Dairy farmers, faced with dwindling herds and a chronic lack of cash, are finding themselves at the crossroads.
Russian cows -- often gaunt and bearing poor-quality milk -- just don't make the grade these days. Ask leading dairy expert Vladimir Labinov for the reason, and he's got a ready answer: Canadian sperm.
It all started about 30 years ago when a Politburo delegation went to Canada on a trade mission.
"One of our Politburo members just fell in love with Holstein cows," said Labinov, executive director at the Russian Dairy Union. "The sperm was immediately brought here, and most of our cows were impregnated with this sperm.
"It went on for 30 years. Do you think it made good cows? No. It's like raising elite gladioluses in a desert."
While the full impact of the Soviet-era breeding drive may never be known, one sobering fact is clear: Russia now has fewer dairy cows than it had at the end of World War II. Those 12.3 million cows yielded a mere 31.8 million tons of milk last year, about 24 million tons less than 20.8 million cows gave a decade ago.
Much of the milk produced last year was of fair to substandard quality, unsuitable for major dairy users such as Wimm-Bill-Dann, Danone, Ehrmann, Campina and McDonald's.
But those very companies have found ways to help the domestic dairy market meet their needs and at the same time provide the industry with much-needed investment.
While farmers complain that the state continues to neglect them, they agree that the outlook is much rosier than it has been for years.
Thirty years ago, the Barybino state farm was considered the worst in the Moscow region, growing potatoes that no one wanted to buy. Now it supplies milk to major firms such as McDonald's, Wimm-Bill-Dann and Danone, and agricultural institutions rate it the best in Russia in terms of milk yield, cost-efficiency and production costs.
The recipe for such success?
Professional and assertive management "as opposed to the drunkenness and laziness of most farm directors in Russia," said Vasily Uzun, chief consultant for economic issues at Rosagrofond, which supports farm reforms. The organization, along with the Russian Academy of Agricultural Science and the Agrarian Problems All-Russia Institute, named Barybino as the country's best dairy farm in their most recent rating.
Igor Gerasimov, deputy director of the now-privatized Barybino, does not conceal his pride about the farm's turnabout.
"In the beginning of the '90s, our director went to Moscow and searched high and low for clients who would purchase milk directly from the farm," Gerasimov said, showing a visitor inside a pristine white barn with about 200 cows. A couple of white-coated workers bustled about the sawdust-covered floors, checking automatic milking and cooling equipment.
"Our farm was producing potatoes, but had huge problems selling them because of competition from cheaper vegetables from Bryansk or Belgorod," Gerasimov said. "Upon receiving economic freedom, the farm decided to give up potatoes and focus only on milk production."
During Barybino director David Gulko's hunt for customers in 1991, he ran across Alexei Nemtsev, a McDonald's representative who was searching for high-quality supplies.
The two men got to talking. Before long, Nemtsev paid a visit to the farm.
"He showed us how to milk cows so that the quality of milk matched McDonald's quality standards," Gerasimov said.
"He milked cows with us. It was he who explained to us that the first milk from the udder must be trashed because of bacteria. We never paid attention to such things before."
McDonald's leased Barybino some milking equipment to get it on its feet, and the rest, as they say, is history. To this day the farm remains one of McDonald's main suppliers, providing milk for the fast-food chain's Novoperedelkino processing plant.
The farm's 3,200 cows give 60 tons of milk a day. While Barybino does not provide financial figures, Rosagrofond puts its cost-efficiency at 159 percent.
Barybino is one of the more fortunate farms. Visitors to Russia's hinterlands are quickly getting used to the sight of dilapidated, empty barns with yawning gaps for windows.
"Russia used to be one of the biggest countries in the world in terms of the number of cows and milk production," Labinov said.
The country's 12.3 million milking cows -- including about 250,000 cows in the Moscow region -- are the smallest herd Russia has had since statistics were first collected in 1930. Even in 1945, after the devastating World War II, there were 12.9 million cows, according to the Agriculture Ministry. The amount of milk produced last year is comparable to what was milked from about 14 million cows in the late 1950s.
The decline started in 1984, when the country had 22.2 million cows and Soviet leader Mikhail Gorbachev launched perestroika, turning the public's attention away from the grand five-year and seven-year plans for farms.
Then there was that problem with Holstein cows from Canada.
"Holstein cows must be bred in good conditions and not in our barren steppes or dirty barns, where our cows are given scant diets," Labinov said.
"On top of this, the most valuable part of milk in Russia has always been considered fat and not protein like in Western countries. What we ultimately ended up with is low-quality cattle that gives milk with protein content as low as 2.6 percent to 2.8 percent, while Western standards are about 3.5 percent."
These days, about half of all cows are raised by individuals in villages. Small private farms account for 1.7 percent of all cows, while medium and large farms breed 47.8 percent.
Milk yields are small at farms, hardly reaching 2,400 kilograms per cow a year on average. But even in the past, the average milk yield has never been higher than 2,800 kilograms.
However, there are exceptions, particularly in areas around big cities where demand is high, milk-processing companies compete for quality supplies, and consumers are able to pay. The average yield reaches 4,877 kilograms per cow in the Leningrad region and 3,983 kilograms in the Moscow region, according to the Agriculture Ministry.
The volume of milk processed at enterprises came to 13 million tons last year, a staggering drop from 40 million tons a decade ago, according to former Deputy Agriculture Minister Valery Sergeyev. About half of that milk was processed at 3,200 dairy companies, of which only 80 could handle more than 50 tons of milk daily, Sergeyev said, adding that 46 percent of all milk-processing companies are loss-making.
The biggest processing plant is the Moscow-based Lianozovo, which belongs to Wimm-Bill-Dann and processes up to 1,500 tons of milk daily.
Wimm-Bill-Dann supplies about 70 percent of all milk and up to 65 percent of all yogurt consumed in Moscow, according to the MEMRB marketing agency. The leading producer in St. Petersburg is Petmol, processing 400 tons of milk a day and supplying the city with about 50 percent of all milk and up to 34 percent of all yogurt, MEMRB said.
Wimm-Bill-Dann and Petmol, together with Moscow-based producers Danone, Ostankino, Campina and Parmalat, have cornered a 65 percent share of the dairy market in Russia's nine largest cities, according to the AC Nielsen marketing agency. The cities include Moscow, St. Petersburg, Novosibirsk, Yekaterinburg and Nizhny Novgorod.
Although production of dairy products like cheese and powdered milk are far below 1990 levels, it has been steadily growing since imports were slashed by the 1998 financial crisis. Sales of Russian-made pasteurized milk have jumped 41 percent, while kefir and low-fat yogurt sales have grown by 59 percent and 66 percent, respectively, according to AC Nielsen's nine-city survey. Sales of other kinds of yogurt have soared by 170 percent.
Consumption of dairy products is far below the average in Western countries and the recommended 360 kilograms per person a year set by the Russian Academy of Science.
"In developed countries, milk consumption is about 400 kilograms a year," Labinov said. "We were close to these figures. But now average consumption is down from 386 kilograms in 1990 to an expected 220 kilograms this year."
A major problem facing the dairy industry is a dramatic shortage of qualified professionals, according to the Dairy Union.
"The leaders of farms are mostly technical experts, not creative professionals," Labinov said. "Every fifth farm has no animal experts. Hardly anyone knows how to craft a proper diet for cows, with a proper balance of vitamins and minerals. No one knows the proper time to impregnate a cow -- and a cow is not just a machine that consumes grass."
Cows are especially badly fed in winters. Early in the spring, one can see scrawny cows jumping nervously like grasshoppers as they are led out of stuffy, dirty barns after the long winter.
Most farms for that reason are unable to impregnate cows so as to maximize their milk production. Ideally, cows should give birth every 305 days on average and, thus, give more milk throughout the year.
A quarter of all cows do not give birth even once a year, according to the Dairy Union.
Attracting professional farmers is next to impossible since the average wage is 400 rubles a month.
Another problem in the dairy industry is a chronic lack of quality fodder. Most of the country's 350 mixed fodder plants have folded over the past 10 years, and only 88 plants currently offer their production on the open market. Another 40 foreign competitors are trying to fill the niche, the Dairy Union says.
However, "the key problem that explains technological backwardness, low efficiency and the loss-making of milk production in Russia is the almost total absence of investment in the industry," Vladimir Kharitonov, academician with the Russian Academy of Agricultural Sciences and president of the Dairy Union, wrote in a recent article.
Private investors are reluctant to put money in dairy farms because of the high risks involved and long return on investment. Government support is also ineffective because it is not aimed at promoting profits, Kharitonov said.
The state still gives some support to insolvent farms, although it has become more selective in recent years. Dairy farms can rely on state funding if they breed pedigree cattle -- and then the state offers a miserly 1,400 rubles a year per cow.
Other farms can only get aid by requesting subsidies for interest on loans from commercial banks. The government earmarked 1.4 billion rubles ($50 million at the current exchange rate) for all of the country's 27,000 farms in this year's budget. The same figure is named in the draft 2002 budget.
Nevertheless, some farms are finding ways to prosper through the support of large milk-processing companies.
McDonald's was perhaps the first major company to lend a hand by leasing much-needed equipment to Barybino in the early 1990s. Other companies have followed suit.
Petmol of St. Petersburg in 1997 began leasing equipment to local farms, a move that has dramatically boosted milk production.
In one short year, the milk yield per cow grew from about 2,500 liters to 5,800 liters, Kharitonov said.
Petmol, which has leased $3 million worth of equipment, now works with 50 farms in the Leningrad region, including Grazhdansky and Agro-Balt. Those two farms account for 29 percent of all milk production in the region.
Wimm-Bill-Dann announced its own leasing program called Milk Rivers of the Moscow Region in 1999. Under the project, the company is leasing $20 million worth of equipment and technical assistance to 65 farms, including Barybino.
With its sights set on eastward expansion, Wimm-Bill-Dann has also teamed up with several farms in the Krasnoyarsk and Novosibirsk regions and is planning to lease equipment to farms in Bashkortostan and Nizhny Novgorod.
"As a result of our cooperation, milk supplies from these farms have increased by 15 percent, and the quality of milk has improved to an even greater extent," said Maxim Byrdin, director of Wimm-Bill-Dann's milk department.
The farms are also pleased.
"What Wimm-Bill-Dann is doing could be called the fulfillment of the state function to support milk production," said Yevgeny Atmashkin, general director of the Lotoshino farm, which has received about $700,000 worth of equipment from the company.
Competition for milk supplies is growing in the Moscow region after Danone, Ehrmann and Campina opened processing plants in 2000, leading some farms to accuse each other of conducting secret deals.
"It is very difficult to find a supplier that can sell 10,000 liters or more of milk daily," said Andrei Zhdanov, head of the supplies department at Ehrmann. The German company runs a $40 million plant in the Ramensky district.
"As a rule, such farms have long-term agreements with the processing plants," he said.
Zhdanov said that Ehrmann obtains its milk from the Moscow, Vladimir and Ryazan regions and its biggest supplier -- which he refused to name, calling it a commercial secret -- provides 35,000 liters of milk a day.
Danone spokesman Vladimir Romantsov agreed that it is hard to find farms that produce high volumes of "clean milk with high protein content and can supply more milk in winter than in summer."
He also refused to name any of the farms that supply milk to Danone's $45 million plant in Chekhov, which produces 70,000 tons of dairy products a year.
Danone has been accused by some farm directors of trying to persuade farms to breach long-term contracts with Wimm-Bill-Dann by offering higher prices, an allegation Romantsov denied.
"No, we do not offer anyone higher prices than Wimm-Bill-Dann -- these prices are set by the market," he said.
Sergei Noskov, Campina's manager for raw milk deliveries, acknowledged, however, that Western firms tend to pay more for high-quality milk.
"The competition between dairy farms for processors and the processing plants for farms with good management, technology and high-quality milk has increased," he said. "This trend became especially clear with the appearance of such processing plants as Campina, Ehrmann and Danone -- enterprises with high demand for high-quality milk and with the means to pay higher prices than Russian plants."
Campina, a Dutch company, processes 120 tons of milk daily at its $50 million Stupino plant.
Noskov said Campina buys milk from 18 farms in the Moscow and Vologda regions. The biggest supplier is Sergiyevskoye in the Kolomensky district of the Moscow region, which provides 28 tons of milk a day.
Danone, Ehrmann and Campina said they provide equipment to partner farms, but only Campina would say how much it has invested. Campina earmarks $1.5 million a year to supply farms with milking and cooling equipment, agriculture machinery, laboratory equipment and fodder.
While such investment programs help keep farms going and growing, they are not without their critics.
"This kind of support in fact has the danger of making milk producers dependent on dairies," said Andreas T?uber, head of the department of consumer protection, food and agriculture at the German Embassy. T?uber is a member of a team of German agriculture experts who have been implementing a project to rebuild the dairy industry in the Moscow region since 1992.
"German experts believe that these economical and financial efforts could be ideally supported by an independent advisory service, which now turns out to be sustainable," T?uber said.
The project, financed through the German Transform program, has already invested 3.5 million Deutsche marks ($1.64 million) in its efforts. The program first focused on animal breeding but has since then become more production-oriented, T?uber said. Last year, it oversaw the creation of the service company Milk Manager, which advises local farms on professional matters. Sixteen farms currently pay Milk Manager a monthly fee for consulting services.
Milk Manager, run by German-trained Russians, is to become self-supporting at the beginning of 2002.
"We advise farms on the economics of milk production, preparation and storing of fodder, use of equipment, breeding and reproduction of the cattle," said a representative of Milk Manager who asked not to be named. "Farms are supposed to mobilize all their internal resources and work in the most efficient way.
"If all our advice is followed, we guarantee an increase in milk production of 10 percent to 20 percent a year."
One of the biggest problems at any given farm after the state stopped managing agriculture is a lack of a khozyain -- an owner. The farms are technically privatized, but their shares are disseminated among hundreds of employees.
"Farm directors are simply not interested in the development of their business," said one dairy industry expert who did not want to be identified. "You just look at their cars when they come to meetings -- the very best brands, really expensive ones.
"Owners would never adopt such conspicuous consumption because it would be their own money. Only after they become owners, will they become interested in the development of production for profits."
A mechanism to transform shares into real property is yet to be developed. Many experts fear that the process would hardly be different from the scandalous privatization of industrial assets in the mid-1990s.
Nevertheless, the move to concentrate shares with owners has started, said Uzun of Rosagrofond.
"Farms are being taken over by people with money who will be able to attract good professionals to manage their farms," he said. "Yes, this will lead to the sacking of unneeded workers and impoverishment to part of the rural population. ... But this is what is inevitably going to happen."
Uzun predicted that large diversified farms are the future of Russian agriculture.
There are already a few examples of such farms: Barybino with a dairy unit, pedigree unit, meat unit, grain-production unit and even honey unit. Lotoshino's big dairy unit grows rape and has plans to grow flax, which is in demand in the textile industry.
"The time was and is now difficult, but it is interesting and challenging at the same time," said Atmashkin at Lotoshino. "I would never want to go back to the Soviet past. There are many more opportunities for those who want to work now."
Russian cows -- often gaunt and bearing poor-quality milk -- just don't make the grade these days. Ask leading dairy expert Vladimir Labinov for the reason, and he's got a ready answer: Canadian sperm.
It all started about 30 years ago when a Politburo delegation went to Canada on a trade mission.
"One of our Politburo members just fell in love with Holstein cows," said Labinov, executive director at the Russian Dairy Union. "The sperm was immediately brought here, and most of our cows were impregnated with this sperm.
"It went on for 30 years. Do you think it made good cows? No. It's like raising elite gladioluses in a desert."
While the full impact of the Soviet-era breeding drive may never be known, one sobering fact is clear: Russia now has fewer dairy cows than it had at the end of World War II. Those 12.3 million cows yielded a mere 31.8 million tons of milk last year, about 24 million tons less than 20.8 million cows gave a decade ago.
Much of the milk produced last year was of fair to substandard quality, unsuitable for major dairy users such as Wimm-Bill-Dann, Danone, Ehrmann, Campina and McDonald's.
But those very companies have found ways to help the domestic dairy market meet their needs and at the same time provide the industry with much-needed investment.
While farmers complain that the state continues to neglect them, they agree that the outlook is much rosier than it has been for years.
McDonald's Farm Leads Way
Thirty years ago, the Barybino state farm was considered the worst in the Moscow region, growing potatoes that no one wanted to buy. Now it supplies milk to major firms such as McDonald's, Wimm-Bill-Dann and Danone, and agricultural institutions rate it the best in Russia in terms of milk yield, cost-efficiency and production costs.
The recipe for such success?
Professional and assertive management "as opposed to the drunkenness and laziness of most farm directors in Russia," said Vasily Uzun, chief consultant for economic issues at Rosagrofond, which supports farm reforms. The organization, along with the Russian Academy of Agricultural Science and the Agrarian Problems All-Russia Institute, named Barybino as the country's best dairy farm in their most recent rating.
Igor Gerasimov, deputy director of the now-privatized Barybino, does not conceal his pride about the farm's turnabout.
"In the beginning of the '90s, our director went to Moscow and searched high and low for clients who would purchase milk directly from the farm," Gerasimov said, showing a visitor inside a pristine white barn with about 200 cows. A couple of white-coated workers bustled about the sawdust-covered floors, checking automatic milking and cooling equipment.
"Our farm was producing potatoes, but had huge problems selling them because of competition from cheaper vegetables from Bryansk or Belgorod," Gerasimov said. "Upon receiving economic freedom, the farm decided to give up potatoes and focus only on milk production."
During Barybino director David Gulko's hunt for customers in 1991, he ran across Alexei Nemtsev, a McDonald's representative who was searching for high-quality supplies.
The two men got to talking. Before long, Nemtsev paid a visit to the farm.
"He showed us how to milk cows so that the quality of milk matched McDonald's quality standards," Gerasimov said.
"He milked cows with us. It was he who explained to us that the first milk from the udder must be trashed because of bacteria. We never paid attention to such things before."
McDonald's leased Barybino some milking equipment to get it on its feet, and the rest, as they say, is history. To this day the farm remains one of McDonald's main suppliers, providing milk for the fast-food chain's Novoperedelkino processing plant.
The farm's 3,200 cows give 60 tons of milk a day. While Barybino does not provide financial figures, Rosagrofond puts its cost-efficiency at 159 percent.
How Production Soured
Barybino is one of the more fortunate farms. Visitors to Russia's hinterlands are quickly getting used to the sight of dilapidated, empty barns with yawning gaps for windows.
"Russia used to be one of the biggest countries in the world in terms of the number of cows and milk production," Labinov said.
The country's 12.3 million milking cows -- including about 250,000 cows in the Moscow region -- are the smallest herd Russia has had since statistics were first collected in 1930. Even in 1945, after the devastating World War II, there were 12.9 million cows, according to the Agriculture Ministry. The amount of milk produced last year is comparable to what was milked from about 14 million cows in the late 1950s.
The decline started in 1984, when the country had 22.2 million cows and Soviet leader Mikhail Gorbachev launched perestroika, turning the public's attention away from the grand five-year and seven-year plans for farms.
Then there was that problem with Holstein cows from Canada.
"Holstein cows must be bred in good conditions and not in our barren steppes or dirty barns, where our cows are given scant diets," Labinov said.
"On top of this, the most valuable part of milk in Russia has always been considered fat and not protein like in Western countries. What we ultimately ended up with is low-quality cattle that gives milk with protein content as low as 2.6 percent to 2.8 percent, while Western standards are about 3.5 percent."
The Lay of the Land
These days, about half of all cows are raised by individuals in villages. Small private farms account for 1.7 percent of all cows, while medium and large farms breed 47.8 percent.
Milk yields are small at farms, hardly reaching 2,400 kilograms per cow a year on average. But even in the past, the average milk yield has never been higher than 2,800 kilograms.
However, there are exceptions, particularly in areas around big cities where demand is high, milk-processing companies compete for quality supplies, and consumers are able to pay. The average yield reaches 4,877 kilograms per cow in the Leningrad region and 3,983 kilograms in the Moscow region, according to the Agriculture Ministry.
The volume of milk processed at enterprises came to 13 million tons last year, a staggering drop from 40 million tons a decade ago, according to former Deputy Agriculture Minister Valery Sergeyev. About half of that milk was processed at 3,200 dairy companies, of which only 80 could handle more than 50 tons of milk daily, Sergeyev said, adding that 46 percent of all milk-processing companies are loss-making.
The biggest processing plant is the Moscow-based Lianozovo, which belongs to Wimm-Bill-Dann and processes up to 1,500 tons of milk daily.
Wimm-Bill-Dann supplies about 70 percent of all milk and up to 65 percent of all yogurt consumed in Moscow, according to the MEMRB marketing agency. The leading producer in St. Petersburg is Petmol, processing 400 tons of milk a day and supplying the city with about 50 percent of all milk and up to 34 percent of all yogurt, MEMRB said.
Wimm-Bill-Dann and Petmol, together with Moscow-based producers Danone, Ostankino, Campina and Parmalat, have cornered a 65 percent share of the dairy market in Russia's nine largest cities, according to the AC Nielsen marketing agency. The cities include Moscow, St. Petersburg, Novosibirsk, Yekaterinburg and Nizhny Novgorod.
Although production of dairy products like cheese and powdered milk are far below 1990 levels, it has been steadily growing since imports were slashed by the 1998 financial crisis. Sales of Russian-made pasteurized milk have jumped 41 percent, while kefir and low-fat yogurt sales have grown by 59 percent and 66 percent, respectively, according to AC Nielsen's nine-city survey. Sales of other kinds of yogurt have soared by 170 percent.
Consumption of dairy products is far below the average in Western countries and the recommended 360 kilograms per person a year set by the Russian Academy of Science.
"In developed countries, milk consumption is about 400 kilograms a year," Labinov said. "We were close to these figures. But now average consumption is down from 386 kilograms in 1990 to an expected 220 kilograms this year."
Issues to Be Tackled
A major problem facing the dairy industry is a dramatic shortage of qualified professionals, according to the Dairy Union.
"The leaders of farms are mostly technical experts, not creative professionals," Labinov said. "Every fifth farm has no animal experts. Hardly anyone knows how to craft a proper diet for cows, with a proper balance of vitamins and minerals. No one knows the proper time to impregnate a cow -- and a cow is not just a machine that consumes grass."
Cows are especially badly fed in winters. Early in the spring, one can see scrawny cows jumping nervously like grasshoppers as they are led out of stuffy, dirty barns after the long winter.
Most farms for that reason are unable to impregnate cows so as to maximize their milk production. Ideally, cows should give birth every 305 days on average and, thus, give more milk throughout the year.
A quarter of all cows do not give birth even once a year, according to the Dairy Union.
Attracting professional farmers is next to impossible since the average wage is 400 rubles a month.
Another problem in the dairy industry is a chronic lack of quality fodder. Most of the country's 350 mixed fodder plants have folded over the past 10 years, and only 88 plants currently offer their production on the open market. Another 40 foreign competitors are trying to fill the niche, the Dairy Union says.
However, "the key problem that explains technological backwardness, low efficiency and the loss-making of milk production in Russia is the almost total absence of investment in the industry," Vladimir Kharitonov, academician with the Russian Academy of Agricultural Sciences and president of the Dairy Union, wrote in a recent article.
Private investors are reluctant to put money in dairy farms because of the high risks involved and long return on investment. Government support is also ineffective because it is not aimed at promoting profits, Kharitonov said.
The state still gives some support to insolvent farms, although it has become more selective in recent years. Dairy farms can rely on state funding if they breed pedigree cattle -- and then the state offers a miserly 1,400 rubles a year per cow.
Other farms can only get aid by requesting subsidies for interest on loans from commercial banks. The government earmarked 1.4 billion rubles ($50 million at the current exchange rate) for all of the country's 27,000 farms in this year's budget. The same figure is named in the draft 2002 budget.
No Use Crying Over Spilled Milk
Nevertheless, some farms are finding ways to prosper through the support of large milk-processing companies.
McDonald's was perhaps the first major company to lend a hand by leasing much-needed equipment to Barybino in the early 1990s. Other companies have followed suit.
Petmol of St. Petersburg in 1997 began leasing equipment to local farms, a move that has dramatically boosted milk production.
In one short year, the milk yield per cow grew from about 2,500 liters to 5,800 liters, Kharitonov said.
Petmol, which has leased $3 million worth of equipment, now works with 50 farms in the Leningrad region, including Grazhdansky and Agro-Balt. Those two farms account for 29 percent of all milk production in the region.
Wimm-Bill-Dann announced its own leasing program called Milk Rivers of the Moscow Region in 1999. Under the project, the company is leasing $20 million worth of equipment and technical assistance to 65 farms, including Barybino.
With its sights set on eastward expansion, Wimm-Bill-Dann has also teamed up with several farms in the Krasnoyarsk and Novosibirsk regions and is planning to lease equipment to farms in Bashkortostan and Nizhny Novgorod.
"As a result of our cooperation, milk supplies from these farms have increased by 15 percent, and the quality of milk has improved to an even greater extent," said Maxim Byrdin, director of Wimm-Bill-Dann's milk department.
The farms are also pleased.
"What Wimm-Bill-Dann is doing could be called the fulfillment of the state function to support milk production," said Yevgeny Atmashkin, general director of the Lotoshino farm, which has received about $700,000 worth of equipment from the company.
A War for Good Milk
Competition for milk supplies is growing in the Moscow region after Danone, Ehrmann and Campina opened processing plants in 2000, leading some farms to accuse each other of conducting secret deals.
"It is very difficult to find a supplier that can sell 10,000 liters or more of milk daily," said Andrei Zhdanov, head of the supplies department at Ehrmann. The German company runs a $40 million plant in the Ramensky district.
"As a rule, such farms have long-term agreements with the processing plants," he said.
Zhdanov said that Ehrmann obtains its milk from the Moscow, Vladimir and Ryazan regions and its biggest supplier -- which he refused to name, calling it a commercial secret -- provides 35,000 liters of milk a day.
Danone spokesman Vladimir Romantsov agreed that it is hard to find farms that produce high volumes of "clean milk with high protein content and can supply more milk in winter than in summer."
He also refused to name any of the farms that supply milk to Danone's $45 million plant in Chekhov, which produces 70,000 tons of dairy products a year.
Danone has been accused by some farm directors of trying to persuade farms to breach long-term contracts with Wimm-Bill-Dann by offering higher prices, an allegation Romantsov denied.
"No, we do not offer anyone higher prices than Wimm-Bill-Dann -- these prices are set by the market," he said.
Sergei Noskov, Campina's manager for raw milk deliveries, acknowledged, however, that Western firms tend to pay more for high-quality milk.
"The competition between dairy farms for processors and the processing plants for farms with good management, technology and high-quality milk has increased," he said. "This trend became especially clear with the appearance of such processing plants as Campina, Ehrmann and Danone -- enterprises with high demand for high-quality milk and with the means to pay higher prices than Russian plants."
Campina, a Dutch company, processes 120 tons of milk daily at its $50 million Stupino plant.
Noskov said Campina buys milk from 18 farms in the Moscow and Vologda regions. The biggest supplier is Sergiyevskoye in the Kolomensky district of the Moscow region, which provides 28 tons of milk a day.
Danone, Ehrmann and Campina said they provide equipment to partner farms, but only Campina would say how much it has invested. Campina earmarks $1.5 million a year to supply farms with milking and cooling equipment, agriculture machinery, laboratory equipment and fodder.
While such investment programs help keep farms going and growing, they are not without their critics.
"This kind of support in fact has the danger of making milk producers dependent on dairies," said Andreas T?uber, head of the department of consumer protection, food and agriculture at the German Embassy. T?uber is a member of a team of German agriculture experts who have been implementing a project to rebuild the dairy industry in the Moscow region since 1992.
"German experts believe that these economical and financial efforts could be ideally supported by an independent advisory service, which now turns out to be sustainable," T?uber said.
The project, financed through the German Transform program, has already invested 3.5 million Deutsche marks ($1.64 million) in its efforts. The program first focused on animal breeding but has since then become more production-oriented, T?uber said. Last year, it oversaw the creation of the service company Milk Manager, which advises local farms on professional matters. Sixteen farms currently pay Milk Manager a monthly fee for consulting services.
Milk Manager, run by German-trained Russians, is to become self-supporting at the beginning of 2002.
"We advise farms on the economics of milk production, preparation and storing of fodder, use of equipment, breeding and reproduction of the cattle," said a representative of Milk Manager who asked not to be named. "Farms are supposed to mobilize all their internal resources and work in the most efficient way.
"If all our advice is followed, we guarantee an increase in milk production of 10 percent to 20 percent a year."
An Owner Needed
One of the biggest problems at any given farm after the state stopped managing agriculture is a lack of a khozyain -- an owner. The farms are technically privatized, but their shares are disseminated among hundreds of employees.
"Farm directors are simply not interested in the development of their business," said one dairy industry expert who did not want to be identified. "You just look at their cars when they come to meetings -- the very best brands, really expensive ones.
"Owners would never adopt such conspicuous consumption because it would be their own money. Only after they become owners, will they become interested in the development of production for profits."
A mechanism to transform shares into real property is yet to be developed. Many experts fear that the process would hardly be different from the scandalous privatization of industrial assets in the mid-1990s.
Nevertheless, the move to concentrate shares with owners has started, said Uzun of Rosagrofond.
"Farms are being taken over by people with money who will be able to attract good professionals to manage their farms," he said. "Yes, this will lead to the sacking of unneeded workers and impoverishment to part of the rural population. ... But this is what is inevitably going to happen."
Uzun predicted that large diversified farms are the future of Russian agriculture.
There are already a few examples of such farms: Barybino with a dairy unit, pedigree unit, meat unit, grain-production unit and even honey unit. Lotoshino's big dairy unit grows rape and has plans to grow flax, which is in demand in the textile industry.
"The time was and is now difficult, but it is interesting and challenging at the same time," said Atmashkin at Lotoshino. "I would never want to go back to the Soviet past. There are many more opportunities for those who want to work now."