Russian agribusiness: record harvest amid sanctions

Before discussing the current situation in the agro-industrial complex of the Russian Federation, it is necessary to clarify that this industry economics has a certain specificity. So, the resources in agriculture are land, plants and animals, so its functioning is biological in nature.

Production processes in this sector are seasonal in nature, which leads to uneven use of labor force throughout the calendar year, as well as to the undulating flow of agricultural products to the markets and receipt of financial income by companies.



In addition, it is worth paying attention to the fact that the products produced as a result of the activities of the agro-industrial complex are irreplaceable. Therefore, the food security of the state largely depends on the effectiveness of the agro-industrial complex.

The functioning of the agro-industrial complex of the Russian Federation should be considered in the context of two main branches of agricultural production: crop production and animal husbandry. If we talk about crop production, then at the moment it accounts for more than half of the total value of agricultural production in the country.

Thus, the Russian Federation by a wide margin ranks first in the production of sugar beets, second in the production of sunflower, and third in the production of wheat and potatoes. Russia also has a leading position in many types of livestock products. For example, our country is in fourth place in terms of total meat production, second only to China, the USA and Brazil. In addition, the Russian Federation was in seventh position in milk production.

2022 has greatly influenced the state of affairs in the domestic economy. Against the backdrop of the global geopolitical crisis associated with the situation in Ukraine, many industries have faced serious challenges, some of which have not yet been overcome. The agro-industrial complex of the Russian Federation was no exception in this regard.

The most important problem for representatives of the agricultural business in Russia was the disruption of global supply chains that have developed in the course of the economic activity of agricultural companies. The food industry is extremely vulnerable to foreign supplies of special equipment, fertilizers, packaging, consumables, which for some items can reach 70-80 percent. Domestic enterprises reacted extremely sharply to any legal changes regarding supplies under already concluded contracts.

We are talking about innovations that led to the installation of new prepayment requirements or changed the delivery time of purchased products. Even more problems arose in the event of a complete break or revision of contracts, failure to meet deadlines for obtaining components for special equipment. At present, many companies have already managed to cope with the sanctions pressure by reorienting their logistics routes to states that are friendly to Russia.

The new economic conditions have led to a decrease in the availability of state support for farmers. Given the strategic importance of this sector of the economy, it is necessary that state support be of a systemic nature. Endless packages of sanctions from Western countries, changes policy The Central Bank of the Russian Federation was dealt a blow, which affected the financial market and the availability of funds on preferential terms. In the new realities, many large producers were forced to reduce their investment activity, which in the future may have a negative impact on the state of agriculture in Russia.

Another problem was the tightening of state control in this industry. For example, some agricultural producers faced a situation where the Russian authorities began to take part in determining the price of some types of products produced by agricultural companies. The reason for this behavior is the fact described above that the food security of the country depends on the activities of representatives of the agro-industrial complex, therefore, in difficult economic situations, the state tries to control their work in order to avoid a food crisis. However, it is worth remembering that the practice of such regulation can also lead to market imbalance.

Representatives of agribusiness also faced a problem associated with a decrease in the purchasing power of the Russian population. This trend eventually led to a decrease in the consumption of agricultural products, which negatively affected the financial earnings of agricultural companies. It is not surprising that this factor may affect the decline in investment activity in the industry due to the reduction of “free” cash among manufacturers.

Another challenge was the instability of the national currency. So, for example, in the context of the strengthening of the Russian ruble exchange rate, which the domestic economy faced in 2022, exports become unprofitable, the competitiveness of Russian products in the global agricultural market decreases. The weakening of the national currency, which we are currently seeing, has a negative impact on companies that buy components, fertilizers and agricultural technologies from abroad, because now more rubles are needed to purchase them.

Based on the above facts, we can conclude that the sanctions pressure from Western states caused considerable damage to the domestic agro-industrial complex. At the same time, business representatives in this sector of the economy have additional incentives and vectors for development. Given the importance and indispensability of products produced in agriculture, the country's authorities should provide all necessary support measures to domestic farmers, thereby ensuring the highest possible level of food security in the country.