Trade Opportunities Exist with Russia

November 26, 2012 09:19 PM

AGCO sees opportunity

As Russia secures its place in the global trading community, AGCO Corporation ramps up its presence.

"From an ag machinery perspective, Russia is the largest single country for arable land and it’s the most underused," says Eric Raby, vice president of global marketing and commercial development for AGCO. The Georgia-based AGCO does a tremendous amount of business in other countries. "AGCO has been in Russia for a number of years. We are just increasing our presence, long-term," Raby says. "We need to be in Russia like we are in other parts of the world."

AGCO’s large combines are well suited to Russia’s large tracts of land. Raby says the company has been planning to increase its presence in Russia since 2004, but the global economy in 2008/09 slowed that down signifi cantly. "Anything we were going to do was temporarily tabled, but we knew the demand was there," he says.

AGCO does business in Ukraine and Kazakhstan; Russia’s accession to the World Trade Organization (WTO) only validated its plan. Russia has a signifi cant amount of tillable land and infrastructure, and is now part of the WTO. "It just makes sense logistically and from a business standpoint," Raby says. "Russia will continue to grow and be an easier place to do business."

Additionally, AGCO’s recent acquisition of GSI allows it to help with infrastructure development. "Yield can be measured at the fi eld, but it has to make it to the table," Raby says. "In that part of the world, postharvest yield loss is at 10%, 20% and sometimes 30% because of grain handling and storage practices."

AGCO has made a signifi cant investment in Russia and that is expected to continue. "There are other companies making investments or in the planning phase," Raby says. "We are building in Russia and utilizing abilities abroad to supply that market."

A trading partner

Benefi ts of Russia’s August accession to the World Trade Organization (WTO) are yet to be seen for U.S. companies. This stems from the Jackson-Vanik amendment, put in place by Congress in 1974, which supersedes America’s trade relations in the WTO.

The amendment, designed to impose trade restrictions post-WWII with the Soviet Union and other communist countries, is expected to be repealed this year.

"If the United States does not grant Russia PNTR [permanent normal trade relations] by the time that Russia becomes a WTO member, the committee believes that U.S. companies, workers and farmers will be disadvantaged versus their competitors," the House Ways and Means Committee wrote in a report accompanying H.R. 6156, the bill that will grant PNTR to Russia.

As it stands now, U.S. companies trading with Russia face unnecessary tariffs and trade barriers that were put in place because of Jackson-Vanik. Until it is repealed, neither the U.S. nor Russia can trade with each other and have PNTR.

Once repealed, any previous trade restrictions that have existed with Russia will disappear during a multiyear period and both countries can use WTO’s rules.

A competitor

Russia, for the most part, has large tracts of land and adequate water and soil. From a natural resources standpoint, the country can be competitive, experts agree.

Since the fall of communism, Russian agriculture has slowly modernized because of an infl ux of capital. In some ways, they’re not that different, says Eric Trachtenberg, director of Food and Agriculture Sector for McLarty Associates. "The farms are large and have been investing in modern technologies such as machinery."

Wheat and cereal grains are staple crops for Russia. Corn acres are increasing. Trachtenberg says Russia can be competitive with wheat, barley, corn and sunfl owers. While development of Russian agriculture could mean there are more grain supplies and increased competition for U.S. producers, expanding demand from China and other emerging markets will likely keep prices strong.

"There’s a proliferation of different crops being tried in Russia and Europe," says Eric Raby, vice president of global marketing and commercial development for AGCO. "We’re seeing a lot of sugar beets in commercial operations. Additionally, a large growth spurt of their livestock sector is under way—specifi cally pork, poultry and now beef. The U.S. is providing much of their breeding stock. We’re seeing livestock operations become more vertically integrated."

Trachtenberg says Russia is holding itself back in many respects. "They don’t have any approved biotech crops and they don’t have an integrated infrastructure," he says. "They have the potential, but don’t have their act together in some ways." It’s a different story with processed foods. Trachtenberg says Russia’s food processing sector has developed quickly because firms such as Pepsi and Diamond made investments. It is competitive with products such as beer, ice cream and other packaged foods.

Russia has created and is expanding a Customs Union, which it sees as equivalent to the European Union. It would be responsible for synchronizing standards and creating a free trade zone, but the process is far from complete.

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