“Titanic” of agriculture: why farmers in Russia are so close to bankruptcy
- Alena Belaya Forbes Editorial
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Harvesting wheat on a farm (Photo by Vitaly Timkiv/TASS) The profitability of crop production is falling, and the share of unprofitable agricultural enterprises is growing, according to official statistics. Market participants fear that a prolonged period of low purchase prices, rising costs and a number of other difficulties faced by farmers could lead to a series of bankruptcies this year
Small agricultural enterprises play a key role in the Russian market. “Small farmers and peasant farms provide up to 60% of the gross harvest of grains and oilseeds in the country,” calculated independent grain market expert Alexander Korbut. The head of the Ministry of Agriculture, Dmitry Patrushev, recently spoke about the important role of small farms: according to him, small agricultural enterprises collected about half of the grain harvest in Russia in 2023, and in the total agricultural production the share of farmers is about 15%.
However, 2024, according to experts interviewed by Forbes, may become more difficult than 2023 and even 2022 due to sharply decreased profitability in the crop production sector and a number of other problems that threaten to develop into mass bankruptcies.
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Loss leader
It's not just farmers who have problems. According to the Unified Interdepartmental Information and Statistical System (EMISS), the share of unprofitable organizations in agriculture (their ratio to the total number of organizations in the industry) reached 21.07% in 2023. This is not the highest figure among economic sectors: for example, in the mining segment the share of unprofitable enterprises is 31%, in construction – 21%. The maximum share of unprofitable companies is observed in the water supply and sanitation segment – 45%. However, the agricultural segment is one of the few that demonstrates growth in this indicator for three years in a row: in 2022 it was 19%, in 2021 – 18%.
It is in crop production that in 2023 the share of unprofitable enterprises was 18.99% (16.1% in 2022). The financial result, namely the total losses of agricultural companies for 2023, reached 105.95 billion rubles, of which only the cultivation of grain brought a loss of 20.12 billion rubles (doubling from 10.8 billion rubles in 2022). The maximum loss in monetary terms came from the fishing sector – 33.445 billion rubles.
But in reality, things are even worse, according to Forbes interlocutors. “The indicator of the same unprofitability does not take into account small farmers and peasant farms, whose situation is much more difficult than that of large companies,” – explains independent grain market expert Alexander Korbut.
The situation has deteriorated so much that market participants are increasingly talking not just about a loss of profitability, but also about the prospects of mass bankruptcies of agricultural enterprises. The Russian Grain Union fears that they may begin as early as the 2024/2025 agricultural season (starts on July 1) due to a serious increase in production costs. Previously, experts, at the request of Forbes, assessed why farmers' costs were growing: logistics costs increased by 20-25%, equipment and spare parts became more expensive by almost 30%, labor costs increased by 10-12%.< /p>
“The current situation deprives many farmers of incentives to invest in development and even forces them to leave the market,” fears Nadezhda Kanygina, an analyst at the Institute for Integrated Strategic Studies.
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Difficulties in counting
< p itemprop="articleBody" data-index="13" data-type="paragraph" class="ywx5e Q0w8z" style="text-align:left;">Forbes interlocutors draw attention to the fact that there are difficulties in calculating not only the real share of unprofitable agricultural enterprises, but also simply their numbers.
Kanygina from the Institute of Comprehensive Strategic Studies analyzed the dynamics of the emergence and exit of agricultural companies using the SPARK-Interfax system and shared her findings with Forbes. According to Kanygina’s calculations, in 2023, 3,991 new companies were registered in the field of “Agriculture, forestry, hunting, fishing and fish farming”, for which this activity is the main one, and 4,415 companies were liquidated, that is, 424 participants left the market. In 2022, 4,440 organizations were registered, 5,432 were liquidated (992 legal entities left).
Similarly, in crop production (OKVED codes – 01.1 “Growing of annual crops”, 01.2 “Growing of perennial crops” and 01.3 “Growing of seedlings”) in 2023, 1,618 new organizations appeared for which this type of activity is the main one, while 1,811 were liquidated, in total — outflow of 193 organizations.
According to SPARK-Interfax, 1,454 companies are currently in a state of bankruptcy, the main activity of which falls into the category “Agriculture, forestry, hunting, fishing and fish farming”; in a state of liquidation – 2850, in total 94,753 active legal entities are registered for this type of activity.
In 2023, the courts received 143 applications for declaring agricultural organizations bankrupt and 98 peasant farms. 12 agricultural organizations were eventually declared bankrupt, and this status was also officially assigned to 28 peasant farms. In total, the amount of debt for organizations declared bankrupt amounted to 13.7 billion rubles, for farmers – 422.3 million rubles. In 2022, among agricultural organizations, 32 companies were declared bankrupt (debt amount – 1.4 billion rubles), among peasant farms – 55 (with a debt of 1.7 billion rubles).
“Keeping official records is quite difficult,” adds Natalya Shagaida, an expert at the Center for Agricultural Policy of the Institute of Economics and Public Administration of the Russian Presidential Academy of National Economy and Public Administration. — Some companies that are part of agricultural holdings could be found in the register of small businesses. Ordinary agricultural organizations can be registered as peasant farms (peasant farms), and peasant farms can operate without registration as personal subsidiary plots.
A decrease in the number of companies may indicate not only their bankruptcy, but also a trend towards consolidation of agribusiness. “Recently, the trend for M&A transactions has intensified,” notes Nikolay Lychev, an expert on the agricultural sector and managing partner of Agrotrend.ru. — So not all farmers leaving the market go bankrupt; often this is a repackaging of assets, a change in the balance of power within the market. Small and medium-sized land banks (from 1,000 to 30,000 hectares), provided that they are processed and generate income, will be selected by local regional agricultural operators, large federal agricultural holdings and non-core investors.” But the general trend towards deepening economic problems in agriculture is obvious, Kanygina notes.
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Rubicon of Profitability
Forbes has already written that the profitability of the agricultural sector is steadily declining, but market participants are paying attention to the fact that this process does not stop and more and more companies are falling into loss and then bankruptcy.
“In recent seasons, there has been a drop in profitability for all types of activities, except for open-ground vegetables and sugar beets,” recalls Shagaida from the Institute of Economics and Economy of the Russian Presidential Academy of National Economy and Public Administration. “For the third season in a row, the actual margins of crop production have been declining, and there is no end in sight to this process,” complains Lychev from Agrotrend.ru. A catastrophic decline, even loss, according to Salis Karakotov, general director of the Shchelkovo Agrokhim company, is observed primarily in the mass production of grains.
“There is a significant decline in the profitability of the agricultural sector,” notes Kanygina. — According to preliminary estimates of the Ministry of Agriculture, in 2023, the profitability of agriculture fell by 1.4 percentage points compared to 2022, to 18.9% – for comparison, in 2020-2022, the average profitability of agriculture in the country remained above the level in 20%, in particular in 2021 the highest figure for the period was recorded – 25.28%.” According to Rosstat, the profitability of growing grains fell from 43.8% in 2022 to 27.4% in 2023, the profitability of growing wheat specifically collapsed from 33.5% in 2022 to -1% in 2023.
Margins are very uneven and depends on the region, crop rotation, business model and the efforts and capabilities of a particular company, clarifies Lychev.
Where did agricultural enterprises have so many problems? Forbes' interlocutors named a whole range of reasons. One of them, oddly enough, is the high harvests of the last two years; this factor had a particularly strong impact on grain crops. “In recent years, Russia has received a rich harvest of grains and oilseeds, but for farmers, the records result in lower prices and additional costs for harvesting [the crop], its storage and transportation,” notes Elena Khromova, partner of the auditing and consulting group Unicon. Strongest of all impact on farmers low prices for the products they sell, confirm the data of the Yakov and Partners study, which is at the disposal of Forbes – this was noted by 65% of representatives of the agricultural sector surveyed by the company.
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“The dynamics of product prices, as a rule, do not coincide with the rise or fall in prices for resources,” explains Shagaida from the Institute of Economics and Economy of the Russian Presidential Academy of National Economy and Public Administration. According to her, after the peak values that prices reached in March 2022, the value of the FAO price index (food price index of the UN Food and Agriculture Organization) began to decline. At the same time, resources were spent on production at a high cost. “This gap – high costs and falling incomes – has created risks for agricultural producers,” says Shagayda. “In February 2024, the value of the FAO food price index was already 10.5% lower than the corresponding figure last year, and there is no reason to think that prices will now stop falling: the world has adapted to the new situation, the supply of products there does not cause concern.”  ;
There are other circumstances that reduce the income of Russian producers, Shagaida continues, – duties and quotas on export products. The cost of insurance and logistics tariffs are also becoming noticeable, and each exacerbation of the foreign policy situation is accompanied by their increase. In addition, there is a problem with labor resources, which have become more expensive due to increased competition for them in conditions of an unprecedentedly low level of unemployment in the country, recalls Shagaida . Among other things, Russian-produced resources aimed at the foreign market (for example, mineral fertilizers) became more expensive within the country following rising prices on the foreign market. Accordingly, in this situation there is every reason to reduce the profitability of agricultural production in Russia, the expert summarizes.
In the last year or two, production costs have increased abruptly, Karakotov notes, in particular for the maintenance of the automobile and tractor fleet, the provision of spare parts, fuels and lubricants. The price of renting land and the cost of a number of fertilizers have increased.
The peculiarity of the work of agricultural companies is that they cannot simply abandon the production of those crops that are no longer profitable. One of the limiting factors is crop rotation. This is the name for the need to alternate the types of crops grown in one area in order to avoid soil depletion. Depending on the region, it is necessary to alternate from two to five or more plant species in one field. Thus, the enterprise is forced to grow not only profitable oilseeds (for example, rapeseed or sunflower), but also continue to sow unprofitable wheat and other plants that do not generate income.
“Many farms are characterized by two- and three-field crop rotation,” comments Lychev. “In the Central Federal District, crop rotation is quite complex, it is multi-field, five-, six-field, most often they sow wheat, winter and spring, spring barley, corn, as well as sunflower and sugar beets,” explains Karakotov. “And it turns out that most of the areas are always occupied by unprofitable crops.”
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What else is ruining small farmers? Normal running costs. “Many small farms can no longer maintain the current technological level,” believes independent expert Korbut. “Depending on the complexity of the situation, various negative consequences may be observed – from a sharp decline in production indicators to bankruptcies.”
“Some farmers no longer have development plans, and there is no need to count on modernization: the costs of purchasing increasingly expensive agricultural equipment are being reduced, the overall solvency is decreasing, which is reflected in the purchase of the same plant protection products, which, as a rule, are already supplied on credit,” adds Karakotov from Shchelkovo Agrokhim. “There are serious volumes of receivables from farmers who, due to the current price situation, cannot pay off their debts.” According to Karakotov, the Volga, Ural, Far Eastern and Siberian federal districts are suffering the most.
Other Forbes interlocutors also noted that due to a lack of funding, small farms are forced to save on fertilizers and plant protection products, which will soon lead to a drop in yields, and therefore in revenue. “How difficult everything is in the agricultural sector now can be judged by official data from Rosstat on the application of mineral fertilizers,” says Korbut. “For the second year in a row, the use of fertilizers on grains (81 kg per hectare in 2023 versus 83 kg in 2021) and sunflowers (45 kg per hectare in 2023 versus 48 kg in 2021) has been decreasing,” says Korbut. And this despite the fact that, as in the case of the share of unprofitable companies, data on micro-enterprises and peasant farms, which traditionally have a worse economic situation than their larger counterparts, is not taken into account, he emphasizes. “The harvests of recent years have been record, and the removal of nutrients from the soil has increased; 2024 also promises to be rich in harvests, but after that there will be serious problems with fertility,” predicts Korbut.
“Often, instead of complex fertilizers, they begin to use cheaper simple ones or even abandon them, the same situation with agrochemicals: farmers carry out less cultivation of fields or refuse, for example, insecticides, protecting themselves only from the most common plant diseases,” adds Lychev from Agrotrend. ru.
The expenditure part is still growing. “The fleet of equipment that is used in large and medium-sized farms and even among advanced farmers was formed for many years from imported machines, and their maintenance has risen two to three times in two years,” says Karakotov. — Expensive depreciation does not provide a chance to purchase new equipment in the required volume, and when reserves are depleted, there will be a noticeable decrease in production intensity. All that remains is to switch to less energy-intensive and efficient equipment.” The lack of agricultural equipment affected the harvest of 57% of respondents, and, according to the analysis of Yakov and Partners, this became the second significant negative factor after the weather.
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Import-substituted seeds
Another significant part of the cost is the purchase of seed, Forbes’ interlocutors say. In the new season, 36% of surveyed agricultural producers note that seeds are one of the three most problematic categories for purchasing, according to the Yakov and Partners study.
“Many farmers continue to choose foreign selection,” says Karakotov from Shchelkovo Agrokhim. — From the point of view of seed quality, not all agricultural crops are really capable of domestic production seriously competing with world market leaders. I believe that in terms of quality of corn and sunflower, Russian seeds are still inferior to imported ones.” But the situation with cereal grains is consistently good, and the country does not require imported products, he adds.
The introduction of a quota on the import of seeds of a number of agricultural crops from “unfriendly” countries was another factor that threatened the profitability of agribusiness, notes Khromova from Unicon. In January 2024, a government decree came into force, which limited the import of seeds of a number of cultivated plants, as a result, agricultural companies are forced to switch from conventional material to seeds of domestic selection. “Switching to Russian elite seeds in a short time can be a difficult task for many enterprises,” Khromova believes. “To this we must add the increase in costs for fuels and lubricants, logistics, and plant protection products.”
For those who have to switch to domestic selection, this process becomes painful, agrees Karakotov. “Producers are accustomed to those suppliers who have worked here for many years, and we rather see not a voluntary, but a forced transition to Russian selection due to a shortage of imported ones,” he explains. The volume of seeds in the country is sufficient for spring sowing, but the question is the price and quality of the products. According to market participants, prices for seeds of various crops by the end of 2023 increased from 10% (corn) to 38% (sugar beets), on average the increase is estimated at 15-20%.
“In general, a situation where the disparity in prices for resources and agricultural products is growing is not uncommon, and farmers have a certain margin of safety that allows them to survive difficult times,” summarizes Shagaida from the Institute of Economics and Economy of the Russian Presidential Academy of National Economy and Public Administration. “But if it comes to real bankruptcy, provided that it is not a large business that falls under the procedure, this does not lead to the transfer of the business to another owner, but is accompanied by the ruin of agricultural producers.”
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Alena Belaya
Forbes editorial staff
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