FDBusiness.com

Olam International, a leading global, integrated supply chain manager and processor of agricultural products and food ingredients, has formed a partnership with the Russian Dairy Company (RUSMOLCO) for the large scale development of dairy and grains farming in thePenza region of Russia.

The first step under this partnership is the investment of up to $75 million by Olam in exchange for 75% of the equity of RUSMOLCO, which is a growing player in the Russian dairy industry. In the first phase of expansion spread over the next four to five years, RUSMOLCO will invest to expand the area under grains cultivation from the current 52,000 hectares to 106,000 hectares. In addition, four new modern dairy farms will be constructed, taking the total milking cow population from the current 3,600 heads to 20,000 heads. The total investment required for Phase 1 will aggregate up to $400 million to be spent over the next four to five years in a phased manner.

RUSMOLCO plans to establish a training and development centre aimed at inculcating best practices in international farming and milk production. Initially, the centre will focus on training of RUSMOLCO’s own staff, which later may be expanded into a national centre to promote adoption of best practice and latest technologies across Russia.

In Phase 2, Olam and RUSMOLCO envisage further investments which could include the enhancement of the area under cultivation to 130,000 hectares, increasing the milking cow population to 50,000 heads of cattle, investing in sugar cultivation, milling and refining as well as other adjacent initiatives that are aligned with Olam’s strategic plan.

Olam has been in Russia since 1993, with operations across grains origination, domestic trading and exports, imports and distribution of cocoa and cocoa products, green coffee and soluble coffee, edible nuts, dairy products as well as domestic trade and import of raw sugar, toll refining and distribution.

Russia is one of the most attractive markets for dairy farming today and this partnership is aligned with Olam’s dairy strategy of selectively investing in attractive value chain activities, such as upstream dairy farming in geographies that provide a potential for profitable growth.

The attractiveness of the dairy sector in Russia stems from the following factors:

* A high demand for milk and a large and growing demand-supply gap, makingRussiaone of the largest importers of milk in the world;

* A strong need for a modern, reliable supplier of high-quality milk;

* Low cattle-feed cost driven by availability of fertile agricultural land at competitive prices; and

* Increasing emphasis and direct support by the Russian government on enhancing private investment into the agriculture sector as well as local dairy productivity and output.

Grain farming inRussiaprovides an attractive investment opportunity with a potential for generating excess returns on account of the following factors:

* Low cost of farm land: Yield-adjusted agricultural land cost in the US/Western Europe is 14-15 times more expensive than in Russia;

* Soil and agro-climatic conditions are favourable for grain cultivation; and

* Inland and port logistics are well developed and provide a smooth and cost effective route to export grains from Russia.