Saudi firm set to gain strategic foothold in Russian agriculture

The Russian agricultural sector is facing major challenges, which are deepening due to the war in Ukraine and associated sanctions. The Saudi agricultural and livestock company Salic may acquire significant assets in Russian agriculture, causing concern among experts and organisations related to grain production. The Russian Grain Exporters and Producers Union warns that this move could have far-reaching consequences, opening the door for Saudi Arabia to control key agricultural resources in Russia.

The Singapore-based Olam Group confirmed it has received a non-binding offer from Salic to purchase the remaining shares in its subsidiary, Olam Agri. Back in 2022, Salic acquired 35.43% of shares in Olam Agri for $1.24 billion. Currently, negotiations are ongoing regarding the potential sale of all shares, although a formal agreement has not yet been reached, highlights Reuters, as cited by "Rzeczpospolita."

This is a groundbreaking transaction that, without exaggeration, opens the door for Saudi Arabia to the Russian agricultural market. By acquiring Olam Agri, the Saudis take control of the Azov grain terminal and likely the Rusmolco company - one of the largest milk producers in Russia - stated the Russian Grain Exporters and Producers Union.

The Azov grain terminal, held by Olam Agri, has a transshipment capacity of approximately 1.65 million tonnes. Rusmolco, operating in the Penza region, specialises in dairy cattle farming, crop production, and seeds. The company manages over 151,780 hectares of land and has drying complexes and grain elevators, which allow for a closed-loop system of production, storage, and processing of grain.

Since the start of the war, Russian agriculture has faced serious difficulties. International sanctions have led to the withdrawal of key Western suppliers of agricultural equipment, resulting in immense shortages.

The Russian Ministry of Agriculture calculated that 494,300 tractors and 176,500 combines are needed to cultivate land under "agrotechnical conditions." As of early August 2024, there was a shortage of 64,800 tractors and 34,300 combines - it reports.

Another challenge is the ageing of the agricultural machinery fleet. According to data, about 53% of tractors have been in operation for more than 10 years, similar to 45% of combines and 44% of forage harvesters. The Ministry of Agriculture emphasises the need for an annual renewal of equipment at a rate of 10% of the available machinery to maintain efficiency and limit the use of outdated equipment.

The withdrawal of leading manufacturers, such as Deere & Company, AGCO Corporation, CNH Industrial, as well as European companies J C Bamford Excavators, BEDNAR FMT, and CLAAS, has caused difficulties in acquiring new machines and spare parts. Imported machines accounted for about 40% of the entire machinery fleet in Russia, and their quality was significantly higher than local counterparts - notes "Rz."

The increase in prices of domestic agricultural equipment further burdens farmers. - A combine harvester that previously cost 12 million roubles now costs 19 million roubles – noted Arkady Zlochevsky, president of the Russian Grain Union.

Such a sharp price hike has led to a decline in production and a slower pace of machinery replacement. In the first half of 2024, the production of combines in Russia fell by 9%, tractors by 22.3%, and seeders by 22.4%. Also, domestic market deliveries were lower by several percentage points.