Stefan Dürr’s Milk Boiling Over

Stefan Dürr’s Milk Boiling Over
EkoNiva-APK, one of the Russia’s leading agricultural holding companies, has produced about 550,000 tons of milk in the first nine months of this year. The company's press service reported in mid-November 2019 the figure was 57 percent more than in the same period last year.

The press-release also says that nine modern dairy units for more than 28,000 milk cows were commissioned this year. By the end of 2019, EkoNiva-APK plans launching three more units for more than 11,000 cows.

Why is the company, which is owned by a German citizen, enjoying huge preferences from the Russian authorities while the domestic agricultural producers have to be on a tight budget?

At a first glance, we should be happy that the company, founded and headed by a native of Germany, Stefan Dürr, is successfully developing in Russia, providing rural dwellers with jobs and filling our stores with the healthy and tasty product -- milk.

However, not everything is so clear with its healthiness. For example, recently, Emmanuel Faber, the chief executive officer of the French company Danone, who is obviously difficult to be accused of milk counterpropaganda, said in an interview with RBC that the world consumption of dairy products might fall 20 percent, as people are looking for an alternative to animal products. Besides, smaller consumption of dairy products will be good for health.

However, milk production in Russia has been increasing from one year to another. Stefan Dürr’s company has been also making a significant contribution to this process. However, experts believe that EkoNiva's rampant development is not based on competition, but on protectionism.

In November this year, EkoNiva asked to grant property tax exemption to its Novosibirsk branch. Stefan Dürr put it baldly at a meeting of the regional investment council. “I would like to mention that we don’t even have to discuss the property tax issue in other regions where the company has its representative offices,” Dürr said categorically. Apparently, the regional authorities are ready to meet his requirements, as, in fact, as the authorities of other constituent territories of the Russian Federation have already done.

When EkoNiva announced this spring that it had a plan to build a stock breeding complex in the Altai territory in West Siberia, the local officials immediately named that project one of the priority tasks. As a result, Dürr got 14,000 hectares of farmland for growing fodder without any bidding contests. Ten thousand hectares were taken away from other farmers on the pretext that they had been allegedly “unscrupulous” landholders.

Russian banks have been meeting Dürr’s requests, too – they issue loans to his company at concessionary interest rates. For example, Rosselkhozbank has provided it with19 bln rubles loan for the construction of a dairy and meat complex in the Novosibirsk region that cost 20 bln rubles. The remaining billion was not EkoNiva's own money, but a part of its previous loan. It turns out that Dürr has taken out a new loan to repay the previously borrowed money. In this situation, the banks’ actions are quite unconventional -- in fact, they continue to give loans to Dürr’s company at pathetic interests, although the signs of a classic pyramid scheme are plainly visible.

In the meantime, EkoNiva's accounting reports show that its paying capacity is heading towards zero. Whereas in 2018 the company's financial liabilities exceeded 800 mln euros, this year, judging by the dynamics, they will reach 1 bln euros.

By the way, Stefan Dürr himself does not make any secret of it, saying that if the loan rates were higher than 2.5-3 percent per annum, his agricultural holding would not be able to repay its loans.

On this backdrop, the majority of other dairy producers cannot even dream of such privileged loan rates that Russian banks offer to Dürr. Some experts explain it by the fact that this winter Stefan Dürr became a chair of the National Union of Milk Producers (Soyuzmoloko), replacing its founder Andrei Danilenko. Interestingly, the Russian association is headed by a German citizen, and his predecessor held a US passport for ten years.

However, even before taking this post Dürr had enjoyed exemptions. Probably, he gets the greenlight in the corridors of the regional power because EkoNiva is the largest and the most efficient milk producer in Russia, and Dürr himself is a very well-known person.

Experts, however, have a critical view of his roaring success in milk production. In their opinion, with all other conditions being equal, a two-thirds difference in milk yield is simply impossible. And this is exactly how EkoNiva explains for its efficiency, saying that its cows produce 70 percent more milk than the cows of other Russian producers. Market experts are confident that there are only two ways to achieve such results -- by giving cows certain chemical supplements or by buying milk from the locals and claiming it as its own. Or by doing both at the same time.

The significant and rapid increase of the milking herd, which Stefan Dürr is talking about, will lead to a sharp increase in the production of raw milk. But today, it is not possible in Russia, as the country lacks the necessary conditions for a growth of this kind. According to experts, in the coming years, there will be no new infrastructure.

Today, EkoNiva operates in twelve regions -- Voronezh, Kursk, Novosibirsk, Kaluga, Ryazan, Moscow, Orenburg, Tyumen, and Leningrad, as well as in the constituent republics Tatarstan and Bashkiria, and in the Altai territory. Dürr's expansion there has led to the fact that other agricultural producers simply do not receive any subsidies from the government. The lion's share of them has been spent for supporting EkoNiva.

It turns out that such a fundamental support for EkoNiva is turning against other dairy market operators in Russia, sometimes causing even direct damage. Such protectionism may backfire in the future when, for example, banks stop giving soft loans to Dürr. Then EkoNiva's ultra-high debt overburden may lead to its bankruptcy. As a result, dairy production will drop significantly, because other companies that are on the fringes of the government’s attention will not be able to replace quickly the “boiled over” milk of the German businessman Stefan Dürr.