The Prime Russian Magazine, Moscow, February 7, 2016.

Andrey Karagodin

When preparing this issue, we faced a paradoxical situation: it turned out that today Russia, a country with the richest agricultural traditions, almost does not have scientists, publicists capable to analyze the current agricultural situation in the global context by synthesizing the latest achievements of economics, sociology, soil science, and genetics. You are a businessman, what determines your choice of land as your primary activity?

Naum Babaev

Land is a unique business asset. If one manages land right, this asset does not depreciate in value. No doubt, land can be destroyed, that is what is happening in the United States and China where a huge problem exists with soil erosion, drying, acidification, swamping. But if one manages this asset right, it will have an infinite useful life. And the longer land is farmed, the better. In the Soviet Union, there were two popular opinions; one of them was that land should rest. This is wrong, after a five-year rest it will take seven years of investment into land to wake it up. Land needs no rest, it must always work. It is another matter that a wise crop rotation and proper operating procedures must be organized. The second one is the "area of risk farming" policy, as I call it. It was especially overused under Brezhnev to justify counting errors and blunders. Our agriculture was unsuccessful, we had to import grain, and we justified it by the "area of risk farming" concept. Such a self-deception.

Both opinions are wrong to my mind. If land managed competently, it can bring a steady income. In the central Russia, for instance, in the Volga federal district, at the average for five years land can earn 200dollars per hectare per year. It is a stable average performance. One can produce sugar beet that has a very high margin, or soya that has a lower margin, or wheat that has the lowest margin, but it is critical to rotate crops to ensure proper output. There is a number of science-based approaches that allow cultivating lands and getting profit steadily.

What is soya, for example? It is a valuable crop, which contains by half more protein that beef. It is used to produce soybean meal – an excellent feed for cattle, especially for high productive. Russia always depended heavily on import of soya and soybean meal. But this year we have produced almost two million and a half tons of soya, which is all-time record, even in the Soviet Union that was never achieved. We did experiment: it was required to select suitable seeds and determine the optimal depth of sowing, the right time for seeding, applying mineral fertilizer, spraying crop-protecting agents… This delicate process requires systematic tuning, but when it is achieved, land becomes the best asset. In Russia, not everyone has realized it yet.

Andrey Karagodin

And all over the world?

Naum Babaev

All over the world, they realized it long ago, but in the United States land is worth a lot of money, in Europe it is even more expensive. Almost every piece of land that can be cultivated is being cultivated. In China the situation looks terrible as having about 120 million ha of arable land they are using it in such a way that the country is already loosing and they will continue to lose at least one per cent per year due to industrialization and soil erosion. Every year they are "killing" one million – one million and a half ha of arable land. The Chinese have achieved high yields, they are one of global leaders, but in my opinion, they have reached the pick and will only go down, in the first place, due to wanton attitude toward land.

Crop farming is a complicated mechanism (that is what I like about it!): one needs to combine organic and mineral fertilizer, continuously do soil liming, especially on irrigated lands. In China, almost all lands are under irrigation, and soil is getting overacidified. Such intensive use of land leads to soil erosion, desertification. By the way, the same is happening in California, where they face a big ecological issue – for four years it has been drought-stricken. There is a version that due to the intensive irrigation their climate is changing.

Andrey Karagodin

Burning corn fields in the "Interstellar" movie – is that the very extrapolated trend?

Naum Babaev

Right, they are using more water for irrigation that for human consumption. They are pumping water out of rivers to irrigate fields.

Andrey Karagodin

Does it mean that two leading globe economies are taking more from land that it can give?

Naum Babaev

This relates more to China, in the United States they now think better of it, speak about sustainable development, about low impact technology. What is more, in the United States there is a special policy - laws, strict regulations limiting the hazardous industry and technology, but in China there is nothing of that kind. They have a different problem: China cannot feed its people, so they are buying land all over the world, wherever they can get it.  

In developed countries, the potential of intensive agricultural growth has been mainly exhausted. Even infamous GMO varieties do not give the promised efficiency. Meanwhile, the world population is increasing by 100 million people every year with depleting resources because of erosion in China, construction of factories, pollution of fields and underground water with waste. They have the same problem with water as in California. In America and Europe the possibility of expanding the area of arable land has been exhausted. In Brazil, to increase the area of arable land, it is required to cut jungle clear.

For all these reasons, Russia is one of the few places where efficient agriculture will be possible. We have 400 million ha of land suitable for cultivation. About 100 million hectares are arable lands. Another 70 - 80 are grazing lands. The balance lands are just derelict. Our land in use is being cultivated less efficient in comparison with America. In Russia, if there is a swamp in the middle of a field, they just till around it. But in Argentina, for example, a swamp will be filled, leveled, put in order. Nobody is doing it in our country yet, but they definitely will.

I cannot help mentioning the climate – it is changing. Winters have become milder: in Penza, for instance, it started snowing in the second half of November, but the temperature remained above zero. That did not use to happen some 15 years ago. This is also going to be a big advantage for us.

Another key issue is water. In the modern economic science there is such a concept as natural capital that includes land, water, air and other natural resources. For economic development these assets are as important as monetary and human capital. My partner from OLAM International (a large Singapore agricultural holding that has a share of "Rusmolco". - editor's note) often says that Russia is a unique country from the point of view of natural capital.

In China, for example, there is a big problem even with air. And we are the first in the world in terms of fresh water resources. As for the volume of surface water (which theoretically you can use for operation) we are the second after Brazil (with their Amazon and tropical rain).

In these terms, Russia has enough resources, and this will play its positive role. That is why now one cannot buy cultivated lands in Russia at a cheap rate. As for derelict, long-fallow lands - yes, you can get them, but you will have to invest as much in such lands. To bring land to usable condition, it will take four years and ten thousand roubles per ha at least. And you will not gain anything – you will only be tilling it, removing weeds, breaking plough pans, applying fertilizer. One must start up land like nuclear reactor, and then it will work for long, and you will only need to add…

Andrey Karagodin

When will Russia become a big player on the global agricultural market?

Naum Babaev

It has already become. I started doing agricultural business in 1998. Shortly after we purchased first poultry farms. Just for your understanding: my first task as a director was to wheedle out corn, which was delivered by sea from the USA to St. Petersburg as humanitarian supplies. The work of the Ministry of Agriculture was to distribute the corn, and I as a director went door to door to wheedle it. It took 70 % of my working time. Can you imagine that today? 15 years have passed, and we consistently rank among leading wheat exporters. It should be noted that quality of our export wheat is improving from year to year.   

The entire world economy is about 70 trillion US dollars. Its biggest share belongs to heavy engineering: machinery, aircafts, etc. Retail trading is on the second place. On the third - agriculture. Only then energetics comes. World agriculture is almost seven trillion US dollars. The share of Russia in this pie is a bit more than 2,5 %, when the share of our resources amounts to 15 % of the aggregate world resources. Our mission or our destiny is to increase the overall production six times. And we have everything to achieve this. We have to produce foodstuff for a  trillion US dollars.

Andrey Karagodin

What is lacking?

Naum Babaev

Capital. Long-term cheap capital, first of all. Today we are paying huge interests, the whole country is only working to support the Bank system of Russia. We have no big government-owned agricultural holdings, in our sector the environment is highly competitive, we fight, some go bankrupt, some get acquired. Agriculturists are the strongest pleiad of businessmen in the country. I used to be told to take people from the oil industry, as they are ace-high managers. I took and found out that they only can work "on Easy Street", when there is a lot of money and one can make a billion roubles mistake. In our case, such mistakes cannot be excused.

So, if we had affordable and cheap capital, we would do everything by ourselves.

Practically we have no agricultural education in the country – we are repairing it ourselves. Everywhere now the agricultural produce is increasing due to use of biotechnology, genetics, that is where we are significantly behind the world level. Much has to be created from scratch.

A frequently asked question is who works better – agricultural holdings or farmers. To that, I always reply: "Give the effective rate on the level of 1-2% for agriculturists, and we will find out who works better".

What is farmery in general? In Europe, for example, in Holland it is a synonym to high intensity of agriculture. Look at the USA: I met a Farmer in Chicago who has seven dairy farms, he is a millionaire, and he is called a farmer, too. Look at Brazil, at Argentina –farms of huge size operate everywhere because they are more efficient, but they are still called farms.

So-called rural lifestyle is dying out, I would say. And we are reluctant to accept that. Half a century ago 30 % of population in Europe were involved in agriculture. Now - 4 %. In America 50 ago, they were 20 %, now - 2 %. We cannot hide from scientific and technological processes. Where there was a collective farm with 35 thousand workers, three employees will be enough now. Village in the form it exists at present will continue to die out. We need to practice American approach – to strengthen regional centers, to make them convenient places for people to live in. Young people are fleeing villages not because they do not want to drive tractors, but because in the XXI century they do not want to sit on shore with a fishing rod. In American village some 30 - 40 thousand people would live, on the central street there are only restaurants. A huge Wal-Mart. A cinema. A golf course. People do want to live there! And what can our people do in a village? Live in a wooden hut? Walk on two broken roads? Buy vodka in a shop? It needs to strengthen regional centers, bring people there. I think that but for the revolution of 1917, we would have gone upon that track.

Andrey Karagodin

Lenin called it American way of capitalism development in agriculture and just lamented that tsarist government did not allow it to develop. By methods of multivariate analysis, historians made typology of Tsarist Russia regions in terms of the development of agriculture, as a matter of curiosity this typology coincides with the fronts of the civil war. In the Russian Empire there were two the most developed agrarian regions: on the one hand, the Baltic states with latifundism which just withdrew from Russia immediately after the Bolsheviks revolution; on the other hand, the South - Novorossiya, The The Crimea, Astrakhan, Kuban, Volga region with their strong peasant agriculture, those territories mounted the most fierce resistance to the Red Army while the Central region, the very area of risk farming, land scarcity region, supported the Bolsheviks.

Naum Babaev

Right, the Krasnodar region land is one of the best in the world. As a friend of mine says, if Moses had had a mobile phone, he would have done in 20 years what had taken him 40. Everything on the globe has changed. Even generations are changing faster now. Definitely, the land farming technology has also changed. It is easier to cultivate lands in Tumen or Omsk than near Moscow where land fields are fragmented. In Siberia with its huge fields a combine can go to the horizon. I think, finally the Moscow region will get squeezed out of the agricultural market and will be built up - there is no escaping from urbanization. People will keep on coming here to live in urban comfort because the new agriculture with its high labor efficiency does not require that many employees.

Andrey Karagodin

Isn’t the opposite being popularized in the world? All those slow food and local food tends, struggle for organic farming, etc.? Or is it a marketing myth, just like the myth on return of vinyl among music fans who say that CDs are dying out, that vinyl sounds better, etc.?

Naum Babaev

The two are not mutually exclusive. Many people want to buy products grown without use of modern technology, and they are ready to pay well for such products. That is their right, but there is no proof that organic food is healthier. Where there is demand, there is supply. Sometimes, when I read about organic farming standards, I have a feeling that it is just pure protectionism meant to support inefficient producers.

People should pay attention to the sincerity of the product and understand what they want to eat, what they don’t. The slow food and local food idea has legs because it sets the right attitude to healthy eating. Surely, fresh food is good. At the same time, it is difficult to say no to strawberries in winter. Why should we? But if in summer we can consume more products from our forests and our fields, why not?

I like the school meal program in Sweden, Finland and America: it is built on local products, on seasonal food. But nobody leaves children without apples in winter!

Andrey Karagodin

In Europe with its sky-high prices for lands, agriculture survives due to heavy government subsidy. Does it mean that if Europe comes to the free market, it will not be agricultural producer any more?

Naum Babaev

That is what gradually happening to them.

Andrey Karagodin

How will the global agricultural market be distributed in 10 - 15 years?

Naum Babaev

According to specialists, there is so called green triangle formed by main producers and importers of food products that consists of North America, South America, Australia, New Zealand. And there is so called "Bermuda Triangle" that consumes those food products. It includes Asia (number one importer is Japan), India, China and Russia. And now right before our eyes "the green triangle" is becoming "the green square": Russia will supply to Europe, North America - to Europe, New Zealand and Australia - to Africa and Asia, Brazil, correspondingly, - to Africa and Asia. Within ten years you will see this transformation.

Even now de facto we are one of the biggest suppliers of food products. Last year we exported food products worth almost USD 19 billion, weapons - worth 15.

Andrey Karagodin

How is it achieved? Historians say that specific nature of Russian history like cruel nation state, exploitation of population, etc. is caused by minimal surplus produce volume society that formed historically. That in its turn resulted from the fact that farming period for the Great Russian ploughman was limited, he could only work from April to October, not from February to December as they did in Western Europe washed by the Gulf Stream. That is pretty much the peculiarity of the Russian history. We never could go beyond sam-three, not during Stalin's day, not during Ivan the Terrible’s day - never. Whathaschanged?

Naum Babaev

Technology. Now they work in the field even less than then. A family of ten people can easily farm three thousand hectares. What is "area of risk farming"? We understand that we in Penza have less time to harvest than Krasnodar: they have a month to harvest, we only have two weeks. That means I need two times more harvesters. Agriculture has become highly-efficient, that is what has changed. My company operates all-year-round, during the season people earn up to 100 thousand roubles per month. When the season is over, they repair machinery, service tractors, drive feed distributers. They make money and decide how to spend it, visit different places, and discover new things. In our village there is no problem with drinking. When a person is busy and leads a decent life, they have no time to drink.

Andrey Karagodin

Initially our peasants associated the harvesting campaign with suffering, they had to make so much of effort to get their poor yield which was even lower than required to feed themselves. The rest six month of the year they drank out of desperation and cursed everyone and their dog – from the tsar and landowner to neighbours-witches.

Naum Babaev

That is the question of technology, logistics, labour efficiency. That time it was quite low (before the revolution the yield was about five centners per ha, that is the level of today’s organic farmers), by now it is much higher. Last year I planted corn in Tumen, we experimented on 36 fields. Next year I will have 27. In five years of experiments I will show you fantastic corn in Tumen.

Andrey Karagodin

Why didn’t the Soviet Union with its resources and scientific schools solve the problem?

Naum Babaev

Because agriculture was sacrificed on industrialization. That is when we, for example, lost up to 50 % of milking herd, one can feel consequences even now. In 1950es they sort of turned face to agriculture, but not systematically; by that time it had been so depleted that investments actually did not help. Thenourprioritywasdifferent - military industrial sector.

Intensification came when the government quit this industry. What we are getting today is fruit of private business, it is fundamentally important. I believe the oil sector is stagnating now because it has no private initiative, that is why they slept over the shale revolution. I think in some ten years raw materials oligarchy will deflate. All their power was built up on expensive oil and gas. I do not believe in more than 50 USD per barrel. It will dance around this price for long

See also "Rashid Khayrov: Time of falsification"