Russia Farm Boom Fueling Seed-Making Shift to Challenge Monsanto

(Bloomberg) -- Russia has transformed its agriculture industry since the Soviet era as imports of foreign capital, equipment and technology helped farmers create one of the world's biggest crop producers. Now the country is targeting the next step in bolstering its agricultural muscle -- seeds.

Many growers use specialized seeds designed to resist pests, disease and drought, but more than half for some crops come from foreign producers including Monsanto Co. and Syngenta AG that dominate a global market valued at more than $58 billion. Russian firms including Ros Agro Plc and billionaire Oleg Deripaska's farm unit want to reduce that reliance on imports by creating their own seeds for everything from corn to sunflowers and sugar beets.

“Food independence starts with seeds,” said Pyotr Chekmarev, head of the Russian Agriculture Ministry's crop department. “We will reach a level where we won't depend on anyone. Businesses are becoming more affluent, and they should move on into new technology.”

Russia's vast energy reserves helped to boost the economy over the past 15 years, including investment in the food industry. While the country has become a major exporter of grain and is self-sufficient in sugar, President Vladimir Putin says it's still too dependent on imported seeds. The domestic industry may take years to grab more of the market. Crops are planted and crossed with other varieties many times over before the desired seed traits emerge.

But the benefits could be huge. Foreign companies supply about 80 percent of Russia's sugar-beet seeds and almost half of corn seeds, the Agriculture Ministry said. Developing better seeds domestically could eventually boost crop yields as much as 20 percent, according to Pavel Volchkov, head of genome engineering at the Moscow Institute of Physics and Technology.

Read more: Soviet-era grain record seen tumbling on bumper Russian crop

One difference between Russia and the big global seed producers is that it won't be making seeds by splicing plant genes in a lab. The technology was popularized in the U.S., which now produces most of its corn and soybeans from genetically modified seeds. Russia bans GMOs over perceived risks to health, the environment and biodiversity.

Instead, Russia is working on seed hybrids that can mimic the yield-boosting traits of GMO products but can take as long as a decade to develop.

“Farm equipment has been more or less upgraded across the country, and new technologies have been mastered to reduce costs and losses,” said Vadim Moshkovich, chairman and main owner of agricultural firm Ros Agro. There isn't much room for improvement in those areas of crop production, but “I see potential in seeds,” he said.

Seed firms earn much of their money through the patents on their technology. That means farmers have to buy new bags of seeds each time they plant rather than reproducing them from those already purchased. It also encourages competitors to create their own seeds, according to St. Louis-based Monsanto, which spends more than $2.6 million a day on research and development.

While Russian companies' seed investments are still relatively small, the incentives for developing a domestic industry are increasing, said Salis Karakotov, director general of pesticide producer Schelkovo Agrohim.

A weak ruble -- the byproduct of low energy prices and foreign sanctions related to Russia's actions in Ukraine -- has made all imports more expensive, including seeds. And research in Russia probably would be cheaper than what foreign producers spend developing their products.

Ros Agro and Schelkovo Agrohim will spend a combined 500 million rubles ($9 million) in the next five years on breeding and building a genetics center, Karakotov said. Ros Agro said it plans to invest in soybean seeds this year and in grain seeds next year.

Deripaska's Kuban AgroHolding unit, which in 2015 teamed up with France's Maisadour Semences SA to develop seeds for corn, sunflower and rapeseed, said it's now testing the jointly bred corn seeds.

Industry Challenge

Still, the companies who control the bulk of Russia's seed market shouldn't worry too much yet, according to Volchkov.

“This probably concerns them, but it's a light concern,” he said. “Success won't come quickly to the Russian businesses. It's like a race between a hare and a turtle.”

Another reason to try to develop more local seeds is that they may yield more than overseas products because they're likely to be more resilient to Russia's climate, pests and diseases, according to Ros Agro. Domestic breeders could help Russia add “tens of millions of tons” to its grain harvests, Ros Agro's Moshkovich said in June.

“Despite a good pace of development in agriculture, we still continue to depend on imports” of seeds, Putin said in July when asked by a student to comment on Russia's biggest problem in agriculture. “This is something that needs to be paid special attention to in the near future.”

--With assistance from Samuel Dodge

To contact the reporter on this story: Anatoly Medetsky in Moscow at amedetsky@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin, Steve Stroth