Nastiness Is a Warm Gun: The Kremlin’s Cowboys

bd1bf37b99A Miratorg worker tending calves. Courtesy of Readovka

Business Russian Style, or, What is Miratorg, and What Do You Eat with It?
Dmitry Zhuravsky
Readovka
April 30, 2019

How Did a Company Importing Meat from Brazil End Up Getting Most of Russia’s Agricultural Subsidies? 
Miratorg’s own website identifies it as the largest agribusiness investor in Russia. The company is owned the Linnik twins, Viktor and Alexander. Viktor serves as the company’s president. It was Viktor Linnik who, last week, proposed tightening controls on the luggage of people entering Russia and increasing penalties for the illegal import of meat-based products. Today, he encouraged Russians to stop thinking about Parmesan cheese and start thinking more about the country’s growth. To rub it in, he dubbed everyone disgruntled with such proposals “blowhards.”

We should point out right off the bat that the fact Prime Minister Dmitry Medvedev’s wife’s maiden name is Linnik is only a funny coincidence, one which the Linnik twins have never tired of mentioning when they are interviewed by journalists.

The facts back this up. Blood relatives of the Russian state’s second most important person could not have established a giant agribusiness company that keeps all its accounts and founding capital outside Russia.

One hundred percent of Miratorg’s shares are owned by Cypriot offshore companies: 99.99% by Agromir, Ltd. (despite its Russian acronym, the company is registered in Nicosia), and 0.01% by Saudeid Enterprises, Ltd. (also registered in Nicosia).

Nevertheless, Miratorg is on the Russian federal list of so-called backbone companies and, since 2015, due to Russia’s self-imposed ban on meat and produce imports, it has been dubbed a strategic company. These regalia allow the Cypriot-based company to obtain loans from Vnesheconombank at discounted rates, which means it borrows part of its operating capital by drawing on the future pensions of Russians. (We published a detailed analysis of this scheme in a previous article.) It also means Miratorg can apply to the government for subsidies to pay back these selfsame loans.

A Success Story
Considering Viktor Linnik’s current circumstances, Miratorg’s origins appear laughable. The company was initially established to import meat from Holland and Brazil to Russia. To make the job easier, two years after the company was founded, in 1997, Miratorg opened a subsidiary in the Kaliningrad Sea Fishing Port, through which it imported meat to mainland Russia. Miratorg did business this way for nearly ten years. In 2005, it purchased a stake in two BelgoFrance-owned pig farms in Belgorod Region. The import company was transformed into a full-fledged agribusiness.

Kaliningrad Sea Fishing Port. Courtesy of Readovka

Miratorg went on to co-found a farm in Kaliningrad Region. A little later, it moved into Bryansk Region, which has become the company’s second home.

It was also in 2005 Miratorg was chosen to be involved in the National Priority Projects, a program for growing “human capital,” announced by Vladimir Putin on September 5, 2005. Until Dmitry Medvedev was elected president, the program, which included promoting the agricultural sector as one of its priorities, was overseen by the current Russian prime minister. Since 2008, when Medvedev was inaugurated president, the agricultural growth program has had its own line item in the federal budget.

Current Realities
Miratorg is currently Russia’s largest meat producer. According to Kontr.Focus.ru, an online service for assisting in doing due diligence on potential clients and business partners, Miratorg, Ltd., has founded thirty-six subsidiaries in eight regions of Russia. In 2017, the company produced 415,000 tons of pork, 114,000 tons of poultry, and 82,000 tons of beef.

Russia’s regions regard Miratorg as a valuable investor whom nearly any governor would be glad to welcome into his neighborhood. According to Miratorg’s website, the company has made a total of 200 billion rubles in investments. The advent of an agricultural market player of this caliber in a region means a guaranteed inflow of money from the federal budget in the form of subsidies from the government’s agricultural sector growth program and  Miratorg’s own investments.

On paper, Miratorg is a real find for regions heavily dependent on federal government subsidies. Aside from the federal agricultural subsidies it brings with it, Miratorg contributes to regional budgets through the land it leases. Its farms provide jobs while they are being builty and after they are brought on line. In addition, it pays taxes in the regions. The company is not a burden but a blessing, or so it would seem.

Russian Prime Minister Dmitry Medvedev and Miratorg President Viktor Linnik. Courtesy of Readovka

Taking advantage of its status, Miratorg moves confidently around Russia. In the regions, it has become accustomed to acting suddenly and brazenly. The company often receives land under indefinite gratuitous bailments by order of the federal government, whose decrees are personally signed by Prime Minister Medvedev.

Miratorg usually acts in full compliance with the law, although the effects of how it does business trip up regional governments. After three years, the land it leases free of charge is transferred from regional ownership to Miratorg’s ownership.

Last summer, the Bryansk Commercial Court adjudicated a conflict between the Bryansk Meat Company (Miratorg’s local subsidiary) and the Bryansk Regional Government. Miratorg tried to prove that members of a district council had violated the law by refusing to sell them land they had been leasing. According to law, a company that has leased agricultural land for three years has the right to purchase it and continuing farming it. Only two conditions must be met for the deal to go through: the relevant regulatory authorities must have no objections, and the land must be used for its original purpose.

The Bryansk Meat Company had complied with these terms, but local councilors had not signed off on the deal. Originally, they had agree to lease the land to the investor. Later, Miratorg’s subsidiary decided to trick the council and buy the land. Consequently, the local council was not paid the rent promised to it and did not profit from Miratorg’s presence in the district.

Instead of a lease, the local council was offered a one-time payment, which is transferred to the council’s accounts when the investor buys the land. Bryansk Meat Company’s farm occupies thirteen parcels of land totaling 7,398,700 square meters. Under the terms of the sale of the parcels to Miratorg, the average assessed value of one square meter of land is a mere 1.6 rubles. It is a great deal for Miratorg, but not for Bryansk Region.

We found reports of similar law suits ongoing between Miratorg and local governments in other regions of Russia.

Nastiness Is a Warm Gun
Since 2009, Miratorg has also confidently been colonizing Kursk Region. Its investments there began with the Pristen District, but currently the company operates in thirteen districts in the region. Its facilities in Kursk Region include the Pristen Pig Farm, Blagodatnoye Agricultural Enterprise, Renaissance Farm, Fatezh Lamb, and Miratorg Kursk, Ltd. According to Miratorg’s figures, it invested 17 billion rubles on its agribusiness facilities in Kursk Region between 2009 and 2017. In the Pristen District, it built two pig-breeding facilities with three sites each, while in the Oboyan District it built two pedigree breeding units.

Currently, Miratorg is building what will be Europe’s largest refrigerated slaughterhouse with a capacity to process 4.5 million head of hogs or 400,000 tons of meat in slaughter weight. Miratorg has also been building seven pig farms in two other districts in the region.

3fe1ac38af.jpgA billboard showing Miratorg’s assets in Kursk Region. Courtesy of Readovka

Why has Miratorg invested so much in Kursk Region? For the same reason it has invested heavily in Smolensk, Bryansk, Kaluga, Kaliningrad, and other regions in Russia. The Russian federal budget supports domestic industrial agricultural enterprises with subsidies. Some of the federal government’s assistance is earmarked for the largest players in agribusiness, the strategic, “backbone” companies we mentioned earlier. Some of the assistance is filtered through regional government budgets, where it is meant to boost small companies and support local producers. When Miratorg sets up a subsidiary in a region, it automatically grabs the lion’s share of federal subsidies for itself.

In Russia, there are no limits on the subsidies a particular agricultural holding company can receive. By using the subsidiaries it has established in the regions, a national agribusiness company can qualify for regional subsidies. For example, in 2016, the Bryansk Meat Company was awarded 98% of all subsidies earmarked in the federal budget for promoting agriculture in Bryansk Region.

At the same time, Miratorg has been officially designated as a strategic, “backbone” enterprise. Accordingly, the company and its subsidiaries also receive subsidies for pursuing particular projects. Since 2014, Vnesheconombank has lent Miratorg $871.5 million to expand meat production. Thanks to sleights of hand such as this on, in 2016, Bryansk Meat Company left not only farms in Bryansk high and dry in terms of financing but also farmers nationwide by hogging 90% of all subsidies earmarked for agriculture. The total amount of subsidized loans was 33.6 billion rubles, and this financing was obtained by a single Miratorg subsidiary for a single year.

The company has been feeding off this program since it was founded in 2005. Miratorg has received hundred of billions of rubles in subsidies over this period.

The more subsidiaries it gets, the more lines of credit Miratorg can receive. The story  of its rise to the top bears a strong resemblance to the way Yevgeny Prigozhin built his school cafeteria catering monopoly in Moscow. There is one signal difference, however: whereas Concord Catering’s contract implies that Prigozhin’s food production facility does the work for which it was contracted and pays back its debts out of the profit generated by the facility, some of Miratorg’s loan agreements contain an interesting loophole. It can fulfill its obligations to Vnesheconombank one of two ways, either the way Concord Catering does it, by paying back its debts out of its profits, or by selling off its founding shares in its subsidiaries to pay off its loans. Meaning, hypothetically, Miratorg can rid itself of some of its subsidiaries.

Where Do Miratorg’s Profits Go?
Considering the billions in government subsidies it receives annually, Miratorg and its owners do not even have to run a good business to live high on the hog. According to open sources, Miratorg’s profits shrunk fivefold in 2016, amounting to a mere five billion rubles, despite the fact the company received several tens of billions of rubles in subsidies from the Russian federal government.

Nevertheless, Miratorg is the main supplier of meat for huge fast food chains such as McDonalds and Burger King. It has also launched its own cafes and supermarket chain. Miratorg’s profits, which are incomparable to the subsidies paid to the company, end up not in Russian bank accounts, but in offshore accounts in Cyprus.

d79d3fe745.jpgA  Miratorg supermarket, newly opened somewhere in Russia. Courtesy of Readovka

Miratorg’s operations do not resemble an attempt to promote Russian agriculture, but rather a scheme for spiriting federal money out of the country. Given Miratorg is the industry leader in terms of land assets and government support, it should also have come to monopolize supermarket shelves. Its status as a strategic enterprise and the subsidies it receives simply oblige it to aspire to this end. The government’s plan was to have Miratorg replace all the imported meat banned from supermarkets with domestically produced meat.

Instead, Miratorg annually receives several hundreds of billions in subsidies allocated by the government to support the country’s agriculture. Miratorg spends the money to purchase land, which it uses, along with shares from its regional subsidiaries, as collateral to obtain more loans.

Ultimately, instead of building a successful business and resurrecting Russian domestic agriculture according to the government’s plan, Miratorg merely filches money from the federal budget. As long as it keeps feeding the “Cypriot butchers,” real hardworking Russian farmers will have to get by without substantial assistance. Eventually, the whirligig of subsidies could lead to the complete collapse of Russian agriculture as such.

Thanks to Anna Klimenko for the heads-up. Translated by the Russian Reader

Advertisements

Cotton in Volgograd: An Immigrant’s Story

The White Gold Immigrant
Alexandra Dontsova
Takie Dela
December 5, 2017

Oybek Kimsanbayev’s life is like a Hollywood film: a brilliant scientific career, crushing failure, departure from his native country, work on a construction site, and his first experiments with cotton in Russia.

A heated discussion was underway at Volgograd State Agricultural University. Local and university officials were telling a visiting deputy agriculture minister about the local curiosity: cotton. Imagine, they told the deputy minister, it grows here, and the quality is even excellent. They dreamed aloud how it would be grown on an industrial scale. All that was needed was state support and processing complexes.

While the officials were singing cotton’s praises to the deputy minister from Moscow, a man with a haggard face stood in the doorway of the conference hall. He nervously bit his lips, alternating his gaze between the floor and the audience. Oybek Kimsanbayev heads a group of scientists who have developed varieties of cotton capable of growing in the Volgograd Region’s climate. The region is recognized as the northernmost point in the world where it is possible to grow cotton. Although he was the most important person in the room, Kimsanbayev was not on the list of speakers.

Oybek Kimsanbayev waiting to be interviewed. Photo by Alina Desyatnichenko for Takie Dela

Everyone except the man who had made the conversation possible talked about cotton and the prospects of its cultivation in Russia. (Given a skillful approach, Russian cotton might challenge the US and China’s hold on the market.) However, at some point, the university’s rector realized the discussion lacked something and gestured for Kimsanbayev to come and sit down at the round table at a place that had happily been  vacated.

Construction and Cotton

Kimsanbayev tells journalists nearly the same story when asked why he started researching cotton in Russia, adding that he is very grateful. Were it not for reporters, few people would know of his work, and he scarcely would have been able to get the ear of the authorities.

“In 2006, a cooperation agreement was concluded between Taskhent State Agricultural University and Volgograd State Agricultural University. Researchers launched projects on alternative crop production, meaning cultivatings crops that have not usually been grown in a particular area. One lab worked on reviving cotton growing in Russia. The outcome was a project for generating ultra-early ripening, high-quality varieties with a high fiber yield,” Kimsanbayev says at one go.

“And the non-official story? Why did you start researching cotton in Volgograd?”

We are sitting in small cafe in the Hotel Volgograd. It is pouring rain outside. Opposite our table is a group of foreigners. Judging the by patches on their blazers, they are FIFA officials, who have arrived in the city to monitor construction of the city’sstadium for the 2018 World Cup.

Kimsanbayev is forty-three years old. Aside from Tashkent Agricultural University, he has a degree from the University of Seoul, taught at Columbia University, ran a lab, worked for the president of Uzbekistan in the early noughties, and at the age of thirty-five became the youngest doctor of agricultural sciences in his country. He has published hundreds of scientific papers, and he has developed and co-developed some two dozen varieties of cotton. Until 2012, he led an international project for creating ultra-early ripening cotton varieties.

Kimsanbayev shows the work his lab does. Photo by Alina Desyatnichenko for Takie Dela

It was at this high point that Kimsanbayev’s life, chockablock with prospects and ambitious plans, fell apart overnight. Due to a mistake he discusses reluctantly, he was forced to leave Uzbekistan.

“Yeah, I have a big mouth. I was working with a Russian university. We had established a distance-learning platform for Uzbek children. But not everyone liked what we were doing. So it happened I lost my job and could not find another one.”

Professor Kimsanbayev was forced to go to Russia to work as an ordinary migrant worker. An acquaintance in Volgograd hired him to work for his company, to “make some moves,” as Kimsanbayev puts it.

“The helter-skelter was not my thing, and I went and got a job at a construction site. I was an ordinary unskilled laborer, along with other men from my country. I don’t see anything shameful about working with my hands. If I have to, I’ll wash floors. Or work on building the stadium.”

Chance brought Kimsanbayev together with good people who took him to Volgograd State Agricultural University. After a long interview with the rector and after he supplied the university with his academic credentials, Kimsanbayev was appointed a lecturer in the agricultural technology department. Realizing the worth of their new faculty member, the university rented a flat for him. He was given the chance to do what he does best: experiment with cotton.

Not Just Cotton Wool

The first year, Kimsanbayev planted only 25 acres. The professor did everything himself in a field the size of four typical dacha plots. He sowed it, plowed it, watered it, and did battle with weeds and pests. Many people doubted the seeds would sprout.

“I brought an international collection of cotton seeds to Volgograd: 97 varieties from all the cotton-producing countries, from Latin America, the US, China, India, and so on. I selected 25 varieties, which sprouted in the local climate. I narrowed these down to three varieties. That is how we arrived at an ultra-early ripening cotton in Volgograd, a variety that matures between April and September.”

The following year, the experimental cotton field had grown to eight hectares. To help him with the work, Kimsanbayev hired Uzbek agronomists and encouraged the university’s students to join them. The outcome: not only did the cotton seeds sprout, but the field turned into a white carpet in due time.

“As they say, I woke up famous one day. Reporters and local officials came to see me in the field. Now everyone believed Volgograd cotton was a reality. However, we are faced with other problems. We have to convince farmers it is worth growing cotton, that the crop is economically profitable: the price of one kilo of raw cotton is equal to the price of thirty kilos of wheat. In addition, we need specialist agronomists. So, basically, I promote cotton and, of course, train students. I don’t work alone. Several scientists, including Igor Podkovyrov and Taisiya Konotopskaya, have been working on cultivating new varieties with me and training specialists.”

Kimsanbayev now heads the university’s Center for Applied Genetics, Selective Breeding, and Cotton Seed Production. In total, 109 hectares were planted with cotton this year.

Oybek Kimsanbayev in the lab. Photo by Alina Desyatnichenko for Takie Dela

Kimsanbayev says that Allah loves him. Otherwise, he would not have sent him so many trials and so many people, willing to help him just like that, without asking anything in return.

“There have been deplorable circumstances when my life was not worth a penny. Yet people helped him. But there are things I really regret. I once behaved disgracefully and therefore moved away from my family. So the burden of guilt would not drag me down, I simply shoved off to Russia, frankly. That is why I have worked so hard, so that, down the line, my family—my dad, my brother, my wife and our three children—would be proud of me. That is my own real goal in the work I do.”

“What did you do that was disgraceful?”

“I don’t want to talk about it.”

“When was the last time you were in Tashkent?”

“I constantly have meetings and business trips. My schedule is crazy. I just got back from Astrakhan, where the region’s governor and I discussed a plan for sowing 200 hectares of cotton in the spring. I haven’t been home for four months.”

Kimsanbayev suddenly falls silent. The expression on his face changes noticeably when the conversation turns to family and children. His eldest daughter and son are seventeen and sixteen, respectively, while his youngest son is five.

“I miss them, of course. I’m really afraid of losing my family due to my work.”

“Why don’t you move them to Volgograd?”

“Where would I put them? In a rented flat on a monthly salary of 27,000 rubles [approx. 390 euros]? Listen, your questions are making me depressed, and it’s raining outside as it  is.”

Later, Kimsanbayev confesses he bought tickets for home right after our interview.

Potatoes on Mars

The cotton harvest is nearing completion in the university’s experimental field. The agronomist Bahadir or, as he introduces himself, Boris, specially recruited from Tashkent for the experiment outside Volgograd, shows me how to pick cotton. It is fairly straightforward. You pull the fiber from the boll. If it gives, you keep pulling until you have all the white cotton in your hand.

University students help pick the cotton. The white caps from the cotton plants are quickly deposited into sacks. Soft as a cat’s paw, the fiber is pleasant to the touch. The softness is a small reward for one’s efforts. Pulling the cotton from the boll without being pricked is nearly impossible.

A student from Volgograd State Agricultural University picks cotton. Photo by Alina Desyatnichenko for Takie Dela

There are several unusual rows on the edge of the large field. The cotton there is not white, but dirty yellow and brownish green. It transpires that this year the Volgograd researchers bred a special variety of colored cotton. Someone joked the military ordered green cotton for sewing its uniforms.

Since Oybek Kimsanbayev joined its faculty, Volgograd State Agricultural University became the only university in Russia where cotton scientists are trained.

“Do you know how I enticed students into studying cotton? I said they would be rare specialists, and they would especially in demand abroad. But I hope, nonetheless, that Russian farmers realize the crop is quite profitable economically. This year, for example, there was overproduction of wheat in southern Russia. Farmers cannot sell the grain at a good price, while there is simply nowhere to store such yields. Consequently, they are making a loss. And this isn’t the first year we’ve seen this scenario. So, farmers need to switch to other crops, including non-traditional crops. Cotton could be one of those crops.”

“Where else in Russia could cotton be grown?”

“Currently, Volgograd Region is the northernmost area in the world where cotton is planted. The crop could be planted farther south, in Astrakhan, Kalmykia, Stavropol, and Krasnodar. Just imagine, in Volgograd Region, in one of the districts along the Volga River there are one and a half million hectares of cropland lying fallow. If you sow all that land with cotton, and the yield from one hectare is around one ton, Russia could reshape the world cotton market. It would simply crash it. Russia would not be dependent on imported cotton, which is especially vital given ongoing western sanctions and Uzbekistan’s refusal to export raw cotton to Russia. The really funny thing is that cotton was once grown in these parts. However, the technology was lost over the last decades. So now we folks at the university are once again developing techniques for cultivating cotton and breeding new varieties.”

The harvested cotton is loaded into a trailer for the journey to the warehouse. Photo by Alina Desyatnichenko for Takie Dela

The cotton from the experimental field is of very high quality. Its quality has impressed the local textile mill and a Moldovan company, almost the only full-cycle plant in the CIS where raw cotton is processed and fabric produced. It is they who are hurrying the researchers in Volgograd to breed varieties that would yield 3,000 kilos a hectare.

“Next year, six times more cropland will be sown with cotton seed in Volgograd Region alone: 630 hectares. Plus there will be 200 hectares in Astrakhan Region. We are negotiating with Kalmykia. We provide scientific support to all the farmers. Recently, at an ag expo in Moscow, I spoked with your agriculture minister, Alexander Tkachov. He told me a program for supporting cotton growing in Russia was in the works. I think the availability of state support would ultimately convince farmers to take up cotton.”

“Do industrialists try and recruit you? The salaries are definitely higher in industry than at a regional university.”

“I’ve had offers. But I turned them down. I would have to work as an agronomist or seed cultivator whose job would be to increase gross crop yields. I don’t find that interesting. I’m a scientist. I’ve created a variety, I’ve let it go to work, and I’ve set myself a new goal.”

“Do you have a new goal?”

“I do. Roughly speaking, our project aims to study alternative crop production. Meaning that we cultivate crops in places where they usually don’t grow. Have you seen the movie The Martian, in which an astronaut grows potatoes? They took the idea from reality. Thirty years ago, the Soviet cosmonaut Vladimir Dzhanibekov was the first person to grow cotton in outer space. My objective is to cultivate varieties of different crops that would adapt to all natural conditions, so that no amount of frost could damage them. I have proven this is possible. However grandiloquent it might sound, the job of farmers is to feed the world. If plants can yield crops under any conditions, imagine how that would change a country’s economy.”

The agronomist Bahadir shows off Volgograd’s know-how: colored cotton. Photo by Alina Desyatnichenko for Takie Dela

Cotton is the only crop that has several sets of genetic chromosomes. That is why it is perfect for different experiments.

“How do they relate to your work and success in Uzbekistan? Are they kicking themselves for letting such a valuable employee go?”

“I don’t know whether they’re kicking themselves. But I have been offered a prestigious job and a high post. I’m not ready to go back yet.”

Translated by the Russian Reader

Hoe Your Own Row

Nearly Half of All Russians Have Switched to Subsistence Farming
Natalya Novopashina
RBC
October 21, 2016

The percentage of Russians who grow food in their gardens has increased to 46%. At the same, food sales in stores have decreased, according to GfK Russia.

In two years, the percentage of Russians growing vegetables and fruits in their own gardens has increased from 39% to 46%. Moreover, production of their own vegetables is the main source of nutrition for the 15% of “active” gardeners, GfK Russia CEO Alexander Demidov told RBC.

“We have noticed a fairly big burst. People have been switching to growing their own produce. It is definitely a crisis,” he said, adding that the percentage of Russians engaged in subsistence farm not as a hobby, but to feed themselves, will only grow.

Irina Koziy, general director of industry news website FruitNews, confirms the trend, noting that it is most visible in medium-sized towns for now.

“Besides, there are a number of programs in the regions under which needy and large families are supplied with seed potatoes for planting in the spring. Such programs operate in Buryatia, Kuzbass, and a number of other regions,” said Koziy.

“The consumer moods of Russians have improved slightly, but they still remain in the negative zone,” notes GfK Russia’s report “The Russian Consumer 2016: Adapting to the Crisis.”

In April 2016, 53% of respondents reported the crisis had had a direct impact on their lives. In July 2016, this figure was 46%.

And yet, in reality, the actual financial circumstances of Russians have not improved. They have simply adapted to the crisis and regard the current economic reality more calmly.

“The effect of adjusting to the situation has kicked in, because people don’t believe the crisis will be resolved soon,” said Demidov. “So crisis consumerist strategies are still in effect.”

According to GfK, the vast majority of respondents (75%) said they were willing to give up purchasing certain goods. In particular, according to the company, the greatness number of Russians (17% of respondents) have been saving money by cutting out trips to beauty salons. Other expenditures that had been cut included purchases of household appliances (16%) and cosmetics (15%).

The sales of most foods have also decreased. According to GfK, during the year beginning July 2015 and ending July 2016, sales of dairy products and meat decreased in physical terms by 0.5% and 0.8%, respectively. Most of all, consumers scrimped on sweets and snacks (a 3% decrease), bread products (a 7% decrease), and fish and seafood (a 7.4% decrease). A slight increase occurred in sales of frozen products (1.1%), eggs (1.4%), fresh fruits and vegetables (1.5%), and baby food (2.2%).

During the same period, the volume in terms of price of goods purchased through promotions grew by 45%. And the share of promotions throughout the fast-moving consumer goods sector increased from 12.2% to 14.1%, according to GfK’s calculations.

Translated by the Russian Reader. Photo courtesy of russiannotes.com