8/9/2014: Russia's Agrifood Sector: In Need of Serious Investment

In a recent note on the state of Russian economy (http://trueeconomics.blogspot.ie/2014/08/2882014-state-of-russian-economy.html) I wrote about the need for significant increases in investment in logistics and SCM in agri-food sectors in Russia. Here is the latest Government view on the subject: http://en.itar-tass.com/economy/748513

My estimation is that to effectively develop production of substitutes for banned imports, Russia will require much more significant allocations. Production supports alone will have to rise by USD2.3 billion by Russian Ministry of Agriculture estimates starting with 2015 (Minister Nikolai Fyodorov's own estimate back in late August was for USD3.8 billion), on top of USD5.4 billion already budgeted for annual supports for 2013-2020 development. But investments in food processing, storage and transport capabilities will also be required. My estimate is that the rate of investment in auxiliary capabilities to accompany production expansion will have to run at least at 50% of the agricultural supports and this implies annual investment of ca USD3-4 billion. This comes on top of recent surveys, conducted prior to the onset of the sanctions, which put Russian logistics and SCM markets at the top of global growth curve (here is a slide on the sector potential from my earlier presentation deck):

The opportunity space in these areas is huge. And the market itself offers so much potential that faced with imports bans, producers are still attempting to maintain their long-term relations, as suggested by this article: http://en.itar-tass.com/economy/748296.