Significant Opportunities and Risks in Russia

Speaking earlier this month at the Association’s Fall Convention in Las Vegas, Howard Dahl reported that the current business climate in Russia and Ukraine offers significant opportunities and risks for equipment manufacturers conducting business there. Dahl, CEO of Amity Technology, Fargo, ND, has been selling farm equipment in Russia since 1991 and has made 73 trips to the region.

Russian President Vladimir Putin’s unpredictably makes the region more volatile than the Middle East, Dahl said. Nonetheless, farm equipment manufacturers willing to venture there will find pockets of opportunities, especially in the livestock sector.

“If you’re doing business in the Russian cattle, hog or dairy industry, there are record profits right now,” Dahl said. “The amount of money being made is phenomenal. Potato growers told me in October that they were making $5,000 per hectare in profit.”

The country’s banking system suffers under the burden of international sanctions, and American farm machinery has become very expensive. However, the barter system can equalize things, with payments made in such commodities as sugar and wheat.

Dahl estimated that 80% of farm equipment in Russia, Kazakhstan and Ukraine is of very poor quality, which creates a strong appetite for American technology. He had recently met with 10 farmers, each of whom had 700,000 acres or more, and learned that most farmers “want to modernize everything they do.”

He noted that in 1991 farmers were happy to have any equipment we could sell them. “You didn’t need to talk about parts and service; one year’s use was what they were used to. Today, farmers need the equipment we have. The time is great if you supply equipment for cattle, dairy, hogs, potatoes—there are significant opportunities right now.” Other areas, however, continue to suffer.

Dahl said that he and his brother bought 10,000 acres in Russia for $200 an acre. “It is the same quality of land as we have around Fargo. We’re betting that it’ll be worth some money in 5 years, but the risk is great because of what Putin might do.”

Putin, whose current 6-year term runs through 2018, enjoys high popularity among Russians. But Russia’s budget is based on $105-a-barrel oil, which means the country is operating on cash reserves, and soon it won’t be able to pay its people’s pensions. That likely will diminish support for Putin.

If the U.S. continues to increase energy production and frees Europe from its dependence on Russian oil, that also can change sentiment toward the Putin administration.

Amity JV LLC, Association member since 1972; wil-rich.com. S