Interview with Viktor Linnik head of Agribusiness

Why meat producers own retail network? On this issue head "Miratorga" Viktor Linnik answers from afar, first was the production, processing then, and now we can develop its own retail business. To decide on a new project he helped the state, if it were not for the launch of shet years ago, measures to support the Russian agricultural producers, today he would be engaged in the import of meat, but not their own production. What role does the government in his business, as well as the WTO, Mr. Linnik told RBC daily editor PETER Kirjanen.

Two years ago you launched a large project in the Bryansk region. It was not terrible?

— I would take as a starting point in 2006, when the government on behalf of Vladimir Putin created the conditions for joining Investors in agriculture was introduced quotas on meat imports, which stabilized the domestic price of meat. At the same time launched a national priority projects, have introduced compensation for the refinancing rate, which gives an advantage to those who are part of the agricultural production. Later in the Ministry of Agriculture established a real-time monitoring trends on the global and domestic market: for example, the meat market something changed and the government reacted quickly …


It react like? You will be consulted on the organization or professional inquiry come?

— We have been working through the National Association of Manufacturers of meat. It is headed by Sergei Yushin, he was in constant contact with the Ministry of Agriculture. There was elaborated a common position, which is further consistent with the Government: Measures to reduce or increase duties, quotas for auction, etc. Through this mechanism, the last six years has been actively developing pig and poultry farming. Three years ago, based on the experience construction vertically integrated holding company for the production of pork, which we got in the Belgorod region, decided to consider the possibility of beef production in Russia.

It seems to me that the beef pig and poultry is not a friend, different markets …

— Let’s turn our attention to the international experience. Approaches at all similar. Impose quotas on the import of meat, for example — they stabilize prices in the market, which is one of the conditions for joining Investors. Bird — maturing industry, the production cycle of 40 days, six months is a pig, a cow is 16 months from birth to slaughter. Hence, a higher investment threshold of entry into the production of beef.

The state does not cover the market ideology — first to develop its own modern competitive producers with new technology. With the growth of our own production there is internal competition, the price will stabilize in the excess production is exported. An example of the correct approach is the poultry industry. We, for example, in March 2013 launch in the Bryansk region project to the bird is 100 thousand tons of meat per year with an investment of 20 billion rubles. In industry, there are other investors, so there will be competition. It’s good for the consumer, who will receive high quality at the lowest possible price. If before people could afford 25.5 kg of poultry a year, now — 30-35, but you must first create a production. Other options for Russian domestic meat is not there.

— You measure the market?

— We now have consumption per person per year 67 or 68 kg of three kinds of meat. In the U.S., 100-110. According to this index are judged on the health and welfare of the nation.

When the beef market in, for example, in Central Russia, will be a tough competition domestic producers?

— As a bird that’s already happening. Further, in about three or four, that moment comes for pig production. The next step beef, years through seven or eight, of course, provided that the format of interaction and support from the government and the Ministry of Agriculture, which has evolved over the years.

If we talk about the good profitability for agriculture, as it will be in percentage?

— I think, on average, twenty-five percent — such a return is necessary for the expanded reproduction and development of the industry.

A highly competitive market pork how much longer?

— If within two to three years will increase the number of pigs and the price will go down, there is still three to five years.

Big run.

— Yes, because there are many inefficient enterprises and a large volume of imports. We must not only assess the volume of quotas, but also take into account the 600 million pork products that come on the market every year with minimal fees. Here it is possible to support domestic producers through its modernization program.

Particularly difficult area is the production of beef from meat and dairy cattle. Throughout the world, the beef is produced from cattle meat, because this quality, it is a higher meat yield and therefore low cost. Since 2006, when the government and the Ministry of Agriculture took the lead this process, we saw a balanced policy and invested 65 billion rubles. the development of its own production. Largely because of this we are today the largest producer of pork and feed in Russia. This year we have a production capacity will reach 1.5 million tons of feed for four modern feed mills.

This is how much of a market for Russia?

— If I’m not mistaken, the whole Russian market — 16 million tonnes We generally try to create a large-scale industrial production, because it provides a low cost, advanced technology and attract the best talent. Expatriates in many ways we get 9-15 thousand dollars a month. What else? After all, with beef cattle in Russia have never worked on such a scale, and there is practically no domestic skilled in the sub-sector of beef cattle. For example, in addition to breeding Aberdeen Angus heifers we must, so to speak, to "import" media technologies for growing cattle beef breeds — cowboys and farmers of the United States — in the Bryansk region, where there is a realization of the project.

Round the world

— How do you invite foreigners?

— "Agribusiness" — the largest importer in Russia. Pork production we are number one, the meat of beef for our first or second place for poultry is similar. All the leaders of meat we know personally, so long had an understanding of where to take the professionals who can convey the experience of our Russian employees.

— And my experience was not?

— The largest percentage of beef cattle in the Soviet Union — is 3% in 1975. When we were preparing the project for beef, two years had to drive around the U.S., Canada, Brazil, Europe, Australia, studying the experience as much as possible to adapt and use in Russia.

— And what option you came?

— American. This large-scale industrial production of meat breeds of cattle. The northern states of the U.S. are very similar climatic conditions to the central part of Russia, and the conditions in many ways much better.

Train, you have decided on a project?

— In 2010, in October, Vladimir Putin, Chairman of the Supervisory Board of VEB signed credit agreement for 11 years in the amount of 24 billion rubles. Of these, 15% — our funds, 85% — of the bank. That the project itself? Just as in pig breeding, we were founded upon the vertically integrated project for the production of high yielding breeds of beef cattle. Its foundation is the pasture. We will need 200 thousand hectares of land, we now have 150 hectares. They are arranged farm 33. The main task for us today — is to bring 100 thousand heifers breed Aberdeen Angus (Scottish
breed, its characteristics is considered the best in the world in terms of juiciness of the meat, the so-called marbling and performance indicators).

They will not freeze in Russia?

— No. First, live worldwide. In the U.S. and Canada, there are regions where the climate is harsher than in the central part of Russia. We brought in June last year 41 thousand heads of breeding heifers: 50% of U.S. and 50% from Australia. The ships in 6 th or 9 thousand. Australian ship is month to Novorossiysk, then 1.5 days to Bryansk. We bought about 230 tractors, machinery for transportation from the ports of Ust-Luga and Novorossiisk in the Bryansk region. At the moment, "Agribusiness" brought Aberdeen-Angus than in the entire history of deliveries in Russia. And even managed to save, transaction prices were 15-20% lower than included in the business plan.

Why? There has been a drop in the market?

— Fall of the market was not. There are several reasons: the proper organization and conduct of tenders for purchase of breeding heifers, we own chartering ships to deliver our population of the United States and Australia, professionally organize unloading and delivery of animals in the Bryansk region. As a result, we were able to save, and instead of 90 thousand head of heifers we will bring 112 thousand heifers. We expect that our 33 farms will produce 120 thousand heads of livestock trade heifers and bulls, some of them will go to repair the herd, and some — for fattening and slaughter. A production capacity of the slaughterhouse, we build — 400 thousand units per year.


— Why did you build a link slaughter, transport link and retailers themselves? It turns out that you run a risk of non-agricultural segment.

— By contrast, we reduce the risk. Vertical integration helps to reduce the risks of different markets (price volatility at different stages) throughout the production and supply chain from field to fork. We can guarantee the quality of the final product, as control the entire production chain — genetics, feeding, slaughtering and primary processing, delivery to distribution centers and retailers in compliance with veterinary and sanitary rules. As a result, the consumer wins, since our high-volume production, we are required to produce a product of high quality and reasonable price for the Russian consumer.

— In the shop, if you see her and not your meat, you will feel the difference?

— We have our own brand name "Agribusiness" and I can guarantee that our meat pork in fact one of the best.

— You buy it in the store?

— Of course, I buy regularly.

Come see how selling?

— Yes, of course. Because basically, if strategically look at the development of agri-business, its peak — retail. This is the last link between the consumer and the producer. This is one of the reasons why we have decided to develop its own retail business. While open 50 stores by the end of the year. A three-year plan to increase their number to 500.

— You like the idea of retailers come from? It happens that farmers want their store to open one, one-two, but not the network.

— Next year we start culling and early 2014-th — slaughtering beef. Accordingly, in 2014 we will be the largest producer of the three main types of meat, and for pork and beef will take first place. Output will reach 500 thousand tons of meat a year, and it is logical for us to have direct access to the consumer, it does not negate the work with all segments of the market, especially with the retail network. In general, all make common cause — the maximum satisfaction of the demand quality meat. And for all those who work in all phases of production, logistics and sales, this should be the main goal.

Moscow eats as much as a year?

— I’d rather give some numbers on a national scale: the total imports, the entire quota for pork — 430 thousand tons, we will produce 250 thousand, I mean on the pork. For beef quota — 530 thousand tons, 130 thousand — 25% of the beef for us. And Poultry — 350 thousand tons, we have — 100 thousand, or 30% of the quota. As part of the bird is not our task to be a leader — we need to produce a high quality product with a minimum cost in the amount that can replace our poultry imports in the future. Logically, having a foundation in the form of three kinds of meat, go to the sausages and smoked products, to continue to develop a strong and powerful umbrella brand "Agribusiness" on this basis. Accordingly, the further we can only retail.

This retail, it exists in the format of butchers?

— We expect that 30-40% of turnover will be meat group, the rest — dairy products, bread, wine — all that accompanies buying meat. It will not be in the literal sense butcher shop, but high quality and competitive price we guarantee. We plan to bring up to 60-70% of its production and sell through its own retail business.

And who else?

— Other retailers, catering companies. We will have the opportunity to give a competitive price. From competition to win a consumer networks. While Russian producers are very diversified and consolidated network. There X5 is a "magnet" and others …

Networks just not as much as it could be.

— Absolutely. This implies the full impact on bonuses and listing. Having a monopoly position, I’m on-site networks may be doing the same thing. In the end, it turns out that there are so many diversified Russian producers and the "bottleneck" in the form of five to seven major retailers. Therefore, Viktor Zubkov, and Helena Skrinnik support the creation of its own retail from any agricultural producers.

Financial model from manufacturing to retail for 11 years calculated "Agribusiness"?

— Yes.

— That is your internal calculations?

— Our calculations plus VEB.

Never heard of bankers who understand in meat production.

— I can show you a few that are already sorted out very well in the meat industry. We together with experts VEB two years preparing the project on cattle, as a result won the project and reduce the risk of VEB confirmed his name — the Development Bank.

— You changed the team? When you are importing, there is one problem — logistics, customs, etc. Production — this is another path.

— We were really lucky that we have formed a team of real adherents, many of whom we have been working for 15-20 years. And she is always updated with new people with a good education, enthusiasm and desire to work. We try to give people the opportunity to make the decisions themselves in their area of expertise. If we see that a person has the necessary capacity and skills, then delegate his maximum power.

What can you say about the support from the government today?

— In our case, we are talking about multi-sided support, not only regionally, but also at the federal level. For example, the project on cattle in the Bryansk region is realized thanks to the personal involvement of Vladimir Putin, First Deputy Prime Minister Viktor Zubkov, Agriculture Minister Yelena Skrinnik and Governor of the Bryansk region Nikolay Denin. If you notice during the crisis only one industry has continued to not only work, but to develop — is agriculture. All the others at best stagnated. This indicates that efficient production can actually work in Russia.

Any power need jobs and taxes. Putin’s position is clear and open, the steps are consistent, adopted a program of support for the development of the Russian producers until 2020, which is very important for sustainable development. If it were not for the entry into the WTO, the risks would be minimal. We are
engaged in a complicated business, so I am confident that the support of the sector must comply with the terms of its development, and the rules will not change dramatically.

— Investors should be happy — there was such a point of view.

— The last position is clear and distinct, Vladimir Putin, the government and the Ministry of Agriculture in terms of supporting their own producers is that we need to come to the AIC to those foreign investors who are really interested to open its production in Russia, in the ‘primary’ agricultural production, that is, where to plow the land. In this direction came units of foreign investors — mostly just talk. It is first necessary to maintain their own producers — the Russians. The state does not cover the market ideology — first to develop its own modern competitive producers with new technology Viktor Zubkov and Elena Skrinnik support the creation of its own retail with all the leaders of all agricultural producers of meat we know personally, so long had an understanding of where to take the professionals

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