsibility,
◦ At the same time growing atomization of the
population and gradual dissolution of former
community relations
Example 3: Cooperative based agro-holding in
Nizhny-Novgorod region
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Trade
70 shops, mainly in the country side, restaurant, cafés
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Processing
bread-baking plant, mill, sausage factory, fishprocessing factory, lemonade factory, milk plant

Agriculture
2 enterprises bought after bankruptcy
Management chart
Cooperative enterprise
The board of the agro-holding
 Director
 Manager of dairy farm
 Manager of meat farm
 Manager of dairy
 Manager of slaughter house
 Manager of bakery
Dairy farm
(SPK)
Coopearative shops
(80)
Fish factory
(OOO)
Bakery (OAO)
Grain farm
(SPK)
Slaughter
house
(OAO)
Soft drinks
factory (OAO)
Production cooperative
Material and land shares evenly distributed
between workers
Before integration to agro-holding:
 1500 hectares of land
 60 heads of livestock
After
 3000 hectares
 1800 heads

Production cooperative
220 workers
 Average wage is 4000 rubles (about € 100), including:
◦ Constant monthly wage – 50%
◦ Premium bonuses – 50%
 Modernisation of equipment
 New vegetable cultures cultivated
 Elite livestock breeds purchased
 Training of workers and specialists: new technologies
and equipment
 Regular wage payments
 Tight control on discipline and use of equipment
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Reasons for success
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Good relations with local and regional
administrations
Cooperation also with research institutes
from different regions and local machinery
companies
Contacts with advanced agricultural
enterprises in Moskovskaya Oblast’
Most part of transactions with District
administration are mediated by the agroholding
Family farms
Produce only some 8 % of all agricultural production
 Weak development not only due to small size but
because hostile political economy towards them

◦ Market structures and subventions biased towards large
scale production (supplies, technology); soviet legacy and
current concentration of production
◦ Private farmers not well networked
◦ Starting a farm means losing all the benefits and possible
services from large-scale farm
◦ Banks not willing to lend money –interest rates high
◦ Bureaucratic obstacles: registration, obligation to hire
workers (accountant)
Household plots
Produce nearly 50 % of agricultural
production
 Predominantly for subsistence purposes
 Examples of successful and large-scale
plots-> a way to evade taxes
 Benefit from symbiosis with large
enterprises (technology, input supply)
 Importance declines along the economic
growth (alternative employment)

INTERNATIONAL LAND
ACQUISITION

The global scale of the phenomenon:
◦ The International Food Policy Research
Institute (IFPRI) : 15-20 million hectares of
agricultural land are subject to transactions or
negotiations since 2006.
◦ This is equivalent to all the agricultural land in
France, or one fifth of the arable land in the
EU.
◦ UN: 30 million hectares by 2009.
Getting land in Russia
Foreigners cannot own land (individuals
or firms or Russian firms with foreign
majority)
 Leasing possible – 49 years
 Investing to Russian subsidiary which can
own land
 Renting most popular – lot of land and
low rents

Motives for investing in Russia

Short-term:
The abundance of unused and underutilized land
Low land prices
Little competition
The potential to increase yields
Infrastructure (Black Earth region, Siberia)
Financial crisis

Long-term:
Water resources
Global climate change

Obstacles:
Export barriers
Insecure property rights and bureaucracy
INTERNATIONAL LAND ACQUISITIONS IN RUSSIA
Major foreign investors in RUSSIA
Company
Country of origin
Ha
Area of operation
AGRICO Ltd
Russia /Israel
100.000 ha
Stavropol Territory
Agro Invest Brinky
The Netherlands
3 poultry farms
Leningrad region
Agro-Invest (Black Earth Farming)
Sweden
300 000 ha
regions of: Kursk, Voronezh, Lipetsk, Tambov, Samara and
Ryazan
Agromarket Trade, CJSC
USA
100 000 ha
Krasnodarsk and Stavropol regions.
Agroservice, MTS
Estonia
11 994 ha
n.a.
Agrowill Group, JSC
Lithuania
40 000 ha
Penza region
Alpcot Agro
Sweden
490 000 ha
regions: Voronezh, Volgograd, Tambov, Lipetsk, Kursk and
Kurgan
Centre Capital
Russia, UK
65 000 ha
Moscow region
Chernozemye agrocompany
UK
60 000 ha
Lipetsk region
Chinese companies
China
80 400 ha
Far East of Russia
DK Rus Invest
Denmark
10 000 ha
Saratov region
Ekoniva, group of companies
Russia, Germany
121 000 ha
Central regions
Heartland Farms Penza
Russia, UK
27 000 ha
Penza region
Hyundai Heavy Industry
South Korea
50 000 ha
Far East of Russia
Ivolga-Holding, LLC
Kazakhstan
666 850 ha
Far East of Russia
Wimm-Bill-Dann PepsiCo
USA
20 250 ha
Moscow region
RAV Agro-Pro
Russia, UK, USA, Israel
150 000 ha
Voronezh region
Redland Farms
Swiss / Sweden
180 000 ha
n.a.
Sucden
France
75 000 ha
Penza region, Krasnodar Territory, Lipetsk region
Trigon Agri
Denmark
144 000 ha
Penza region, Samara region
The rented land holdings of Trigon A/S
(total land bank 181 000 ha)
The business strategy of Trigon A/S
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Focus on large-scale farming clusters
Acquire land next to road, rail and storage infrastructure
Set up operations next to regional population centres
Use primarily highest capacity Western manufactured machinery
Use Russian language speaking management teams
Selectively implement international best practice
Develop integrated commodities production, storage and trading
operations
Production clusters in geographically diversified areas allowing for
weather hedge
Expansion of agricultural land portfolio in the Black Earth region
(Source: Trigon_Agri_Company_Presentation_2010_10_21.pdf)
IMPLICATIONS
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The possible negative consequences throughout the world
Irrational / irresponsible use of land (degradation)
Use of agricultural land for other purposes (speculation,
construction)
Unemployment / employment decline
Loss of peasant ownership of the land, the degradation of
rural residents – not very relevant in Russian context
(large-scale production history)
In Russia support for foreign investment – provide
employment and maintain services (local administrations
and population)
For investors interests in efficiency and profitability
Potential positive consequences
Investment growth in the economy
 Agricultural development through new
technologies and management
 New standards in agribusiness
 High competition leads to higher quality of
products and services
 High wages for workers (skilled) in the
agricultural enterprises
 Promotion of education and social support
for rural residents

THANK
YOU !