Interviews

Yuri Luzhkov and his buckwheat

Yuri Luzhkov, former mayor of Moscow, has been actively engaged in agricultural production in Kaliningrad Region for seven years now. He claims that entrepreneurship is his personal attempt to figure out what is happening to the national agriculture and his personal test ground intended for resolving challenges to the national economy. Invest Foresight visited the farm of Yuri Luzhkov and heard his story of building an economic management system and his judgements of the present-day obstacles to the farmers successful development.

RIAN | Alexey Filippov

– Mr Luzhkov, can you describe your farm?

– Our farm occupies five plots of land nearby Ozerky town in the western part of Kaliningrad Region. We have 5,000 hectares of lands, a grainery (forage depot, to be exact), various agricultural machinery, a grain elevator, etc. Currently we hire about 120 workers, all of them are locals. Their salaries are a bit over the average level in the district. We do not tolerate any shadow economy mechanisms here. Apart from salaries, people additionally get sort of social benefits. We have interests in several sectors. Initially it was horse breeding at Weedern stud farm where we now have 62 well-bred horses. Then, we started to expand into growing grain, breeding sheep and so on. When we just launched our business, everything was quite neglected. Before we could start sowing, the lands had to be brought back to an agriculturally sound state, we had to eradicate bush everywhere in the fields. The buildings of the stud farm are not fully restored until now. Right after horses, we started breeding sheep. We bought Romanovo sheep, they are the best ones. Our entire flock is chipped, every lamb is registered in a computer and we thoroughly track them to make sure no ‘family members’ could interbreed. Our main goal is the pedigree, since in Russia Romanovo livestock breeding is hardly existent now. Besides, we produce some lambswool and a bit of meat.

Right now, it is hard to distinguish the main area of our activities, but I would probably say it is cereals. Buckwheat is what we are especially proud of, we sow it on 1,750 hectares of our lands. Few years ago, buckwheat was not grown in the region at all. We tried it and got good results.

Now, many local farmers grow buckwheat and the region is producing enough to nearly fully meet its buckwheat demand. Nevertheless, in Kaliningrad Region nobody can process buckwheat apart from our farm. Our capacities are sufficient to process entire buckwheat required for the region. Some farmers bring their crops to our facilities for processing, whereas others do not deal with processing at all and sell their crops to the neighboring Latvia.

The grain elevator was sort of an extra burden to us. When buying the lands, we also had to buy its crumbling building at these lands. It took us few years before we refurbished it. It was built in German times, in 1901. We tried to preserve many things at the elevator, for example, the Krupp switches which until now are absolutely fine. At the grain elevator we arranged the buckwheat processing facility. First, we separate buckwheat at our grainery and then bring it to the elevator where it again goes through air separation, as bigger grains fall faster while it takes smaller ones longer to get to the ground. The calibrated buckwheat is then taken to a machine which it for scouring. The machine exposes the grain to high pressure steam. Cooked buckwheat should then be dried. It starts opening but is not fully free of its peel yet. Its complete peeling takes place in a peeling mill which in fact is the main piece of equipment. We are truly proud of it, we paid RUR 10 mio ($170,000) to buy it, but it is certainly worth it. In the peeling mill the grains pass through rollers and become fully peeled. At the end, we get buckwheat, peelings and some crushed grain, i.e. buckwheat grains which are slightly broken. We then find good use for everything. There are three workers employed at the grain elevator which is quite sufficient since everything is automated here.

– What else do you grow besides buckwheat?

– We also grow wheat. We tried corn too, but with little success. For the first time in seven years, this year we had serious problems with harvesting, due to weather conditions. Nevertheless, the crops were very good this year as we produced over 10,000 tons of cereals. And we had food-grade wheat, not livestock feed wheat. We certainly grow livestock feed wheat too, that is easier, but such wheat is cheaper as well. We also sow barley and coleseed. Some lands are used for grass growing. I find this activity especially important. We follow the best knowledge and expertise in agriculture and grow some herbs to feed horses, other herbs to feed cow, still other herbs to feed sheep. We produce high quality hay. I am proud our hay yield is nearing the level of European productivity of 10 tons per hectare.

We produce enough hay to feed our sheep during winter time, as well as our expanding cow livestock and horses. We also sell some of our hay.

– What about mushrooms?

– Growing mushrooms is a new activity of ours. We were eyeing champignons growing for some while, started to read special literature and came to understand that there are two reasons to grow oyster mushrooms, not champignons. First, these mushrooms are to be grown on straw. Second, oyster mushrooms are more healthsome, immediately following in their value porcini mushrooms.

Timur Shoguenov, director of the mushroom farm, and myself visited some tiny private farm growing oyster mushrooms to learn how the entire process is arranged. We then launched our own production. To get good harvest of oyster mushrooms, we had to do a few important things.

First, we had to learn mycelium growing. That requires a great deal of skills. It is a very delicate job, I would say, and we have mastered it. Oyster mushrooms mycelium is grown on the grain of our own production. Second, we had to develop a technology of composing the bags where mycelium is placed. Straw is of prime importance for that. Oyster mushrooms require absolutely pure straw. If straw is to whatever degree deteriorated, oyster mushrooms will not grow. So we set a facility where straw is chopped, steamed, cooled, packed in bags and then delivered to another facility where mycelium is grown.

It should be noted mycelium growing must take place in conditions totally different from those of mushrooms growing. When a bag becomes white, that means a potent mycelium is spiring and it’s time to expose it to different temperature and humidity. Oyster mushrooms production cycle is rather slow. Mycelium sprouting lasts for ten to twelve days. The next three stages of mushrooms growing take further 30 days. Every bag produces several crops. The first one brings about 4 kilos of mushrooms per bag, the subsequent crops are certainly smaller. I aim to reach production of 90 tons of oyster mushrooms per annum. After all mushrooms are harvested, the bags are utilized further. They are taken to pellet shop. This is a new direction in our activities. We use the bags to manufacture pellets.

What are those?

– Pellets are a great feed supplement, a perfect fertilizer and a high quality biofuel. We have abandoned electric heating or liquid fuel we used to use. Now literally all buildings at our farm are heated with pellets. To heat buildings with pellets, special computer operated stoves should be used which maintain a set temperature automatically and do not require any boilerman. On this kind of heating we save 80% (less equipment cost). One can figure out the costs of heating with pellets, wood, natural gas and electricity. Average price of a ton of pellets is RUR 5,600 ($95). Heating a house of 600 to 700 square feet over winter season will take at least 8 tons of pellets.

– To my knowledge, you produce cheese as well.

– We acquired equipment and even produced the first lot of cheese. We took a pause then. To make cheese, very high quality milk is required, so now we expand the flock capable of producing such milk. Equipment is also important. Many people now engage in making cheese, but buyers complain about its taste and quality. The problem is, in cheese-making, apart from the quality of milk, maintaining right temperature for proper cheese maturation is most essential. No doubt, Russian equipment is cheaper than German, Dutch or Slovenian. At the end of the day, I purchased Slovenian-made equipment since Russian manufacturers can not guarantee its ability to maintain and adjust temperatures at the range of a tenth of a degree. The matter is, if temperature is deviating even for such a tiny fraction, the cheese turns to be totally different.

– What kind of milk do you use for cheese-making?

– We have a small flock of some hundred local cows. Their milk is not good for making high quality cheeses. That is why we bought 62 young Simmental cattle in Germany. I am familiar with this breed, we bought such cattle when I was mayor of Moscow and was implementing a program of healthy catering in schools and kindergartens. Simmental cattle is a very good, well balanced dairy and beef breed. I intend to start breeding Simmental cattle in the future. This is a very serious plan, we will bring the flock up to 200 cattle. Why 200? That number fits our capacities best. Now we get new calf, and young cows start producing milk, so we will soon launch soft cheeses mass production. The technology we have acquired allows making hard cheeses as well, but we will start producing soft cheeses since they mature faster. That is our approach.

– How do you deal with selling the crops?

– To be honest, that is not simple. As I said, this year we grew food-grade wheat, not livestock feed wheat. It is more expensive. But it should be remembered that in Kaliningrad Region there is only one entity which buys food-grade wheat. As a matter of fact, it is a monopoly which sets its own rules. Livestock feed wheat may be sold to several companies, including some farms. It is much more reliable to deal with them, so now we think of quitting food-grade wheat growing.

– Is your farm profitable overall?

– It is clear, in agriculture there are no revenues comparable to oil business. So if your crops are bought at a price 1 ruble per kilo cheaper than previously discussed, whereas you supply four or five thousand tons, that means great losses for your farm.

Agricultural enterprises, including our farm, in may areas of their activities make very little profit or none at all, which makes its impossible for them to develop properly. At times, farmers work at a loss. We greatly need stability. A farmer is dependent on many factors which are out of farmer’s control – the weather to start with. Why should farmers get extra problems? If there is a livestock feed wheat purchaser who makes a contract with us before sowing, undertaking to buy crops at some fixed price, that would already be some stability for us and we would welcome such an approach. As for other products, we sell them to stores, restaurants or at the markets. Our buckwheat, for example, is sold at stores and markets. Your audience may have read that the recently appointed acting governor of the region Anton Alikhanov visited our farm. We told him our buckwheat is sold in a market, so he went there and bought two kilos. I accompanied him and told all about the monopolistic games in purchasing food-grade wheat and said such a monopoly is absolutely unacceptable. I do not know how the problem may be solved, but as far as buckwheat is concerned, we are following a classic market niche occupation policy. At the moment we sell out buckwheat cheaper than other suppliers who bring it here from other regions. That is one of our competitive advantages.

– That is a dumping policy.

– It is not about dumping, but about competing for customers, these are two totally different things.

Dumping is what large companies do in order to push their competitors out of the markets and ultimately elevate their products’ prices. For some short while they lower the prices to make competitors leave the market and to monopolize the market in order to raise prices. Such a behavior is a classic style dumping.

We do not engage in such a pricing game. We do put our prices lower as compared to our competitors, but once the market is free of alien competitors, we do not raise our prices. True, that is less profitable for us, but that is how economy works.

Besides, we supply our buckwheat to the army and navy. This area of our sales is growing more stable over time, and I feel it should be expanded. The beginning of these supplies was not easy either. When we first offered the military to buy out buckwheat, we learnt that they were buying from several companies which had no intention to abandon their monopolistic positions. We found out that a cheaper local product of a higher quality that does not need to be delivered from far away is of no interest. But ultimately, we reached an agreement.

– What else do you successfully sell?

– We sell our oyster mushrooms, and they are in a very good demand. We also plan to sell frozen mushrooms, in addition to fresh ones. Another idea is to have them dried, chopped and sold as a souse base.

We sell our pellets too. A nearby farm buys them as livestock feed. We supply a lot of pellets to Poland and Baltic states, but as biofuel. This year’s crops of buckwheat allowed us to produce 800 tons of pellets. While we are waiting for our cows to give birth to new cattle so that we then have enough milk for cheesemaking, we now sell our milk. A local farmer every morning sends his vehicle here to buy our milk. I assume he buys from other farms too, then bottles the milk and sells it at lower prices than those at stores. True, it would be more profitable for us to arrange direct sales of our milk, but in this case I disregard the laws of economics, since I am interested in supporting this farmer, because I dream of seeing well developed agriculture here in Kaliningrad Region, and a lot of prosperous farms, each with its own specialization.

Money is not the measure of everything. There is a farm nearby which buys our straw. When harvesting grain, straw may be chopped and distributed over the field as a fertilizer which is very good for the soil, or alternatively may be left as it is and then used to feed livestock. We made a deal with that farm that we will not chop our straw and they will then remove it keeping 70% for themselves and giving the remaining 30% to us. By the way, we use that straw for growing mushrooms.

By Elena Skvortsova

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