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Eco-kultura vice-president: energy cost growth kills the segment of cheap greenhouse vegetables

Mr. Sergey Fomenkov, Vice-president on strategy and marketing for Eco-kultura shares the ideas of business diversification and on horticultural projects in new countries.

Vegetable producers are considered one of the main beneficiaries from the import limitation policy, introduced in Russia in the recent years from product embargo to ban of fruit and vegetables supplies from Turkey.

Investors from other areas, such as Renova by Mr. Victor Vekselberg and Greenhouse by the family of Mr. Roman Abramovich, got interested in the sphere. According to the forecast of the Ministry of Agriculture, the production of greenhouse vegetables in the Russian Federation will have increased to 1.3 million tons by the end of 2019, which is 200 thousand tons more compared to the record of last year.

With that, one of the main players in the greenhouse business, agricultural holding Eco-kultura are planning to engage in other projects, distanced from vegetable production, such as grain processing and confectionary production. As for the greenhouse production, the company are planning new project outside the Russian Federation.

According to the new strategy, approved last year, Eco-kultura greenhouse complexes acreage in Russia, Kazakhstan, Uzbekistan and China should exceed 1 thousand ha in 2024 and the overall production volume should reach 600 thousand tons. In addition, the company are planning to acquire the 30% share of the Russian greenhouse vegetable market.

Vice-president of the company on strategy and marketing, Mr. Sergey Fomenkov shares the plans on business diversification and projects in new countries.

What stage of the strategy fulfillment will the company be in 2019? How much would the greenhouse acreage increase?

"In October 2018, we developed a strategic development plan for the coming 5 years with a decade vector. We took the time to study the market, test our abilities, improve the team and announce such ambitious plans.

"We are launching new greenhouses and by the end of the year the overall acreage will comprise 200 ha.

"I think we could say that upon the results of 2019 we will have collected 100 thousand tons of crops. Once we seed and plant the vegetables in new complexes, the increased amount of crops will be collected since October.

"The company have entered a new cycle, we are rapidly developing, improving the technologies in the existing complexes, constructing new ones and are considering business diversification, i.e. grain processing as well as gardening. Berry production is in the scope of our interests, we are also conquering other regions, China, Uzbekistan, Kazakhstan. Everything is going as planned and as agreed upon with our investors.

"We are actively cooperating with producers from Uzbekistan, where we provide agricultural supervision, we are confident in our produce as it matches all the current standards implemented in the Russian Federation. Tomatoes produced there will be imported to Russia, we have already shipped the first batch and have certified the vegetables, produced under our supervision."

What is the reason behind the ides to begin projects outside Russia?

"Uzbekistan has very favorable investment climate and less competitive market, we can easily occupy our niche there. Kazakhstan can boast a very mild energy sources policy. Energy tariffs in Russia are growing year after year, killing the economics of the country and greenhouse sphere in particular, while in Kazakhstan the tariffs are twice lower than in Russia. We have a partner there with 10 ha of greenhouses and in the coming years we are going to build new ones, in general we should end with 32 ha of cucumber greenhouses. We carry out the construction ourselves and will manage the complex. The investments should comprise 112.7 million euro of loans taken in Sberbank.

"Moreover, we signed the investment agreement with the government of Kazakhstan for the construction of 500 ha of greenhouse with the investments of 14 million euro and we started carrying out this project."

The Ministry of Agriculture suggested increasing the maximum terms of easy loans for greenhouse complexes to 12 years. However, since this year capital investment subsidies for greenhouse construction have been cancelled in Russia. How have these actions influenced Eco-kultura plans?

"We will complete the projects that we have planned. In addition, should the conditions be favorable, we will pay more attention to the construction of greenhouses in the south of Russia, for example in Stavropol area, where there is enough sunshine. In the central part of Russia, it is not profitable to construct greenhouses without state support. We will not stop working on the announced projects. We will construct the complex in Moscow region as planned. We are completing the first phase in Tula and are finishing the construction in Lipetsk this year.

"However, in order to meet the demand of the population of the Russian Federation in tomatoes by 80%, we need to invest at least as much and build as many complexes as we have been doing in the past 5-7 years. In the period when the sphere received state support, we had no professionals. Through all these years, we have been learning to manage the finances and build human capital. Currently we have more or less the required amount of specialists and it is the right moment to support this area and then, I am sure we would reach the self-sufficiency in tomatoes at the level of 80-90%. Moreover, we would have our agricultural base, own technologies and gradually we could develop own genetic varieties."

Eco-kultura mainly grow tomatoes as well as cucumbers and lettuce. What other varieties are of interest?

"We are completely changing the line of tomatoes now, moving away from the cheap round “folk” tomato. It has become not profitable to grow them with the current energy cost growth.

"Several hectares of greenhouse are allocated for varieties testing. We are also conducting a range of small-scale projects, for instance bio compost production from the herbage that we accumulate in huge amount for own use in the garden project and for sale."

When are you planning to begin export tomatoes and to what countries?

"Since next year, we are going to try engage in export. We are considering Europe and the Far East."

Is there understanding where the company will be heading after 2023? Are there plans to go public?

"We are heading on this direction but we cannot forecast now when it should happen. We are not going to make any planning now further than 2023. One this year has ended, our plans may change. The biggest risk for us is the energy costs growth. With that, we are pressed to retain the same prices on our produce. We have not been increasing prices on our tomatoes in the past years but if we plant the new variety, the cost will be different."

Agricultural complex Eco-kultura is a biggest Russian greenhouse vegetable producer. The holding includes seven greenhouse complexes with the overall acreage of 145 ha. Upon the results of 2018, the production volume amounted to 65 thousand tons. 89% of the volume is taken by tomatoes, 10% by cucumbers and the rest by lettuce and eggplants.

By the end of 2018 Eco-kultura had produces 6.2% of all Russian greenhouse vegetable volume. In 2017 there share reached 5.4%.


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