Russian grain boom beckons

By Robin Paxton

DOBRINKA, Russia (Reuters) - When Murat Shamshinurov toasted this year's harvest with a glass of vodka, he did so with confidence. A fleet of new Dutch combine harvesters, better seeds and a mild winter promise a bumper crop at the farms he runs in Russia's fertile Black Earth region. This prosperity is the result of a $175 million (89.4 million pounds) investment by Nastyusha, the grain-trading firm that bought the land in 2006.

Shamshinurov's situation is not unique: investors are ploughing money into Russia's open lands to resuscitate the long-neglected farm sector and supply a world in ever greater need of food. This year's Russian wheat crop promises to be the best in 30 years.

"The opportunity for agriculture in Russia is remarkable. It has the potential to be one of the truly key sectors of the economy," said Sid Bardwell, general manager in Russia for U.S. agricultural equipment supplier Deere & Co.

Russian agriculture, crippled by the legacy of Soviet leader Josef Stalin's collectivisation, is one of four sectors afforded priority status by the Kremlin as it seeks to reverse more than a decade of decline that followed the Soviet Union's collapse.

Russia, the world's fifth-largest grain grower and exporter, expects a total grain crop of at least 85 million tonnes this year, up 4 percent on 2007, but the country has yet to surpass Soviet-era production levels on a sustained basis.

Only 13 percent of Russian land is used for agriculture, compared with a world average of 38 percent, while a hectare of wheat yields an average 1.9 tonnes -- much less than the U.S. average of 2.8 tonnes and 5.5 tonnes in the European Union.

Therein lies the potential.

"Agriculture, even with the current low level of efficiency, is still a profitable business thanks to government support," Renaissance Capital analyst Natalya Zagvozdina said.  Continued...