Tit-for-tat sanctions imposed by Russian President Vladimir Putin on imports of EU agricultural products in 2014 following the annexation of the Crimea have seen Russia’s agricultural sector flourish.

Heavily dependent on the import of nearly two thirds of its food products in the 1990s, Russia is now a net exporter of food and a global grain powerhouse, after domestic entrepreneurs stepped into the breach left by the departing EU suppliers, and heavy investment into the sector by the state.

The most famous example was the creations of a domestic cheese industry following the imposition of sanctions. Russia never got round to setting up its own cheese production, as imports from places like France and Italy were cheaper and of better quality than anything Russia could produce. But once the shelves were emptied of camembert and parmesan, Russian producers threw themselves into setting up the production of Russian equivalents.

Over the past decade, Russia's agro-industrial sector has undergone a complete transformation. The agro-sanctions hit nearly every product group, including meat, dairy products, vegetables and fruits from the European Union, the United States, Canada, Australia and Norway. Initially intended as a temporary measure, the embargo has been extended every year and remains in place today.

"The vacated niches were quickly occupied by domestic business," a representative of the Ministry of Agriculture told reports Vedomosti. "Russian enterprises have proven their ability to produce almost anything and adapt to any external conditions."

And serving the largest consumer market in Europe with over 148mn customers, agriculture has become a big business.

For instance, Agrocomplex named after N I Tkachev saw its revenue increase from RUB53.2bn ($634mn) in 2019 to RUB84.5bn ($1bn) in 2023, while its net profit surged from RUB1.6bn to RUB13.8bn over the same period.

Similarly, the agro-conglomerate Rusagro's consolidated revenue climbed from RUB73.5bn ($875mn) in 2019 to RUB310bn ($3.4bn) in 2023, with net profit rising from RUB9.7bn to RUB48.7bn.

Steppe Agroholding, another major player, reported revenue of RUB106.1bn in 2023, a dramatic increase from RUB584mn in 2019. The company, however, has not disclosed its net profit.

State backing

State support has played a crucial role in the sector's development, as the Kremlin has seen food security as a national security issue. The volume of funding for the state programme for agricultural development has more than doubled in the last decade, up 2.2-fold between 2013 and 2023, reaching RUB442.6bn ($4.9bn).

"From 2014 to 2023, food production in our country increased by 43%, and agricultural products by 33.2%," noted the representative of the Ministry of Agriculture.

The shift from an import-substituting model to an export-oriented one has been one of the most notable changes in the Russian agro-industrial complex since 2014. While in 2013 Russia imported 2.5 times more food than it exported, by 2023 the country was exporting 24% more food than it was importing, including pork and chicken meat, but remains a net importer of beef to this day.

"In monetary terms, domestic agricultural exports in 2023 amounted to $43.5bn, compared to $17.1bn in 2013," the Ministry of Agriculture said.

Today, Russia supplies food to more than 160 countries and is a global powerhouse in the export of wheat, peas and barley, and is even the world’s biggest exporter of raspberries, although it remains a net importer of tomatoes, which are difficult to grow in Russia’s wintery climate.

And thanks to the ongoing investment by increasingly profitable businesses, production and yields continue to climb. In the first half of 2024, Russian agricultural exports grew by 16% in physical terms compared to the same period in 2023, according to Sergei Grishunin, managing director of the NRA rating service cited by Vedomosti. The most significant growth was seen in meat, dairy products, and vegetables.

Grain has become particularly important, as there is not only the need to feed the country, but as Russia is currently the world’s biggest exporter of grain – grain exports are now Russia’s second most valuable export after hydrocarbons – it has become a strategic export that the Kremlin has used as geopolitical tool to bind its foreign partners to Moscow.

And grain production has soared to smash even the highest Soviet-era records. In 2022 and 2023 Russia reported the biggest grain harvests ever of around 150mn tonnes, up from the circa 90mn tonnes per year (tpy) Russia produced in the noughties. (chart) Russia exports between 50mn and 60mn tpy of grain, much of it going to the EU – Russian grain imports have not been sanctioned – as well as many countries in Africa that are completely dependent on Russian grain imports.

According to the preliminary estimate of the Ministry of Agriculture, this year’s harvest is set to fall somewhat to 132mn tonnes, but still ahead of 103.8mn tonnes harvested a decade earlier.

Challenges

However, the sector is not without its problems. Severe weather conditions have affected crop yields this year, with Steppe Agroholding anticipating a 10% decrease in yield thanks the extreme temperature swings associated with the Climate Crisis.

The sector is also grappling with rising costs, particularly for seeds, fertilisers and labour. Sanctions have also had an impact. While Russia is self-sufficient in potato production, it has relied on the import of European seed potatoes for years. Likewise, many of the drugs, medicines and supplements used in animal husbandry were imported.

"Every year, sowing campaign expenses grow, with the increase in costs over the past two to three years averaging 20-30%," Andrey Neduzhko, CEO of Steppe Agroholding, told Vedomosti.

Moreover, the industry faces a chronic shortage of skilled labour, recently exacerbated by the chronic labour shortage, which is slowing the pace of digitalisation and technological advancement.

The need to rebuild Russia's seed farms, increase labour productivity and enhance technical support remains a strategic challenge, compounded by the rising cost of equipment due to sanctions, the Agriculture Ministry says.