Report From the Meat Capital of Russia: Sanctions Worked! (Video). Part 1

RI's correspondent visited the Belgorod region and came back saying that he saw the future and it works

Sat, Oct 8, 2016
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“The Belgorod economic miracle”. I’m not an expert on regional economies, I’d never been to Belgorod, a region roughly 700 km south of Moscow, but I’d heard that the governor of the region has an outstanding reputation, and that last year the region was rated 2nd in attractiveness for investors, trailing only the Republic of Tatarstan.

A small territory with a population of only 1.5 million people rarely makes the front pages, and the Belgorod region is best known for the crucial tank battle that took place on July 12, 1943. 1200 Russian and German tanks collided near the village of Prokhorovka in one of the most dramatic episodes of the grandiose Kursk Battle.

A spectacular and world famous monument there shows a Russian T-34 ramming into a more powerful German Tiger.

 

Inside is a small statue of a soldier seated, clasping his head in horror against a background of roaring engines and gun fire.

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A state of the art interactive museum is dedicated to the Prokhorovka battle, as I discovered when I joined a group of Russian and Belorussian journalists on a tour of the region’s agricultural areas, sponsored by the Standing Committee of the Union State of Russia and Belorussia and the International News Agency Rossyia Segodnya, and hosted by the Belgorod regional administration.

The press video below is a spectacular presentation of what this small provincial region stands for.

I saw most of what is on the video before interviewing the Belgorod governor, Yevgenyi Savchenko, as well as heads of rural administrative units, top managers of companies featuring prominently in Russian national business ratings.

Belgorod likes to call itself the meat capital of the Russian Federation. It only accounts for 1.2 per cent of the population, and has only 131 thousand working in agriculture, yet it produces almost 20 per cent of all pork and close to 14 per cent of the country’s poultry.

Before visiting local businesses, a little geopolitics, since almost all conversations there these days start with the rising political tensions with the West over Ukraine, the US and European sanctions and Russia’s retaliatory sanctions.  

The Belgorod region borders three Ukrainian regions – Kharkov, Sumy and Lugansk, so political tensions with Ukraine took a heavier toll on the population than did the Western sanctions. I often heard that before the Maidan, Belgorodtsy would spend weekends in Kharkov, a big cultural center with over 1.5 million, just 80 km away. Now all this has ended; border crossings are fewer and cars have to wait for hours both ways. Inevitably, friends and relatives on opposite sides of the border have fallen out with each other. The federal highway connecting Moscow with the Crimea via Belgorod and Ukraine is deserted, and the McDonalds dotting it went bankrupt. Commuter trains between the regions bring ever greater numbers of poor Ukrainians to a prosperous area of an ‘aggressor country’.

Alexander Orlov, Chairman of the Board of Directors of BEZRK-Belgrankorm (the clumsy title has a romantic story that I’ll reveal in the second part of this article), one of Russia’s four leading agribusiness companies that figures in Forbes-Russia’s list of top 200 companies, says that their modern pork facility in Ukrainian Poltava, in which they invested 60 m USD, is now blocked by Ukrainians, and there doesn’t seem to be any way to influence the situation. “Nobody’s in charge in Ukraine any more, there’s no law and dark forces are in power”, says an important Russian investor in the Ukrainian economy, who sees in the “patriotic blockade”, an attempt to seize his company’s assets.

And yet, the political crisis in and around Ukraine, with sanctions and counter sanctions, gave a huge boost to regional development, opening bright prospects for the future. In addition to what you see in the video, according to Alexander Orlov, in 2015, which was a year difficult for the Russian economy, with Western sanctions in full swing, his company produced 29% more pork, poultry and animal feed, and profits grew by more than 35 per cent.

A similar situation applies across the region.

What’s more important, import substitution gave rise to new businesses.  Thirteen hectares of greenhouses were erected and have been growing vegetables and salad all year round since 2014. Expanded apple orchards are expected to replace 1 million tons of imports from Poland and Turkey.

ZAO Prioskolye, a Russian leader in poultry production, invested in production of Lysine, an indispensable amino acid additives for animal feed previously not made in Russia.

The Agro-Belogorye Group of Companies is building a new agricultural equipment plant with two German partners. The region’s managers plan to expand into new market niches, such as mushrooms.

The video gave you an idea of the technological level of their facilities: robots, computers, sensors that diagnose each greenhouse plant and each dairy cow in real time. And here’s a personal touch showing how visiting journalists had to dress before being admitted to the Miratorg Group’s pork processing factory, the largest in Europe and the leading producer of pork and beef in Russia — almost as if they were visiting a surgical theater.

“Russia has or is close to achieving food security in terms of pork and poultry, and we’ve begun exploring export opportunities in China and South East Asia,” says Governor Savchenko. “Our competitive advantage on the crowded international food markets is in eco-food, and we are investing a lot in ‘biologisation’ of our products” (drastically reducing the amount of chemicals used to grow animals and plants - ed).

His only fear is that sanctions could be lifted, and the price of oil will rise again, strengthening  the ruble:

We’ll be able to produce a million ton of apples in several years, but how do we know that the embargo on imports of Polish apples will not be lifted? And if the ruble rises to 40 to the dollar, we will lose our competitive advantages. The dollar at a hundred rubles (it’s at around 64 at the time of writing-ed), would give a huge boost to our agricultural export capabilities.

“Russia can feed 500 million people. Why not replace the export of simple hydrocarbons like oil and gas with complex ones like agricultural products as the main driver of our economy,” he concludes.

In the second part of this report, I’ll tell you how Belgorod achieved its economic miracle.

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