Overview of the Russian agricultural market in 2021
Due to weather conditions in 2021, Russian agricultural agricultural producers came against the need to reseed winter crops. This led to a decrease in the wheat and barley yields by 13.0 mn tonnes (–12%) and a 9.4 mn tonnes (–21%) reduction in exports of these crops. The latter was also added up by the imposition of duties. Market prices rose for the second consecutive year for all the major crops, including maize, sunflower, soybeans and sugar beet.
Production
Rosstat’s preliminary figures indicate that the production of wheat, barley and maize in the 2021/2022 season was set at 108.6 mn tonnes, 10% (−12.1 mn tonnes) below the season earlier. Such drop was caused by a decline in lower wheat and barley harvest after a particularly productive previous season, by 12% (−10.0 mn tonnes) to 75.9 mn tonnes and by 14% (−3.0 mn tonnes) to 18.0 mn tonnes, respectively.
Furthermore, both the area sown with these crops and their yields decreased due to the difficult wintering conditions, which led to a high percentage of winter crops dying and being reseeded by spring crops, mainly oilseeds. Maize demonstrated a positive trend, with a 6% increase in harvest (+0.8 mn tonnes), and stood at 14.6 mn tonnes.
Source: Rosstat (Russian Federal Service for State Statistics) (preliminary data)
This market review covers fewer than all crops grown in Russia and includes the crops holding a significant share of the gross yield of Russian producers, including Rusagro. Thus, the Report addresses sugar beet, as well as wheat, barley and maize as grain crops, and sunflower and soybeans as oilseeds. Data for other crops can be found on the Rosstat website.
Preliminary sunflower and soybean harvest data for the 2021/2022 season indicate a 15% increase of (up 2.7 mn tonnes) in the aggregate, which totalled 20.3 mn tonnes. The sunflower output posted a considerable rise of 17% (up 2.2 mn tonnes) and reached 15.5 mn tonnes, fuelled by the growing area under this crop (+14%) due to the reseeding of dead winter crops.
Source: Rosstat (Russian Federal Service for State Statistics) (preliminary data)
After a five-year record low harvest in the 2020/2021 season, when agricultural producers encountered adverse weather conditions, the sugar beet crop showed a 14% increase (up 4.8 mn tonnes) in gross output and stood at to 38.7 mn tonnes. The increase covered both crop yields (+10%, up to 40.6 t/ha) and cropped area (+8%), helped by the more stable sugar prices in Russia.
Source: Rosstat (Russian Federal Service for State Statistics) (preliminary data)
Key players
According to BEFL — accounting and consulting company, five largest farmland owners controlled 3.8 mn ha of agricultural lands as of May 2021. During the year, they increased their land bank by 32 ths ha (+1%). Russia’s largest meat producer, Miratorg, tops the list with an estimated land bank of 1,047 ths ha. Rusagro ranked fourth with a land bank of 637 ths ha. As of the end of 2021, the Company had 689 ths ha of land under management, and this figure will be taken into account in the May 2022 ranking.
Source: BEFL, May 2021
Exports and imports
In 2021, exports of the main crops considered herein sat at 39.9 mn tonnes, down 22% (down 11.2 mn tonnes) from 2020. For example, shipments of wheat, barley and maize fell by 9.4 mn tonnes (−20%) and those of sunflower and soybean — by 1.8 mn tonnes (−63%). Exports of wheat dropped the most (down 8.1 mn tonnes, or −21%) as a result of lower yields and government restrictions, as did sunflower exports (down 1.3 mn tonnes, or −96%).
In 2021, Turkey, with a 21% share, topped the list of Russia’s biggest grain importers. Volume of shipments thereto totalled 8.0 mn tonnes (+1%). Even with purchase volume reduced by 24%, Egypt was the second significant buyer, purchasing 5.1 mn tonnes of grain crops in the reporting period.
The main crop imported in Russia is soybeans — 1.8 mn tonnes of this crop were imported in 2021, down 11% (−0.2 mn tonnes) from a year earlier. The downward trend is driven by the high level of domestic oilseed production, the postponed commissioning of new
Source: Federal Customs Service of Russia (preliminary data)
Governmental restrictions
In 2021, Russia imposed a number of export restrictions on grains and oilseeds. In addition to the quota of 17.5 mn tonnes for grain exports, there were duties on wheat, corn and barley. Duties on sunflower, soybean and rapeseed were in effect in 2021 and will continue to be so until August 2022.
Prices
In 2021, the average annual price of agricultural products in Russia kept rising for the second year in a row. Thus, prices for wheat, barley and maize rose by 15% (to 14.4 ths RUB/t), 28% (to 12.8 ths RUB/t) and 20% (to 14.4 ths RUB/t) respectively. The key contributors to this trend were a poor wheat and barley harvest in the 2021/2022 season and higher world prices resulting from lower production due to adverse weather conditions, with the latter being partly offset by grain export duties.
Meanwhile, after a record low in sugar beet prices in 2019, the prices were trending upwards for the past two years, following a decline in crop volumes amid adverse weather conditions in 2020 and a subsequent rise in sugar prices. In 2021, prices witnessed their highest level in five years. According to preliminary data from Rosstat, the price of sugar beet spiked by 48% over the year and sat
Source: Rosstat (Russian Federal Service for State Statistics) (preliminary data)
Oil crops showed an even higher rate of price escalation year-on-year. Domestic sunflower prices went up by 73% and reached
Source: APK-Inform
Rusagro's Agriculture Business results in 2021
Rising market prices and improved sugar beet harvest caused Rusagro's Agriculture Business to post record high revenues in 2021. Revenues increased by 22% and amounted to RUB 41.9 bn (up RUB 7.5 bn) and adjusted EBITDA went up by 53% (up RUB 8.1 bn) and stood at RUB 23.3 bn. Driven by the sales of 2020 products, business profit margin reached 56% (+11 p.p.).
Operating results
Financial results
Business overview
In 2021, the total area of land under Rusagro’s management by the end of the year amassed 689 ths ha, increasing by 52 ths ha (+8%) due to a land lease agreement in the Saratov Region. The share of arable land is 88%. The expansion of the land bank was mainly hindered by the major increase in land prices in Russia against the background of high prices for agricultural products and the availability of spare capital in the country.
The total storage capacity, including four elevators and five grain storage sites, totalled 997 ths tonnes (+0%).
Legal structure of lands
Rusagro's agricultural land ownership structure changed in 2021. As at the end of 2021, Rusagro owned half (50%) of all the Company's agricultural land. With short-term land leases in the Saratov Region, the proportion of land owned by the Company shrank from 54% to 50%. Other reasons for the change in the lease share were the renunciation of leasehold rights on several inefficient land plots and the acquisition of ownership in a number of leasehold land plots with common ownership.
Regional structure of arable lands
Most of Rusagro’s agricultural land is located in the Central Black Earth Region of Russia, mainly characterised by highly fertile chernozem black soils. The largest areas of arable land are in Belgorod and Tambov Regions – 257 ths ha (+1%, or 3 ths ha) and 139 ths ha respectively by the end of 2021. The Company’s Agriculture Business has 86 ths ha (+2%, or 2 ths ha) of arable land in the Primorye Territory under management. In 2021, the Company leased land in the Saratov Region (39 ths ha of arable land).
Investments
Rusagro's 2021 investments in development and maintenance of the Agriculture Business totalled RUB 2.7 bn, up 31% year-on-year. Higher investments in business development were related to the purchase of machinery to work on a new land area in the Saratov Region and the implementation of a batching plant project in the Central Region. Meanwhile, the maintenance required more funds given the need to renew soil preparation and fertiliser equipment, as well as to renovate passenger and light car fleet. According to the year-end results, 66% of investments were absorbed by development projects.
The major investment projects
Purpose: procurement of necessary machinery for the new arable land to enable cultivation of crops, compliance with the agronomic time requirements and crop rotation
Project cost: 1.6 RUB bn, excl. VAT
Implementation period: June 2021 to December 2022
Investment volume in 2021: 0.6 RUB bn, excl. VAT
Purpose: mitigation of risks of poor quality crop treatment through technology-related errors
Implementation period: October 2020 to May 2022
Project cost: 0.4 RUB bn, excl. VAT
Investment volume in 2021: 0.3 RUB bn, excl. VAT
The change in the crop rotation pattern in 2021 was brought about by the abandonment of barley cultivation due to its low profit margin relative to other crops (3% of the sown area in 2020), the reseeding of some amount of wheat with sunflower and the increase in fallow areas as new land plots were leased in the Saratov Region.
IT and innovations
Crop rotation planning
Strategic planning and budgeting algorithm
Profit maximisation by choosing the best sequence of crops
Field preparation and handling
Automation of batching plants
Minimisation of errors in mother liquor technology and misappropriation of crop protection agents (CPA)
Planning algorithm for process operations
Increased yields as a result of precise and timely adherence to process operations
Harvesting
Planning algorithm for harvesting operations
Increased gross yields through precise harvest timing
Crop logistics
Planning algorithm for own and hired trucks
Finished goods transportation time and cost optimisation by increasing the transport turnover rate and streamlining the logistics service
Placement and sale of finished products
Planning algorithm for the placement and sales of finished products
Higher revenues through better rotation of storage locations and planning of the sales schedule, as well as logistics costs optimisation
Rusagro's field management automation function is realised through digital field twins containing information on electronic field boundaries, crop history, handling operations and nutritional characteristics of the soil in the fields. Operational field monitoring tasks are addressed by analysing the satellite image-based NDVI index and field scouting by agriscientists. This optimises the use of machinery and vehicles, crop area, fertiliser and CPA quantities and application zones, and allows for better control over the timing sowing and harvesting.
In 2021, Rusagro initiated a project to improve soil fertility based on fertility models generated for each field in the study area with a view to increase the yield of cultivated crops. Such models will represent the set of agronomically relevant soil properties and regimes which allow for most efficient use of land resources and maximise yields without loss of quality. The first models were generated following the year-end results – Rusagro will start the roll-out under these models from the beginning of the 2022 field season. Model generation is expected to cover more fields in 2022.
Together with Schelkovo Agrochem, Rusagro has been involved in the development of yield-enhancing sugar beet hybrids since 2017. SoyuzSemSvekla, a genetics and breeding centre, was opened in the Voronezh Region in 2019. The Centre focuses on creating new high-yielding, disease-resistant sugar beet hybrids that are equal in basic biological and morphological characteristics. The sugar beet hybrids of our own breeding are registered in the National Register of Breeding Achievements Approved for Use in Russia. SoyuzSemSeekla has been selling the seeds of its hybrids in all key beet-growing regions since 2021.
SoyuzSemSvekla genetics and breeding centre works in the framework of the Federal Scientific and Technical Programme for the Development of Agriculture for 2017–2025, the Sub-programme for the Development of Selection and Seed Production of Sugar Beets in the Russian Federation according to the designed comprehensive scientific and technical project “Development of Highly Competitive Sugar Beet Hybrids of Domestic Breeding and the Organisation of their Seed Production System”. In 2019, a commission of the Russian Ministry of Agriculture qualified this project for governmental support, which was received in 2020–2021. SoyuzSemSvekla was granted Skolkovo resident status in 2021.
AssistAgro AssistAgro LLC is not included in the Group’s legal structure; the company’s founders are Vadim Moshkovich and Maxim Basov. was established in 2021 to develop crop management technologies at Rusagro and to offer these technologies to the market. AssistAgro mainly deals with the development of an automatic open field plant diagnostic system based on photo analysis, yield forecasting, recommendations for increasing returns per hectare and robot-assisted operations management. With remote diagnostics and precision farming tools, agricultural companies will also be able to improve control over their carbon footprint and impact on soil fertility.
In 2021, the Company received Skolkovo resident status and accreditation from the Ministry of Digital Development, Communications and Mass Media of the Russian Federation as an IT company. In December 2021, AssistAgro, together with Rusagro-Invest, won a grant to implement and refine artificial intelligence in crop production from the Skolkovo Foundation (VEB.RF Group) under the federal Artificial Intelligence project of the Digital Economy of the Russian Federation national programme. AssistAgro's project to introduce a weed identification and crop density counting solution received a highly positive evaluation by the competition members.
AssistAgro's first product, an automated field scouting and digital agri-service management system, is now available to the market. The second product – an advisory system with yield and profit forecasts for different technology scenarios – is planned to be presented by the end of next year, and an automated machinery and vehicles control solution – in another year.
Operating results
Production
Rusagro's 2021 total output was 4,956 ths tonnes, up 494 ths tonnes (+11%) from a year earlier. The higher figures were largely attributed to the increased gross sugar beet yield, amounting to 3,637 ths tonnes, up 748 ths tonnes (+26%)
The gross grain harvest suffered a decline upon the refusal to sow barley (18 ths ha in 2020) and unfavourable weather conditions for winter crops: due to extreme wintering conditions, as well as low moisture levels and high temperatures during the grain filling period, wheat yields fell from 5.1 to 4.1 t/ha. As a result, the wheat production totalled 713 ths tonnes (–29%) and barley – 2 ths tonnes (–98%). However, the Company still boosted the gross harvest of maize by 51%
Another positive development was associated with higher gross yield of oil crops, which was attained through the expansion of planting area. Thus, the soybean output rose by 21% (+60 ths tonnes) and the sunflower output – by 7% (+5 ths tonnes) owing to the 22% (+35 ths ha) and 26% (+6 ths ha) increase, respectively, in planting areas under these crops. The growth of the soybean crop was restrained by high temperatures and lack of rainfall during the soybean blossom period, and that of sunflower – by its use as a crop to reseed winter wheat
Sales
In 2021, sales volumes of Rusagro’s Agriculture Business climbed by 13% and reached to 4,838 ths tonnes compared to 2020. The positive dynamics is associated with the growth of the sugar beet harvest and a higher level of wheat
Grain sales, which fell by a total of 8% (−76 ths tonnes), were affected by the abandonment of barley cultivation as a relatively
Oil crops sales also declined (−5%, down 19 ths tonnes). Sunflower sales volumes dropped by 24% (down 18 ths tonnes)
All sugar beet (100%) of the Agriculture Business is sold to Rusagro's sugar plants. Part of the grain crops goes to the Meat Business for feed production – in 2021, the share of internal sales slipped down from 37% to 18% due to heightened third-party demand. The share of oilseeds supplied to Rusagro's plant spiked from 3% to 15% upon launching an oil extraction plant to process soybeans in the Primorye Territory.
Domestic sales became more profitable against the backdrop of export restrictions, while export shipments of agricultural products fell by 63% (down 174 ths tonnes). For example, 87 ths tonnes of grain and 14 ths tonnes of oilseeds were sold outside Russia – down 26% and 91% respectively from the year earlier. All the grain crops were sold to Asian countries – Japan, China, and Korea.
Financial results
Rusagro's agricultural business posted record financial performance in 2021. Due to favourable pricing conditions — market prices for agricultural commodity prices were trending upwards for the second consecutive year – and a bumper sugar beet harvest, revenues stood at RUB 41.9 bn, up 22% (up RUB 7.5 bn) above the previous year. The Company increased its EBITDA margin from 44% to 56% by selling a significant volume of products at 2020 production cost. As a result, adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) went up by 53% (up RUB 8.1 bn) to RUB 23.3 bn.