Russian Farms find a way to milk the crisis

Last October Marchmont wrote about how the ongoing financial crisis made Russia’s largest agricultural companies postpone their previously announced projects and put new ones on hold (see news of October 15, 2008). Moscow-based Russian Farms, which had to cancel its $130m milk farm project in the Lipetsk Region, hasn't given up. It's back in Lipetsk with a. new partner and a different project.

The firm’s president and the main owner Andrey Danilenko told Kommersant that his company was able to re-start to its “Black Soil Belt” region expansion plans thanks to partnering with dairy products manufacturer Unimilk.

Under the agreement, Unimilk is handing over management rights to its Verbilovskoye farm in Lipetsk to Russian Farms so that the latter can use the asset, together with its own Belgorod Milk Farms, to build a large dairy complex.

The complex will reportedly have 8,000 cows producing 7,000 kilograms of milk each year.. The complex is also to be used to grow grains according to sources.

Russian Farms will invest $15m into the project, with 80% financing from Sberbank, Mr. Danilenko said.

When asked about the future of Russian Farms original $130m project to build a new farm, Mr. Danilenko explained, that he believed it was more cost-efficient to overhaul an existing farm. “We chose to purchase non-core assets from other firms to enable us to carry out our expansion plans,” he added.

Unimilk’s CEO Andrey Beskhmelnitsky said that Verbilovskoye farm was just such a non-core asset for his company. “We purchased it a while ago merely to study raw milk production in better detail.”

Now it appears that both companies have found a way to milk the crisis for their mutual benefit.

According to Mr. Beskhmelnitsky, “in the joint project the two partners are to divide functions and each to do what they are most competent at, thus maximizing the project efficiency”.