Chelyabinsk Region is building new economy

11.10.2013 — Analysis

It is changing the industrial landscape of the region.

During the Golden Autumn – 2013 Exhibition, the Chelyabinsk Region showcased its agricultural products and upcoming projects for the agricultural industry. More than thirty beef-and-dairy, confectionary, liquor and other companies operating in the region demonstrated their achievements. The delegation was headed by Governor Mikhail Yurevich, under whose leadership the Chelyabinsk Region joined the ranks of the largest agrarian regions of Russia. He states that investment in agriculture and the processing industry help the Chelyabinsk Region go through economic disturbances: These sectors outperform the metallurgical industry in the number of employees and in taxes.

- Mikhail Valerievich, the exhibits of the Chelyabinsk Region are displayed in the main showroom of the All-Russian Exhibition Center, next to the display of the RF Ministry of Agriculture. The region’s booth was visited by the Chairman of the RF Government Dmitry Medvedev. What are the reasons for such attention to Chelyabinsk agrarians?

- I think it can be explained by the diversification that is in full swing in our region, by the new type of economy: The industrial Chelyabinsk Region is turning into an industrial and agrarian region. To a large extent, it became possible due to business investment that are made not only in the grain farming, but also in the production of other kinds of crops, vegetables and in construction of greenhouse complexes that meet requirements of the present time. For example, the Agapovsky District is finishing the construction of the project that meets the world’s latest standards. The complex will be operating throughout the year, growing vegetables and greenery in the glass-protected area of 9 hectares. Each square meter of the land produces up to one hundred kilograms of vegetable products, which exceeds four times the output reached with the older technologies in the former Teplichny state farm that was replaced by the agricultural complex. The estimated cost of the project is one and a half billion rubles. The complex will start operating at its full capacity next year.

The agricultural complex is being renovated in Churilovo settlement. The farm was on the brink of bankruptcy, being unable to carry the burden of debts amounting to several dozen million rubles, including unpaid wages. The employees pled for help at all levels of government authorities. Today, the new agricultural complex is being built and is already producing annually up to 17 thousand tons of environmentally safe tomatoes, cucumbers, eggplants, peppers and greenery — totaling more than one billion rubles in current prices.

Besides, we are interested in development of beef stock farming and the food industry – in the local production of sausage and ready-to-eat products that can be transported to other regions.

We were able to implement the strategy due to the national rural growth project. Loans made for 5-7 years, payment of part of the interest rate and government subsidies aimed to support beef stock farming made it possible to launch quite a few investment projects in poultry and hog farming. Within a few years, high-performance factories and complexes have been built in the Argayashsky, Kunashaksky and other districts. We are talking about sizeable amounts of investment here: the poultry plant with the output of 70 thousand tons a month costs approximately 5 billion rubles and the pig farming complex for 500 thousand hogs costs 15 billion rubles.

At present, the output of the existing agricultural and food production facilities totals 400 thousand tons of poultry meat and 100 thousand tons of pork. The construction of new pig farms and poultry plants is going on: By the end of the year the capacity gain will reach 60-70 thousand tons. After all the projects are implemented, we will rank second in the country in meat production.

The pedigree livestock farming has changed noticeably: Today the Chelyabinsk Region accounts for about 40% of Russia’s entire Hereford cow population. We continue increasing subsidies allocated to the sector. The milk output is growing: While the milk producing ability of 4 tons per cow was seen as a record high during the Soviet years, today we see it as a poor result when we reach 5 tons per cow.

- Over the past three years the meat output has tripled in the Chelyabinsk Region, but Chelyabinsk pork is a rare product on the market. How can it be explained?

- Almost all the pork produced by our companies is processed locally in the region. I have always believed that agriculture must be operationally coupled with the food industry. Large processing companies that sell their products not only in the Chelyabinsk Region, but also all over Russia give a powerful impetus to the agricultural growth. In its turn, the availability of local natural raw materials makes it possible for the processing industry to produce higher quality products.

The food industry plays an important role in the economy of the Chelyabinsk Region. It is an undisputed champion in the number of jobs and in the amount of revenue coming to the budget: Neither machine-building nor metallurgy brings such tax amounts. The region produces 70 thousand tons of meat products and 90 thousand tons of ready-to-cook foods. Regional companies produce about one third of the pasta products in Russia and 6% of the vegetable oil. The weight of the processing industry in tax revenues is steadily growing, while the totally opposite situation can be observed in the metallurgical sector, which justifies our statement about the industrial and agricultural profile of the region.

- Recently agriculture and food industry of the traditionally metallurgical Chelyabinsk Region have been frequently named as "the second foot", which the region’s economy can be supported by. How can be explained the fact that in remote areas hundreds of hectares of land are occupied by Chinese companies that sell vegetables all over Russia, but hardly pay any taxes? 

-  It’s true: The monitoring data evidence that Chinese green houses are located in the area of 700 to 1,000 hectares. The quantity of grown vegetables exceeds several times the demand of the residents of the region. Most of the companies operate in the semi-shadow sector of economy and do not pay taxes.

Although we are not going to tear down the green houses with bulldozers, we intend to put things right. I told the respective ministries and departments to check the legality of foreign citizens’ presence in our territory, register those of them who evade paying taxes and establish control over the quality of the products. I have no doubt that we will be able to put the operations of the Chinese agricultural producers on the civilized track.

In addition, we are planning to attract other foreign investors to building of greenhouse facilities. Recently we have offered Hungarian entrepreneurs to implement a joint project. They are ready to discuss the construction of an advanced complex for storage and processing of vegetables; the complex will consists of a storage facility having the capacity of 20,000 tons and automated lines for washing, sorting, cleaning, and packing of fresh vegetables grown in different farms of the region. If the project of the total cost amounting to 447 million rubles is implemented successfully, it will bring another 60 well-paid jobs in the Sosnovsky District.

- Mikhail Valerievich, not long ago you held the meeting on construction of the Yuzhnouralsky multi-modular transport and logistics complex in the Uvelsky District. Another large logistics center will start operating in the Kopeisk Urban District in March 2014. Are these projects brought to life due to the focus on development of agriculture and processing industry?

- Definitely, we need up-to-date complexes for receiving, delivery and inventory registration of foods and consumer products. The center near Kopeisk, Phase I of which is scheduled for commissioning in March, occupying the area of 30,000 square meters, will be able to process 1 million tons of cargoes. The region will have 700 new jobs and an economic effect resulting in lower prices of products, optimized transportation expenses, and increased percentage of the products from local producers.

The Yuzhnouralsky complex that costs 120 million euros and that we are building jointly with China will help us organize a transport corridor from China to Europe through Kazakhstan. At the moment, the preliminary work is in the progress and in spring the main types of work will be commenced. The further plans include construction of an A category warehouse occupying the area of 60,000 square meters and an open-air facility for storage of containers. We would like to turn this area into a special economic zone, which will give our region an additional impetus to growth.

- Is there any risk that the new lines of business and profit centers will curtail investment in the traditional sectors of the regional economy?

- No, there is not any risk. We attract all kinds of investors. For example, machine-building is very important for us. Recently, the Uralkran Group of Companies has launched a new factory - VERTA, which will manufacture hoisting equipment previously imported from Italy, Germany and Bulgaria. I have seen the similar factories operating in Europe and I can say that our manufacturing meets the world standards. In the near future the Group of Companies is planning to drive imported products out of the market and to increase sales to 2 billion rubles within two years.

In September, another factory was put into operation; it cats cases for pumps and gate valves that are in demand in the fuel-and-power sector.  The factory was built within two years by KONAR, CJSC, and Cividale Group (Italy). The adopted technology of casting from cold-hardening mixtures makes it possible to make highest-quality molds weighing up to 30 tons. They are cast from carbon and stainless steels produced in the state-of-the-art electric arc steel-smelting complex.

The new factory is located at the site of the Stankomash Federal Research and Production Center that went bankrupt several years ago. To prevent the production site from being abandoned we offered investors to buy the land at a token price and implement their investment projects. As you can see, our idea worked out: The Stankomash site accommodated the factory that is one-of-a-kind in Russia.

I think that the Chelyabinsk Region needs such projects. Diversifying the economy, we are changing the industrial landscape of the region, stabilizing tax revenues to the budget and extending opportunities for employment to residents of the Chelyabinsk Region.

The agrarian theme that was on the front burner during Golden Autumn was continued by representatives of the livestock farming sector where the Chelyabinsk Region can teach many other regions a thing or two. Sergei Melnikov, the director of the Podovinnoye agricultural production complex, told RusBusinessNews that since 2011 they have doubled the livestock population and milk output: "For us, the regional support provided for upgrading of farms was a powerful impetus for the further growth. The funds allocated under regional programs cover expenses on new cattle stalls, purchasing of milking equipment, pedigree livestock. We also receive subsidies on milk… As a result, we were able to launch an advanced livestock complex for 3,000 cows. The output and profitability increased substantially. We would never have achieved such results without the governor programs."