Information for fruit and vegetables business in CIS
Russian tycoon bets on apples, potatoes as sanctions bite
Russian electricity and farming tycoon Dmitry Arzhanov plans to invest in growing apples and potatoes to capitalise on an embargo that has kept many foodstuffs from Europe out of the Russian market.
Russia banned many Western food imports a year ago in retaliation for sanctions the European Union imposed on Russia over the conflict in Ukraine. Domestic producers have struggled to fill the gap, driving up prices of many products.
Speaking at the Reuters Russia Investment Summit, Arzhanov said his company, AFG National, which until now had focused on growing rice and grain, planned to sow up to 300 hectares with apple trees by 2016.
In seven years time it plans to have 2,500 hectares under cultivation and produce 125,000 tonnes of apples, just over a tenth of the amount Russia used to import from its biggest apple supplier, Poland, before the embargo.
The firm also plans to invest up to 40 billion roubles ($606.31 million) in a vegetable complex, aiming to produce 500,000 tonnes of washed potatoes annually in five years, or a quarter of Russia's current demand.
Russia's government, faced with economic sanctions and the worst crisis in its relations with the West since the Cold War, has pushed the concept of "import substitution" - domestic firms stepping in to fill the gap left by imports.
That has worked in some sectors, but food producers, for years sidelined by powerful foreign competitors, have struggled to increase production quickly, people in the industry say.
Arzhanov said he and his partners in AFG National had the money to invest in the new line of business because of a windfall from their rice and grain business.
Those products are benchmarked in dollars, so as Russia's rouble currency fell, the rouble revenue that they generated jumped.
"We got a certain surplus of funds, which we decided to invest into a related sector," Arzhanov said at the Summit, held at the Reuters office in Moscow.
Arzhanov, also a co-owner of retail electricity supplier TNS Energo Group, acknowledged that it was impossible to know how long the embargo on EU food imports would last. An improvement in diplomatic relations could mean it is lifted.
But he said his investments in apples and potatoes were safe because of the size of the Russian market, which could absorb both imports and homegrown products.
He also predicted that if the ban held for long enough, it would allow Russian producers to catch up on their foreign competitors by the time the embargo is lifted.
"Two years will be enough," for investments in the Polish apple industry to fall, Arzhanov said.