OJSC PAVA's project: new opportunities

BARNAUL, RUSSIA, November 02, 2010

Russia traditionally overproduces grain. Regardless of the fact that a considerable amount of grain has been destroyed this year as a result of heatwaves and drought, the grain production sector in Russia is normally very stable, although it is still in the early stages of its development towards being a major global player. This development is based on the fact that over 8000 enterprises are engaged in the cultivation of grain and other staple crops in Russia.

Oversupply of grain to the domestic market leads to reduction in prices and makes the production of cereals unprofitable and unattractive to agribusiness companies. In order to avoid the problem of overproduction, Russian farmers have to find ways to increase export of both grain and processed food commodities such as flour. Grain export (e.g. to the GCC region) should be the simplest way to reduce the surplus in the domestic market, but current production costs and global commodity prices can make the cultivation of grain for export uneconomical. Current (low) world prices and high intermediate costs, including those related to transportation, freight services, grain handling at ports, preparation of documents, bulk storage, shipment of grain from elevators and other expenses, have made grain exports unprofitable at the present time. These intermediate costs account for about 40% of the total grain export price, although there is some expense variation between the different regions of Russia.

Diversification into the production of higher added value grain derivative products (including gluten, starches and syrups) is the most creative solution for alleviating the imbalance on the domestic market, particularly as there is strong demand for these derivative products in the GCC region. Consequently, Russia's largest grain processor PAVA is now implementing a "Deep Wheat Grain Processing Project" at one of its existing production sites.

PAVA's project demands the reconstruction of one of its current processing facilities and an increase in flour production capacity. The project requires the use of modern technologies for grain cultivation and deep grain processing, allowing for a closed production cycle spanning the cultivation of staple crops right through to the downstream manufacture of derivative products with the highest possible added value. The current plant will be converted into a modern processing complex, equipped with cutting-edge equipment that meets all international standards, while the products manufactured will cover both the food for human consumption and the animal feed market sectors, as well as the markets for beverages and chemicals.

PAVA's production unit for deep grain processing is located in the central part of the Altay region, which is one of the largest food producing areas of Eastern Russia and is located in Russia's black earth belt. Black earth has a very high level of humus (3% to 15%), which provides the soil with the right chemical structure and moisture-retention properties, making it ideal for farming. In addition, the soil contains a high percentage of natural nutrients, including phosphoric acids and ammonia. The Altay region boasts 11 million hectares of arable land, which is more than any other Russian region has available. With the new opportunities stemming from the export of processed grain products, local arable land will definitely be in more demand in the future.

In recent years the Russian government has radically changed its attitude towards the agricultural sector. Agriculture is now recognised as one of the key priorities of socio-economic development. The rural areas are being given more priority by the recent adoption of a new Federal Law "On Agricultural Development", which is all about increasing the competitiveness of Russian agricultural production and Russian food processors, as well as ensuring the quality of Russian food products and encouraging the sustainable development of rural areas.

OJSC PAVA is one of the market leaders in Russian wheat grain processing sector. It is among three largest flour milling companies in Russia. For further information please contact us at 0073852631903