This is a best prospect industry sector for this country. Includes a market overview and trade data.
Agricultural machinery and food processing equipment are not subject to U.S. sectoral sanctions or to Russia’s “countersanctions” on agricultural products and are generally allowed to be sold without restriction.
Russia’s agricultural market has immense potential, with 220 million hectares (544 million acres) and the potential to feed two billion people, according to the Food and Agriculture Organization of the United Nations (FAO). However, this potential is not fully developed, as only 38% of Russian land is fertile and only 13% is cultivated. According to Russia’s Ministry of Agriculture, there are more than 10 million hectares (25 million acres) of unused, arable land in Russia. Four federal districts (the Central, North Caucasus, Urals and Volga) produce 73% of agricultural outputs in Russia.
Russia’s agricultural revenues grew 3.1% in 2017, but endured a 0.6% drop in 2018 to $76 billion, due to inclement weather that affected crop production. Crop production decreased by 2.4% in 2018, while livestock production increased by 1.3%. According to Russia’s Ministry of Agriculture, agricultural production growth will be in the range of 1-1.5% in 2019.
For the 2017/2018 season, Russia was the world’s largest producer of barley; the fourth-largest producer and the largest exporter of wheat; the second-largest producer of sunflower seeds; the third-largest producer of potatoes and milk; and the fifth-largest producer of eggs and chicken meat.
The Russian government plans to allocate $51 billion to support the domestic agricultural industry from 2019 to 2025. Although the domestic livestock industry has recovered sufficiently to surpass its food security doctrine goal of raising the country’s self-sufficiency in meat and dairy products to over 90%, government support to the farm industry is still nearly three times more than what it was during the period from 2012 to 2018. Federal agriculture policy seeks to boost the country’s volume of meat and dairy exports, primarily to the Middle East and Asia. Russian government agencies have estimated that Russia could export around 1 million tons of meat per year in 2030. The increase in exports could drive growth in domestic meat and feed production.
According to the Russian Association of Specialized Machinery and Equipment Producers (“Rosspetsmash”) and Russian Customs statistics, the Russian agricultural equipment market grew 3% in 2018 to $1.5 billion. Fertilizer spreaders experienced the most significant sales growth – by 58%, to 644 units. Sales of sprayers rose by 29% to 1,179 units; forage harvesters by 19% to 532 units; all-wheel drive agricultural tractors by 18% to 2,276 units. Last year 2,649 mowers were purchased on the domestic market, which represented a 12% increase over 2017; 1,230 units of balers (10% growth); and 4,048 harrows (6.3% growth).
According to AgroVestnik, a Russian agricultural media outlet, the previously negative market trend for agricultural tractors reversed itself, with 3.8% year-on-year growth during the time period January-November 2018. A positive trend was also reported in the all-wheel drive vehicle sector, with a significant increase of 19.3%.
Prospects for foreign farm machinery manufacturers in the Russian market are mixed. While there are extremely promising trends in crop production, there are structural and policy challenges that act to suppress demand for new agricultural equipment and incentivize agricultural producers to delay capital investments or look for cheaper options from local agricultural equipment producers. However, recent reductions in subsidies to local equipment producers and increased government support for priority projects are levelling the playing field for some foreign equipment.
The Russian government has made it a priority to increase domestic production of agricultural equipment, and is providing manufacturers incentives to localize as part of its strategy to achieve the goals of having 80% of agricultural machinery used in Russia domestically produced by 2021, tripling overall equipment production, and increasing exports of agricultural equipment by a factor of 12 by 2030. Currently, domestically manufactured equipment accounts for over 50% of the Russian market.
Since 2013, Russia has maintained several federal programs offering subsidies to local equipment producers. However, there have been concerns that not all manufacturers receive equal treatment under the law and certain foreign-headquartered producers are excluded from these programs, despite having localized manufacturing.
There is an acute need for modernized agricultural machinery in Russia, but equipment purchase growth is further constrained by high credit costs and geopolitical uncertainty. The government is attempting to compensate for these challenges and stimulate investment in capital purchases by offering various subsidies for strategically important subsectors, including meat and milk production.
The leading subsectors of agricultural equipment are:
• Forage, irrigation and soil preparation equipment including plows, harrows, cultivators, seeders, and fertilizer spreaders.
• Equipment for dairy livestock breeding, swine, and poultry production; milk processing and animal feed preparation equipment.
• Equipment for vegetable production including greenhouse technologies.
• Tractornye Zavody
• St. Petersburg Tractor Plant
• CLAAS (Germany)
• CNH-Kamaz Industry (U.S.-Russian venture)
• John Deere (USA)
U.S. firms interested in the Russian agricultural machinery market may wish to consider setting up exhibitions at one of the key Russian agricultural trade shows or working with the U.S. Commercial Service to organize a booth at one. Such events often lead to direct sales and are powerful marketing tools that serve to reassure Russian buyers that the U.S. supplier is committed to establishing and maintaining a presence in the market. U.S. companies may also find opportunities as financially healthy Russian companies seek to expand and satisfy a growing demand for domestically produced food. Increasing sales of meat, fruits, and vegetables are driving corresponding equipment sales in these sectors.
To be successful in the long-term, it is important to remain connected with potential customers and use every opportunity to maintain a presence in the market.
Although there are prospects for certain types of equipment market growth in Russia, there are also serious challenges facing the market:
• High interest rates for purchasing agricultural equipment. Current interest rates for the purchase of foreign equipment from Rosselkhozbank, Rosagroleasing and Sberbank vary from 25 to 27%, and a new proposal may further restrict purchases and prohibit Rosagroleasing from financing foreign equipment;
• Reduction in government subsidies for agricultural producers;
• Low growth in foreign investments in the sector;
• Unstable demand for agricultural equipment, due to the financial instability of Russian farming enterprises; and
• A “utilization” fee introduced in February 2016, which imposes prohibitive fees for agricultural equipment older than three years.
Ministry of Agriculture
Ministry of Industry and Trade
RosSpetsMash, the Association of Russian Specialized Machinery and Equipment Producers
U.S. Embassy Moscow Agricultural Trade Office Contact:
U.S. Embassy Moscow
U.S. Commercial Service Contact
Olga Ivanova, Commercial Specialist
Phone: +7 (495) 728-5556