Russian economy continues to struggle as the country’s largest maker of combine harvesters and tractors reports demand for its machines has collapsed. The company Rostselmash said on Friday it had to suspend production from June and cut costs, since farmers have no money to buy new equipment.
Rostselmash reported that sales by all Russian farming equipment manufacturers fell by 76% for grain harvesters, 49% for forage harvesters, and 48% for tractors, compared to the same period in 2021. The company will send all 15,000 of its workers on mandatory leave starting in June, before the harvesting season begins. It described the furlough as a rescheduled annual vacation, typically held in August or September.
“The measure is a forced one and is due to the current economic context in the agricultural sector. Farmers do not have the funds to purchase the equipment they need, resulting in a significant market downturn,” the farm equipment giant said in a statement.
Rostselmash is headquartered in Rostov-on-Don near the Ukrainian border and exports to 20 countries. In recent years, it has been a beneficiary of the Russian agriculture boom. It has successfully pushed out foreign competitors, becoming an example of “import substitution,” a strategy adopted by the Russian government to reduce dependency on foreign firms in the face of Western sanctions.
But last year, the company reported a 130% year-on-year drop in net income last year, down to 6.9 billion rubles (£64 million), with total revenue falling nearly 20 billion rubles to 78.3 billion (£727 million). In March, the firm briefly switched to a four-day workweek before laying off 2,000 employees last month.
Arkady Zlochevsky, head of the Russian Grain Union lobby group, warned that if farmers are unable to upgrade their machinery they will be more susceptible to adverse weather. Modern machinery helps farmers to take advantage of favourable weather windows more efficiently.
With expensive loans, high export duties and rising costs for fuel and fertilizers, farming has become unprofitable in many regions, undermining Russia’s ambition to become an agricultural superpower. Currently, the central bank offers commerial loans that farmers use to buy new equipment at rates around 25-30%.
Vyacheslav Smauz, a farmer from the Voronezh region, one of Russia’s major agricultural areas, told a publication focused on the global agriculture system AgFunderNews that the cost of loans for his enterprise has doubled. At the same time, the government has been slow to provide subsidies to offset the increased expenses. Due to these challenges, he is considering winding down his business.
Farmers also face high export duties and rising costs for fuel and fertilizers and despite lobbying from farmers, Deputy Prime Minister Dmitry Patrushev said duties would remain in place.
“This is the result of the desire to collect more money from farmers through export duties,” parliament member and farmer Sergei Lisovsky said in response to Rostselmash’s statement.
