Razguliay fortifies rice market stronghold
holding company called Kubani Ris, which will process 83 per cent
of all the rice grown in Russia and help the company clamp down on
illegal rice production at the same time, as Angela Drujinina
reports.
The new company will be a joint venture with the KraiInvestBank, majority owned by the regional authorities in the Krasnodar (Kubani) region, Russia's biggest rice-producing region.
Kubani Ris will take control of Razguliay's Angelinsky and Poltavsky processing plants as part of the RUR1 billion in assets contributed by Razguliay. The parent company has also pledged to invest up to RUR90 million a year in upgrading and modernising production facilities at the plants.
CEE-foodindustry.com has learned that Kubani Ris JSC will also be put in charge of managing all the unprofitable rice farms in the Kubani region, although it will stop short of investing in the businesses themselves. There are currenty 200 rice farms in the region, most of which will sell their rice to Kunani Ris for processing.
The Kubani region produced 400,000-420,000 tons of raw rice in 2003, around 155,000 tons of milled rice. According to data from the Institute for Agricultural Market Studies (IKAR), the Russian rice market was worth $460 million last year at retail prices.
But if it has stopped short of buying the farms themselves, Razguliay has invested heavily in improving production techniques in the region. Julia Lukianova, marketing manager at the company, said that Razguliay had spent $2 million on renovating irrigation systems and buying new seeds and fertilisers, and that it planned to invest a further $6 million before the beginning of the next sowing season in supporting rice growers looking to modernise their production processes.
The creation of a major new player in the rice market has been broadly welcomed. "It's good news," Igor Strelnikov, director of St. Petersburg-based rice packer Angstream, told CEE-foodindustry.com. "The arrival of a major new supplier will make the market more stable in terms of supply and price. We estimate that roughly half of all the packed rice sold in Russia comes from the Kubani region, so ensuring a consistent supply is vital."
But Kubani Ris is also expected to help strengthen the market in another key way - clamping down on the large numbers of illegal rice processors in the Kubani region. According to analysts estimates, half of all rice grown in the Krasnodar district is processed by small, illegal processing plants, of which there thought to be around 50.
This black market rice is of very low quality, as it is never properly processed and is frequently stored incorrectly.
Razguliay said that it is was not just consumers who were likely to be affected by such poor quality rice. "First and foremost it is the licensed processors who suffer," Lukianova said. "Two major rice storage silos in Krasnodar - Kholmsky and Varenievsky - have been forced to close down because of insufficient quantities of rice, while three processing plants are working at only 14 per cent of their capacity of 350,000 tons per season. In addition, the regional authorities are losing some RUR130 million in taxes as a result of the increase in unlicensed production."
She continued: "In order to attract rice growers, we have increased the amount we pay for rice from RUR3,500 per ton (which is what the illegal processors offer) to RUR4,950. The price, we hope, should persuade rice growers to sell their output to us for processing and cut out the illegal processors altogether.
"We have also developed and introduced a system of interest-free financing to help producers through the sowing and harvesting periods. We will give them money needed to buy seeds, equipment, fertilisers and fuel, and they will pay us back with rice."
Razguliay hopes to increase its processing output not only through winning back custom from the black market operators but also by persuading growers to improve the way they manage their holdings. It is currently developing a business plan which will look at ways of selecting new, more productive strains of rice and improving irrigation systems. These measures, it hopes, will help Kubani Ris increase the amount of rice harvested to 800,000-900,000 tons a year.
But even this will still be slightly less than the Soviet era output of around 1 million tons of rice a year, so there is still room for further improvement, not least because of the 700,000 tons of rice consumed in Russia last year, some 450,000 tons were imported. And while imports this year are expected to drop to 350,000 tons, this has more to do with a shortfall in rice supplies than a growing interest in Russian-grown rice - indeed, domestic output is forecast to drop to 225,000 tons.
Imported rice is more popular simply because it is cheaper than Russian rice - even with the price increases caused by the worldwide shortage. Imported rice has risen from RUR10 per kilogram to RUR13.5 per kilogram, but domestic rice is still more expensive at RUR14.5/kilo, up from RUR11/kilo - which is why investment domestic production by companies such as Kubani Ris is vital to help bring down production costs.
