Could sanctions spur Russia's ascent to agricultural superpower?

Since the end of the Soviet era, Russia's agricultural industry has languished. But with sanctions now keeping European goods out of the Russian market, small domestic farmers are stepping up.

The very first thing Alexander Sayapin has to say to a Western journalist who's made a long trek out to his start-up dairy some 150 miles from Moscow? "Thank you for the sanctions."

The sanctions Mr. Sayapin is referring to, a near-complete ban on food products imported from the European Union, were actually imposed by the Kremlin. They came in retaliation for Western sanctions leveled against Russia almost two years ago over its role in Ukraine's crisis. But never mind.

His point is that the sudden disappearance of cheap EU dairy goods from the Russian market created an opportunity. With financing from a major Moscow-based supermarket chain, Azbuka V'Kusa, he built in this deeply rural region a small dairy that now processes local milk into a variety of products, and sells as much as it can make under the supermarket's in-house brand name and his own "Farmer Sayapin" label.

Small farmers like Sayapin, long ignored by Russian customers and investors alike, are breathing new life into Russia's agricultural markets, allowing the country to feed itself without imports – and even to become an exporter itself.

"We've tripled our production in the past year, and we've carved out a place in the market," he says. "Even if they lift the sanctions tomorrow, we're already here. We've learned a lot, reduced our costs, and we're ready to compete."

A farming boom

Russia is in the throes of recession, and things look to get tougher this year. But agriculture appears to be rebounding briskly. Officials insist that's not just because of sanctions, or the plunging ruble – which favors domestic production and makes imports more expensive – but the result of much more fundamental long-term factors.

More than a decade of confusion over how to decollectivize giant Soviet farms left the agricultural sector in ruins and made Russia dependent on foreign food imports. A new land code introduced in 2001 made it possible to create Western-style private farms, but development was slow. In 2012 the government introduced a sweeping program of subsidies to promote private farming, including low-cost loans, controlled prices for fertilizers, support for producers of domestic farm machinery, and state financing for other vital elements of agricultural infrastructure.

It's clearly had an impact. For instance, Russia was until recently a major importer of chicken and pork from North America. Now it is self-sufficient in fowl and last year became a net exporter of pork for the first time in history. Russian agricultural exports were $20 billion last year, more than the country's arms sales, and are expected to grow this year.

The current crisis, perhaps amplified by a patriotic backlash against Western things, has also spurred a revival of traditional Russian cuisine. Producers of old ingredients like beets, cabbage, buckwheat, tvorog (Russian-style cottage cheese), and kefir (a yogurt drink) are reportedly booming.

"Farmers are in a very favorable position these days. They can get grants and subsidized loans from federal and local government, and the current economic situation works for them," says Alexander Tsigankov, an official with the Kaluga regional ministry of agriculture. "People are coming back from the cities, because there are finally decent-paying jobs in farming, and that's easing our chronic labor shortages. In our region, Kaluga, the farming sector has grown by 17 percent in the past two years."

Mr. Tsigankov scoffs at the much-discussed possibility that Western sanctions may soon be eased and all the products of vastly superior European agribusiness will flood back into the market, perhaps knocking local farmers back on their heels.

"So what?" he says. "If all those products come back, there will be price wars. And our farmers, who count their costs in rubles, will win most of the battles against goods that are priced in euros. Of course there will always be niche markets for French cheeses and Italian cured meats and such. But we're well on our way to producing enough of most foodstuffs to feed our own population."

However, he adds, "I hope our government has had enough time to think over the problem of food security and will protect our own farming" so as not to leave Russia vulnerable to sanctions in future.

'Doing well'

The hard road back from Soviet-style farming is on display in the village of Plotskaya, where a few modern homes sprout amid decaying former collective farm buildings. Former members of the collective farm, Sergei Fetisov and his family, have gradually amalgamated much of the old farm's former lands by buying out some former members, convincing others to join together and pool their efforts. They have several hundred head of cattle, produce their own feed. They also harvested about 3,000 tons of potatoes last year.

"I never thought this transition from socialism to capitalism was going to take so long or be so complicated," Mr. Fetisov says. He and many of his neighbors are Old Believers, a branch of Russian Orthodoxy that was persecuted in the past. This shared religious bond has spurred them to cooperate.

But he says they rely on their own efforts, not government assistance. "Things are going fine now, but I worry about future stability. Whatever happens, we're self-sufficient here. We've rebuilt this village, and we will stay. For us, farming is a way of life, not a business," he says.

Farming is a business for Andrei Davidov. The former Soviet military officer started his cattle farm on unused land 25 years ago, so he didn't face any of the legal problems of transitioning from the collective farm system. A sojourn with friendly cattle ranchers in the US in the 1990s was a big help in showing him the ropes, he says. He now has about 150 Hereford cattle, which he butchers himself, and he makes a comfortable living supplying a supermarket chain and a couple of restaurants in the nearby city of Kaluga.

"It's all good for me. I'm doing well," he says.

Most of the beef served in the former Soviet Union was old dairy cows sent to slaughter, and so raising beef cattle is a relatively new industry for Russia. By many accounts, it's one that is expanding fast.  But unlike pigs or chickens, beef has a long production cycle, and Russia is still far from being self-sufficient.

"What this country needs is 800,000 private farms raising cattle, like in the US, and then maybe we'll be an agricultural superpower," Mr. Davidov says.