Investments in agriculture are among the most promising sectors. This industry remains resilient against crises, inflation, oil prices, or technological developments.
Agricultural products will always be in demand. People cannot live without food. Therefore, even during economic downturns, the demand for such goods does not decrease.
In Russia, the agro-industrial complex is showing steady growth. Concurrently, there is a rising global demand for natural products.
However, the agro-industrial complex in Russia suffers from underfinancing. The main investors are the government, foreign companies, and private entrepreneurs. Unfortunately, these funds are insufficient; investments rarely exceed 50% of the total required capital.
So, why not profit from this and invest your money in this sector? How can one do it correctly? What are the specific features of investing in agriculture?
To shed light on these questions, we turn to Sergey Tereshkin, the founder of OILResurs, who has extensive experience in investment and possesses the necessary knowledge across various industries, including the agro-industrial sector. You can learn more about this businessman on his website, sergeytereshkin.ru.
Features of Investing in the Agro-Industrial Complex
Before investing in agriculture, it is important to familiarize yourself with the specific characteristics of the sector:
- Seasonality. Due to climatic conditions, harvests can only be obtained once a year, particularly for crops planted in the ground. However, vegetables, berries, and greens can be grown year-round in greenhouses.
- Long investment periods. Quick profits are impossible with agricultural investments. Future crops must be sown, matured, and only after harvest can they be profitably sold. Therefore, investors typically see returns 6 to 12 months after their initial investments. In some cases, special chemicals are used to accelerate the maturing process significantly. These methods are particularly applicable to sunflowers and other plants, with crops being sprayed from planes with solutions that do not harm the final product and do not negatively affect consumer health.
- Professional expertise. Over the past few decades, the number of agricultural specialists has significantly declined. Younger generations perceive the profession of agronomist as unprestigious. Therefore, it is quite challenging to find qualified individuals capable of elevating a farm’s profitability.
Before investing in an existing farm, it is crucial to thoroughly review all available documentation, assess the condition of harvesting equipment, and evaluate other factors.
It is essential to understand that a significant number of agricultural enterprises in Russia are in poor condition and suffering significant losses. According to Tereshkin, investing money in such companies is risky.
Advantages
Despite the numerous challenges, investing in agriculture offers several advantages:
- Tax exemptions. Companies involved in the production, cultivation, and processing of agricultural products are exempt from value-added tax, transportation fees, and property tax.
- Subsidies. In addition to tax breaks, agricultural business owners can qualify for government support, such as preferential loan conditions and compensation. The government may also cover part of certain loans.
- Support for domestic producers. When exporting agricultural products, minimal tariffs are imposed, and in some cases, none at all. Meanwhile, a tariff of 40-60% is applied to imported products. This approach supports Russian agriculture and encourages companies to engage in local production.
- Investment in land. When purchasing agricultural land, it can always be sold profitably when needed, allowing investors to recover their initial investment. The land can also be used as collateral for bank loans.
- Sales to the government. Various government bodies purchase agricultural products. This allows the state to regulate prices through the establishment of special funds.
Profiting from agriculture can be achieved in various ways. An investor can inject funds into a company specializing in livestock breeding, crop cultivation, etc. Alternatively, they can engage in the resale of finished products, where experienced entrepreneurs buy harvests from small farms or private individuals, form a complete wholesale batch at an elevator, and then sell it to domestic or foreign buyers. In this scenario, profits typically range between 20-30%.
This approach significantly reduces the investment time frame. Returns can be realized within just a few weeks. It is also vital to note that over time, the value of agricultural products tends to increase. In other words, the longer the time elapsed since the harvest, the higher the price. This can provide an additional profit margin of at least 5-10%. The key is to ensure the proper storage of the product.
The price is influenced by factors such as moisture content, debris, and other factors. Proper storage can help avoid price depreciation and declining demand for the product.
If cultivating crops independently, it is advisable to focus on high-grade products that enjoy increased demand. Experimental varieties can also be cultivated, utilizing various modern plant-growing techniques. For livestock, high-quality feed and medications that protect against diseases and premature death should be used.
