Wheeling and dealing in the new Wild West

“We had some

equipment over there and the farm manager decided he would keep my passport until he was sure that the equipment worked well.”

– KEN KOTOWICH

Doing business in Russia is exciting and lucrative, but not for the faint of heart.

“It’s like having a pet 980-pound Kodiak bear. He’s with you, he’s on a leash, but anytime he wants to, he can eat you,” said Ken Kotowich, export sales manager for MacDon, who has been making deals in the former Soviet republics since 1992.

Corruption, kidnappings, and assassinations of business rivals in Russia make headlines, but Kotowich said that he has never found himself in serious trouble in all his years of working there – and never lost money – as he racked up an estimated $500 million in sales over almost two decades.

“I’ve never been kidnapped, but I was held hostage one time,” he told the Manitoba Agricultural Hall of Fame annual meeting.

“We had some equipment over there and the farm manager decided he would keep my passport until he was sure that the equipment worked well. There was no ransom; we just had to make some adjustments.”

COLLAPSE OF COMMUNISM

Left with obsolete, broken-down equipment after the collapse of communism, the Russians have always been eager to buy modern machinery from the West.

But in the early days, getting paid was more than half the battle, said Kotowich, 60, who grew up on a mixed farm near Winnipeg, graduated with a plant sciences degree from the University of Manitoba, and landed his first job at Mackenzie Seeds in Brandon.

In the early 1990s, the Russian ruble was virtually unconvertible, so western companies had to resort to creative means to swap suitcases full of the currency for American greenbacks.

One tactic that worked for a while was to take the money to Hungary and exchange it for forints, then trade that into hard currency.

“Then even that became too difficult, so we started to do barter. I remember taking 3,000 tonnes of sunflowers for nine air seeders in Ukraine,” said Kotowich.

“We had to use a German broker, who, when we got the sunflowers on the boat in the Sea of Azov, would give me a cheque so I could unload the equipment. We had a lot of fun, but it was complicated.”

IMPROVEMENTS

Over time, as the Russian economy improved in the mid-1990s and the ruble’s value stabilized, local banking and finance began to function more smoothly. But then in 1998, an economic crash sent the ruble plummeting to a quarter of its previous value.

“Everything we had started just blew up,” he said, adding that the hard times continued for about 18 months before the economy began to recover again.

Until last September, when the global economic meltdown started to hit hard and oil prices plummeted, many of the former Soviet republics were awash in oil money, and sales were brisk.

“Everyone was doing really well. There was something like $3 billion worth of equipment that went into Russia in 2008,” he said. “Everybody was primed to do $5 billion in 2009. But then the bear started to bite.”

Under pressure from local manufacturers, a 15 per cent duty was slapped on imports, and the good times for foreign dealers ground to a halt.

“Fortunately, we ducked under the wire and didn’t get hurt much. We are selling more there this year than we were last year.”

Before the financial crisis, the Russian government had stepped up its efforts to more equitably distribute wealth and promote economic development, and began to require that the oil-rich oligarchs and entrepreneurs sink some of their wealth into reviving the former collective farms which had been cut adrift after the end of communism.

Many of the mega-farms, which may cover as much as 10,000 hectares and employ 400 people, are keen to develop modern farming practices, and often place large orders of up to 50 machines at a time.

Kotowich said that the former Soviet states are just beginning to unleash their awesome agricultural power. In Ukraine, he estimated that there are 12,000 collective farms in various stages of development, and many more in Russia. Many of the farm workers there, however, are destitute, and lack basic amenities such as electricity and running water.

CREDIT CRUNCH

The credit crunch that began last fall is punishing the ag sector in Eastern Europe, he added. Currently, interest rates run anywhere from 20 to 30 per cent, and terms are only negotiable for up to one year at the longest.

“There will be more bad news there before there is good news. It’s seeding time and they don’t have fuel, money or seed and they are trying to fulfil contracts. It’s going to be horrid, I think.”

In the long term, the outlook for foreign equipment dealers is bright, considering that 50 per cent of the equipment in use is outdated and must be replaced, and the land is very fertile. For investors, there are still vast tracts of land remaining in areas off the beaten track, he added.

“There is tremendous potential for growth by companies that want to take the risk and understand how to do business there,” said Kotowich.

“If you want to do business there, now is the time to do the groundwork, make the contacts, see who has survived and consider maybe doing a joint venture over there in some way.”

For those interested in visiting the country for the first time, he warned that almost all signs are in the Cyrillic alphabet. Outside of Moscow and the major cities, English speakers are few.

“If you are doing business over there, pay the money to get a good interpreter.” [email protected]

About the author

Comments

explore

Stories from our other publications