Euroinvest Opens Up the Russian Non-Black Earth Region

Food security is a topic that became important long before import substitution. Our country has achieved successes in this sector by supporting farms outside the Russian Chernozem region. The importance of these projects will only continue to grow over time as the food crisis and climate change intensifies.

Publicists like to argue about climate change, particularly global warming, but it is not just the scale of the problem and the speed of its aggravation that is being called into question. People often choose to deny the fact of global, tectonic changes in our planet's climate, despite the fact that anyone can open Roshydromet's annual reports and read statistical information from our scientists on the matter. There is no doubt that the weather is going crazy, and each year has only expedited its madness.

Since the beginning of the millennium, climatic anomalies in Russia have doubled. The number of forests and tundra fires in Siberia, typhoons in Primorye, droughts in the south, and floods across the coastal regions have multiplied within less than one generation. The changes are uneven, but the general trend is clear; our country is warming to a slow fire, and it is happening faster than the lion's share of the world's territories.

According to European climatologists, the climatic zones in Russia will shift by 1000 kilometers to the north by 2050. For Moscow, this means they will be experiencing Bulgarian weather conditions, but the critical agricultural regions have a chance to dry up in the sun.

The Kuban and Don basins cannot cope with the rate of these changes, even today. In the future, they will not be able to supply agriculture in the Krasnodar Krai and Rostov region without constructing additional irrigation systems. It will be a terrible blow to the country’s agricultural complex.

Similar changes are expected to happen across many other states; if it happens at the rate and extremity that is projected, this will inevitably lead to food shortages and a global world crisis. There is no way to avoid it and little in the way of delaying it. Unfortunately, the world's diplomats have not agreed on a green agenda, and no research conclusively proves its effectiveness. Our task today is to soften the coming blow as much as possible, protect the population from hunger, and ensure food security.

In this case, it is crucial to start developing practically unprofitable lands. Of course, we are talking about the hinterland of Central Russia, the North, and North-West, lands in little demand today, but tomorrow becoming the only suitable areas for growing food. An illustrative project in this part is Krasnoye Znamya of the Dnovsky district of the Pskov region. This enterprise has managed to build a successful financial model in the challenging conditions of the Northwest.

The Game, in the Long Run

There are many fascinating traditions in Russia, but two stand out among them: berating problems and stubbornly ignoring successes. One of the most painful topics of 2022 is the import substitutions, in which there is nothing to boast about. Food security has been ensured, but 20 years ago, Russia had to import 70% of all its products.

At one time, this was perceived as a success. The organization of a stable import of products in Russia was a banal deficit. In addition, the co-owner of the company Euroinvest, Andrey Berezin, was engaged in solving this problem. One of his first projects with the company was related to the organization of supplies from the UK. The project was so relevant and in-demand that it made it possible for the businessman to accumulate start-up capital, almost immediately enabling them to enter the real estate market.

Nevertheless, if we imagine that our country could not overcome such a severe dependence on imports in current conditions, it will lead to a severe food crisis. This problem was solved in 2018, positioning all prominent positions in Russia to be able to be fed.

We must admit that this breakthrough was made mainly at the expense of foreign technologies, livestock breeds, and crop varieties. This link in our country still suffers, but at the same time, we are rapidly developing the production of fertilizers, and the first modern breeding centers appear, engaged in developing domestic breeds and varieties. However, a fundamental, qualitative leap forward was ensured, including at the expense of unprecedented support measures for farms in our history.

The main emphasis was placed on dairy production. Paradoxically, this business is as much in demand as it is unprofitable; in no country in the world does this industry exist without state support. In this case, all conditions have been created so that even abandoned fields became a place for successful projects. Berezin, fully aware of the importance and prospects of this direction, chose the Pskov region, one of Russia’s three poorest and least developed regions.

Put the Puzzle Together

There are successful enterprises in the agricultural sector in the Pskov Oblast. Suffice it to say, only the Velikoluksky meat-processing plant, one of our country's most extensive meat-processing holdings, could sustain itself in the area. In most cases, however, we tend to be talking about large producers who deal with pork and rapeseed, and they do not work with every municipality. Berezin, therefore, chose the district where agriculture is de facto absent, Dnovsky District. Conceptually, the idea was to gather everything still alive from the days of the Soviet Union and rebuild it into an independent mini cluster.

It took two years to buy up the assets of small farms engaged in cattle and fodder production. It then took a series of negotiations being held with the district authorities to come to a conclusion; the investor offered to take the unused land overgrown with hogweed free of charge under the responsibility of putting in an order quickly. The depressed region was glad to make such an agreement. At the very least, this solved the problem of the dangerous weed, and at most, this gave hope for job creation.

When Krasnoye Znamya was formed as a single enterprise, it could boast a fodder base and two hundred cattle. Thanks to Euroinvest, ample land was accessible to be used for growing grain, processing facilities, forming a distribution network, and facilitating a breeding herd. The pack has grown to almost 700 cows, an exceptional figure by modern standards.

As soon as Krasnoye Znamya recognizes the benefits that would come of the project to build a farm with a breeding herd, it will be a fully independent agro-cluster with a closed production cycle.

Scaling

At a particular stage of the project development, Berezin faced the choice of where to develop Krasnoye Znamya. There were only two main options: to increase milk production, or to deepen processing. At first, the businessman saw the first scenario as a basis, having set aside one billion rubles for investments. However, even at the planning stage, it turned out that the payback period of these investments would take an indefinite amount of time.

The livestock was planned to be increased to 1.3 thousand cows, enabling the company to produce about 13 thousand liters of milk a year. To reduce the costs, Euroinvest began to look for a partner, with a Geo management company from St. Petersburg filling the role as partner. Despite this, these plans were not in the cards; a less expensive and more reliable model of Krasnye Znamya's development was chosen.

The number of cows increased to 700, but the main emphasis was directed towards purchasing processing equipment. For the first time in many years, a factory for the production of cheese, cottage cheese, and yogurt appeared in the Dnovsky district possessing high quality. Moreover, additional areas for fodder production were purchased from 4 thousand hectares to 6.5 thousand hectares. It is possible to close a significant part of the losses and costs using all existing support measures for dairy producers.

The plans were implemented within two years, and the next stage was immediately announced after that. The farm plans to reconstruct the cattle farm in the village of Iskra for another 200 cows with a maternity ward. This same breeding herd will allow Red Banner to close the production cycle and gain complete independence from outside suppliers.

The Future is in Agro-Technology

One expert characterized Krasnoye Znamya succinctly after the investments of Euroinvest: it looks like a business. In other words, despite its respectively modest scale, it is a profitable project, the model of which being possible to replicate in other regions. This is an pretty unique story for a dairy operation of this size in these latitudes.

By the beginning of the food crisis, Berezin will have a fully working algorithm to organize successful production in a depressive area with challenging climatic conditions. However, suppose the problem is to be solved more comprehensively and at a larger scale (Krasnoye Znamya does not yet cover even the whole Pskov region). In any case, something more is needed - the latest agricultural technologies - which will allow it to work successfully, even under more severe conditions.

This problem is likely to be solved by Berezin's investment fund. A few years ago, he and his partners launched Euro Venture, which, according to its official documents, is interested in bio and agro technologies. The company works carefully; when your commodity is know-how, it is not customary to throw around loud statements. Therefore, we can only assume that the fund has promising developments in the field of agro technology, but at the same time, it is realistic to assess the effectiveness of Euro Venture in other projects, or rather the project. At this current stage, the fund's flagship project is a unique robotic complex for the diagnosis and treatment of cancer. This project was taken at the idea stage, and the company has assisted and support to the developers at every step, up to clinical trials in one of Russia's leading cancer institutes.

Medical equipment for our country is the very industry where import substitution is necessary but completely absent. Nevertheless, Berezin's company managed to go from the idea to the practical result. Such an example allows us to highly evaluate Euro Venture's chances to find and implement new cases in agricultural technology; it is hardly more complex than curing oncological diseases.

The Future

Berezin is a businessman with an excellent strategic vision and understanding of the market. All his projects, in one way or another, were revolutionary for their time. He was one of the first to implement European-type neighborhood development projects in construction. While the infamous infill revolution raged around him, he chose to build suitable civilized housing.

He developed import-substituting industries with his investments in industry, from semiconductors to the above-mentioned medical equipment. In each case, he found promising developers, helped them find partners, and entered broad competitive markets. His efforts even solved such the difficult task of of Russian lithium-ion batteries’ production, an area which Russia have been trailing in for decades.

He has also developed projects in the humanitarian sphere, making sure to be closely involved in developing a foundation and scholarships supporting Russian scientists and developers. He recently announced that Euroinvest would build a state-of-the-art physics and mathematics high school to close the hole in the national education system, which is not always ready to provide the market with the necessary staff.

His work in agriculture began as a search for tools to solve the impending food problem, but the global food crisis broke out in 2022 as a result of the consequences of the covid and the broken sanctions found within war supply chains. On average, the growth of food prices in the world only in the first half of the year exceeded 40%, even despite all efforts to contain them.

With Russia's withdrawal from the grain deal today, we can expect a new round of price increases that will exacerbate fertilizer shortages and crop failures in 2022. The food crisis is just beginning, and inevitable climate change will continue. In turn, it is always good to remember that it is possible to create competitive industries in our country, even in the most depressive hinterland. In the future, the proven model outlined by Berezin will undoubtedly be adopted by private and state holdings.

Milk production is a traditionally thorny branch of agriculture. In Russia, it is gradually developing within the framework of the food security doctrine.

Raw milk production:

2010 - 31.5 million tons
2011 - 31.2 million tons
2012 - 31.2 million tonnes
2013 - 29.9 million tons
2014 - 30 million tons
2015 - 29.9 million tons
2016 - 29.8 million tons
2017 - 30.2 million tons
2018 - 30.6 million tons
2019 - 31.4 million tons
2020 - 32.2 million tons
2021 - 32.6 million tons