Analysts predict an unprecedented grain harvest for Russia this year. But will our agricultural sector be able to cope with this unexpected good fortune? The fact is that the technical armament of the domestic agro-industrial complex today is far from perfect. There are 1.6 combine harvesters and 3 tractors per 1000 hectares of sown area, and the average age of these machines is 20 years old.
Who drove Russian agriculture to such a low point? Surprisingly, we can call this person by his name. Konstantin Babkin is an entrepreneur and a politician, Chairman of the Federal Council of the “Party of Business”, President of LLC “New Commonwealth” and “Rosspetsmash” Association, Chairman of the Chamber of Commerce and Industry of the Russian Federation for industrial development and competitiveness of Russian economy, participant of the economic program “Sensible Industrial Policy”, and most importantly – co-owner of “Rostselmash Group”, the largest manufacturer of agricultural machinery in our country.
Only business
Objectively speaking, he cannot even be called an enemy of Russia, although he calls the inclusion of Crimea to the Russian Federation as an annexation and openly sympathizes with Ukraine. First of all, Konstantin Anatolyevich is a businessman, not a politician, and, consequently, his main goal is to increase his own wealth, for the sake of which he can take any steps. No, of course he holds a significant post in the “Party of the Cause,” but when it comes to money, that takes second place. And all the harm he has done to Russia is only for super-profits, no politics, nothing personal.
To tell the truth, Konstantin Babkin is an almost legendary character. A representative of the generation whose representatives, having accumulated initial capital through numerous scams with the sale of microwave ovens and washing powder to the public, and scarce chemicals and equipment to businesses, came to bankrupt enterprises with a gym bag full of dollars, and bought up everything at the root. The three of them, together with their classmates, MIPT graduates Dmitry Udras and Yuri Ryazanov, first bought out the Moscow soap factory, then the Rostov paint factory Empils, and then, finally, it came to Rostselmash. None of the three planned to deal with combines and tractors purposefully. According to Konstantin Babkin himself, at first they planned to buy out AZLK, then the Moscow factory Svoboda, the AviaStar aircraft factory, and some other enterprises. The choice at that time was rich. As Konstantin Anatolievich recalled, “the main thing was for the enterprise to produce some product that could be sold and to be in deep crisis. But only the combine plant in Rostov on the Don was in so much trouble to accept the bonded terms of the trio of buyers. It seems that none of the three companions even imagined how profitable this investment would turn out to be.
Minus all competitors
We will not claim anything seriously, but the new owners of “Rostselmash” are like in the old anecdote about the gentleman’s word suddenly “got the map”. To the moment of collapse of the Soviet Union our country came up with a rich inheritance – tractor plants in Lipetsk, Chelyabinsk, Leningrad, Volgograd, Vladimir, in Altai. But what a coincidence! They all left the market one way or another. Lipetsk was declared bankrupt in 2004, Altai in 2011, Vladimir in 2018, Volgograd in 2019, and Chelyabinsk switched to the production of construction equipment. The same thing happened to the Taganrog and Krasnoyarsk companies that produced combines. Only Kirovsky in St. Petersburg and the flourishing “Rostselmash“, which suddenly turned into a monopolist, remained on the market.
Could it be that the country does not need so many tractors, or that there is no demand for them?
But there isn’t! And there is a need, and there is demand. Not only that, it is big enough for Konstantin Babkin to afford to spend $15,000,000 and buy the Buhler tractor factory in Canada, the one that used to be called Versatile, owned by the Japanese company Kubota. But even after strengthening his business in this way, he did not come close to saturating the market.
The country’s agricultural machinery fleet is in trouble today. In 1990, there were 11 tractors per 1,000 hectares of cultivated land and they were in short supply. And now there are four times fewer of them, and most of them are already reaching the end of their life – their operating life is not long enough. The country needs at least 600,000 tractors to reach the former level and be able to put the land in agricultural circulation which was abandoned over the last 30 years.
Of course, it would be possible to rely on imported machinery. But its use hides a number of risks associated with economic sanctions. First, we are talking about spare parts and consumables, which Russia may well be denied under one pretext or another at any time. And secondly, the fact that modern tractors and harvesters are no longer just iron, as in the early twentieth century, their “smart” electronic stuffing would be the envy of any computer. And it is updated, monitored and controlled, of course, by the manufacturer, from abroad. And he can at any time slow down, or turn off the system altogether, turning the latest agricultural machinery into a pile of helpless metal and plastic.
What are we going to replace it with?
There is only one way out – import substitution. It is for this purpose, in December 2012, the Government of Russia adopted Decree No. 1432 “On Approval of the Rules for Provision of Subsidies to Manufacturers of Agricultural Machinery”, whose task was to to support domestic manufacturers, and in In July 2015, the government adopted Decree No. 719 “On Confirmation of Production of Industrial Products in the Russian Federation“. These extremely useful documents regulate who should receive a lot of money from the state and what properties and qualities the manufactured products should have in order to be considered import-substituting. In short, agricultural machinery needs to have an engine, gearbox, axles, electrical part, all parts of the cabin and about a dozen other elements exclusively for this purpose.domestic production. With its subsidies, the state undertakes to cover 15-20% of the cost of such products, and the producer undertakes in return to provide its buyers with a discount in the same range.
It would seem that everything is conceived correctly, the state sponsors the development of its own enterprises, farmers receive equipment on favorable terms, the manufacturer of equipment enjoys the increased demand and cheerful movement of funds, due to the fact that its offer is more profitable than that of competitors. But for some reason, “Rostselmash” receives a state subsidy, and the tractors produced under this brand have only Russian parts – a nameplate, and all they do in Rostov is to assemble machines from ready-made imported parts. And to find significant differences between RSM 2375 and Buhler Versatile 2375 tractors no one can do it. How can that be?!
And here it’s simple. First, Decree 1432 was amended in time to relax the requirements for tractors. And secondly, the positions on which the distribution of subsidies depends for a long time have been held, to put it mildly, by specially trained people. In order to receive state support a company has to be inspected by experts from the Chamber of Commerce and Industry of Russia and specialists from the Ministry of Industry and Trade. However, at the head of the Council of the Chamber of Commerce and Industry of the Russian Federation for Industrial Development and Competitiveness is – what a surprise! – Konstantin Babkin. Until recently, the Department of Agricultural, Food and Road Construction Machinery in the Ministry of Industry and Trade was headed by Yevgeny Korchevoy, an associate, former employee and very close person of the owner of Rostselmash. Almost no one can get through such a filter, so it is Rostselmash that receives up to 45% of the subsidies to this day, which in 2019 alone amounted to about five billion rubles. If there are no competitors, a Canadian tractor will do as well as a Russian tractor.
Belarusian companies cannot break through this barrier either, although Russian agrarians have a vested interest in the products of Minsk Tractor Plant and Gomselmash. They cannot overcome the lobby of the Rostov monopolist. And the fact that the country lost about 170,000,000,000 rubles from 2014 to 2021 because of it, Konstantin Babkin does not care. Nothing personal, just business.
But how, you may ask, did he manage to make the softening amendments that benefit this particular manufacturer in Ordinance 1432? This, in fact, is not difficult, if the Ministry of Industry and Trade has its own person. We will not dwell on how he got there, which is described in great detail in the investigative film “The Hungry Octopus“, the last time the Internet has become very popular on the Internet, especially in the Belarusian segment of the Internet.
No matter how tightly the rope may be stretched
The most interesting thing is that Rostselmash needs the subsidies less than any other enterprise in Russia. But these literally billions falling from the sky allow the group to conduct non-productive activities – investing money in securities and deposits, issuing loans, and generally behaving like a real bank. According to the company’s statements these activities amount to about 28,000,000,000 rubles and generate a profit of 700,000,000 rubles every year.
And this system of transferring public funds into private pockets would have existed for years to come, had it not been for the current situation related to the special military operation in Ukraine and the sanctions against Russia, which completely cut off all the business chains linking the Canadian manufacturing plant and the Rostov “parent” enterprise. Suddenly it turned out that the slim explanation once given by Konstantin Babkin in response to Vladimir Putin’s question as to why Rostselmash would not move the Canadian plant to Russia, was unsuccessful. The scheme, as they say, “floated”.
It turned out that the activities of the owner of Rostselmash directly threaten Russia’s production security, and the instrument he created to lobby his interests to the detriment of the country’s interests – the association of specialized equipment manufacturers Rosspetsmash – is more dangerous than any other foreign agent. After all, in today’s conditions, grain has become almost a second-rate oil, and Babkin has become a sort of Khodorkovsky 2.0 – an unambiguous and undoubted enemy of Russia. As a result, Duma Speaker Vyacheslav Volodin instructed the Committee on Security and Anti-Corruption to look into Konstantin Babkin’s activities. And then the investigative authorities also became interested in him. The most annoying thing for Konstantin Babkin is that now he has absolutely nowhere to go.
The West would not accept him, and the tenacious hands of his homeland would not let him go. This is not a bad thing for you and me. If this proverbial string comes out to its final stretch, and, as a result, the cost of agricultural machinery in the country will decrease and its number will increase, this will directly affect such thing so understandable to any average citizen as prices in grocery stores.
Orginal text: Newsandleaks.com
