Russia’s Collective Farms: Hot Capitalist Property

Today, roughly 7 percent of the planet’s arable land is either owned by the Russian state or by collective farms, but about a sixth of all that agricultural land — some 35 million hectares — lies fallow. By comparison, all of Britain has 6 million hectares of cultivatable land.

Even excluding the slivers of land contaminated by the Chernobyl disaster or by industrial pollution, Russia also has millions of acres of untouched, pristine land that could be used for agriculture.

Amazing how 35 million acres lie fallow when grain prices are at record highs.

So, who is buying?

As a result, the business of buying and reforming collective farms is suddenly and improbably very profitable, attracting hedge fund managers, Russian oligarchs, Swedish portfolio investors and even a descendant of White Russian émigré nobility.

Oh, the irony of hedge funds buying collective farms. I wonder if the Saudi sovereign wealth fund is getting involved now that they have chosen to buy farms in the poorer parts of the world rather than subsidizing farmers at home.

What is the appeal of this land?

“The great story of this land is how big it is,” said Kingsmill Bond, chief analyst at the Troika Dialog brokerage in Moscow. Troika is closely watching the transformation of the Russian countryside into an investment opportunity. “You can’t buy anything like it anywhere else in the world,” he said.

Land prices have roughly doubled in the last two years, according to Troika. The average price a hectare was $570 in 2006 and is now $1,000, Mr. Bond said.

$1,000 a hectare is approximately $400 an acre, which makes Russian agricultural land a bargain compared to the $2,000+ an acre it is going for in the US.

And the downside?

Yields in Russia, however, are tiny. The average Russian grain yield is 1.85 tons a hectare — compared with 6.36 tons a hectare in the United States and 3.04 in Canada. (A hectare is about two and a half acres.)

That isn't so good. If the yield were to increase, what would be the impact?

If Russia could regain its old title of leading grain exporter, it would significantly relieve strained world markets and reduce prices, Mr. Suleymanov said. It could also reduce malnutrition and starvation.

In order to feed a world that is estimated to grow to 9 billion in 2050 we are going to need every acre of land that we can and this Russian land grab is likely to be the last one of significant size.

via NY Times