Ekosem-Agrar AG, the German holding company of Russian milk producer EkoNiva Group, benefited from the benign business conditions in Russia and further accelerated the growth of its business segments. The company was able to double not only its agricultural land but also its milk output in the past 18 months.
In the first nine months of 2018, the total herd increased to roughly 128,560 animals (+32%), with the dairy cow herd growing to some 57,060 animals (+27%). The strong expansion of the dairy cow herd sent the average daily milk output rising sharply from 1,090 tons at the beginning of the year to roughly 1,400 tons. This means that a total of approx. 350,620 tons of raw milk were collected between January and September 2018, which already exceeded the total output of the year 2017 (297,000 tons). The Management Board projects a total annual milk output of about 500,000 tons for the full year 2018. The company has thus further expanded its leading position in the raw milk market in a benign environment; the Russian milk prices, which stayed at a low level in the first half of the year, have picked up again since the summer and currently stand at about EUR 0.38 (previous year: approx. EUR 0.40 in exchange rate adjusted terms).
The other business conditions in Russia also remained positive. The government continues to subsidise investments in the dairy sector. To leverage these benefits, Ekosem-Agrar AG started to build another 14 dairy cow facilities for over 45,000 animals this year, most of which will be completed before the end of the year. Low-interest loans and non-repayable investment grants have been secured to finance these investments, which allows the facilities to generate positive cash flow after a short period.
The constant increase in raw milk production goes hand in hand with the systematic expansion of the milk processing facilities with the aim of becoming the first vertically integrated manufacturer of dairy products that is active in throughout Russia in the medium term.
At the end of November, Ekosem-Agrar will launch the new “EkoNiva” umbrella brand to sell fresh milk, yoghurt, curd, semi-hard cheese as well as long-life milk and milk powder in the Russian market. The production facilities for the approx. 600 tons of daily processing capacity are currently being optimized to make the range of dairy products even more attractive. In addition, the company will shortly start to build a cheese factory in Novosibirsk.
Ekosem-Agrar is also pushing ahead with the acquisition of additional farms and farmland. Although agricultural land in Russia is still relatively cheap, land prices have lately picked up noticeably, which is why the Management Board assumes that it will be difficult to get good land at attractive prices already in two to three years’ time. For this reason, the company once again significantly expanded its agricultural area in the course of the year. As of 30 September 2018, Ekosem-Agrar cultivated 467,000 hectares, of which the company owns 191,700 hectares or approx. 41%.
After the record year 2017 and against the background of the very adverse weather conditions in spring and summer 2018, crop yields per hectare were lower than in the previous year, which had been expected. Crop yields on the expanded agricultural area nevertheless totaled roughly 1.6 million tons (previous year: 1.1 million tons), which means that the fodder supply for the constantly growing dairy cow herd has been secured up to the next harvest.
“A successful year, which was also quite challenging because of our strong expansion, is drawing to a close,” said Stefan Dürr, main shareholder and CEO of Ekosem-Agrar AG. “Our growth is meanwhile supported by far more than 9,000 employees, who are fully committed to helping us establish a manufacturer of dairy products that is active throughout Russia. Our new brand will write a new chapter in the history of EkoNiva and will hopefully convince Russian customers of the high quality of our products ‘Made in Russia with German quality assurance’”.
Provided that the positive business conditions remain in place, the company plans to continue its expansion and to build another 15 dairy cow facilities for some 51,000 dairy cows in 2019. At the end of 2019, the dairy cow herd will then comprise 100,000 to 120,000 animals and the raw milk output will amount to between 900,000 and 1.1 million tons.