Olam acquires stake in Russian dairy; Putin advocates integration

Over the next four to five years, Rusmolco will invest up to $400 million to expand its area under grains cultivation to 106,000 hectares from the current 52,000 hectares.

 

In addition, four new dairy farms will be built, taking the company’s total milking cow population from 3,600 heads to 20,000 heads, Olam said in a statement to the Singapore Exchange.

 

Russia is one of the most attractive markets for upstream dairy farming, Olam’s global head of coffee and dairy Vivek Verma said during an analyst conference call.

 

The demand-supply gap for dairy and dairy-based products in the country will likely support high milk prices, which have been growing at an average of 30%-40% annually over the past few years, he said.

 

Meanwhile, K. C. Suresh, president and global head for Olam’s grains division in Asia, said that of the 106,000 hectares, about one-third would be under dairy farming while the remaining would be used for cultivation of agricultural products-winter wheat, oilseeds, corn, peas and legumes.

 

About one-third of the grain produced will likely be captive production used as feed for the company’s cattle, he said, noting that higher yields would be achieved with better quality feed from own supply.

 

The company will also plan further investments in phase two of this project. This could include the enhancement of the area under cultivation, increasing milking cow population, or milling and refining.

 

Olam has been an operator and originator in the grain markets in Russia since 2008, he said. In the crop year ending June 2012, the company estimates that it procured and traded about 750,000 tonnes of Russian grains, with over 600,000 tonnes likely to have been exported to world markets.

 

Prime Minister Vladimir Putin said that the government should introduce incentives for an increase in dairy production as imports grow.

 

He made the statement at a meeting in Tambov a day after Olam International announced its joint venture with Rusmolco.

 

The government must be more active in supporting “full-cycle” dairy farms that do everything from growing cattle feed and raising cattle to producing milk, Putin said.

 

“It is now one of the key goals of cattle-breeding development,” he said.

 

Putin offered no specifics about potential stimulus measures. He has stepped up his trips to the regions to visit new plants and discuss economic support measures in the run-up to the presidential election, which he hopes to win.

 

Russia, he said, produced 32 million tonnes of milk last year, down from 56 million tonnes in 1990, when it was part of the Soviet Union.

 

Production has been stable in the past few years, sliding slightly in 2010 because of a harsh drought that year. Putin said low-priced imports were suppressing the local industry.

 

Belarus is a key exporter of dairy products to Russia. Full-cycle farms must also incorporate beef production, Putin said.