Russian Market Observations: Import Quota System Expected to Be Implemented by 2025; Domestic Production Continues to Advance

Date:01-10-2025

In March 2022, just a month after the outbreak of the Russia-Ukraine war, AgroPages conducted in-depth group interviews with several Russian agrochemical companies to understand their operational status, response strategies, and preparations for the future at the onset of this geopolitical storm (see article: Dialogue with Russian agrochemical enterprises: Accelerating the process of capacity expansion, adjuvant supply chain may be rebuilt). 

Three years have passed, and the international agrochemical market has also experienced unprecedented fluctuations. Under continuous international sanctions, Russia has gradually demonstrated its ability to adapt and strengthen itself through precise adjustments and support of domestic policies.

The dawn of 2025 has arrived, and the urgency of global food security is increasingly evident. Russia plays a crucial role in ensuring global food security. As the war seems to be approaching its final stage, we once again focus on Russia's agricultural and agrochemical markets. 

We invited experts from three leading Russian agrochemical companies: Mikhail Danilov, General Director of Avgust, Aleksandr Zhelonkin, Executive Director of Agro Expert Group, and Anastasia Romanovskaya, Marketing and Export Director of Lysterra. They will introduce how Russian agriculture has rapidly developed under policy support in the past few years and the resilience of enterprises under financing and international payment restrictions. They will also share their latest views on the development of the Russian agrochemical market after the war, including the pesticide import quota policy and the re-evaluation and adjustment of dependence on external suppliers.

Aggressively Promoting Domestic Agricultural Development; Financing and International Payments Become Limitations

The development of Russian agriculture has been full of twists and turns. Mikhail Danilov, General Director of Avgust, recalled that about ten years ago when Crimea was incorporated into Russia, the US, and the EU imposed sanctions on Russia. In response, Russia implemented a food embargo policy, prohibiting the import of beef, pork, poultry, fish, seafood, cheese, milk, fruits, vegetables, and other food and raw materials from unfriendly countries. This move was like a double-edged sword, causing short-term impacts on the trade pattern. However, in the long run, it became a key opportunity to drive the development of domestic agricultural production in Russia.

Under the guidance of policies, Russia vigorously promoted agricultural development. By subsidizing investment credit interest rates and other means, domestic agricultural production and processing were rapidly expanded and strengthened. The annual interest rate for long-term investment credit in rubles was only 2 to 3%, and such favorable credit conditions greatly stimulated the investment enthusiasm of agricultural enterprises. Advanced farming technologies and equipment were widely applied, and agricultural production efficiency was greatly improved. As a result, the level of agricultural industry technology and production development in Russia has reached a new stage.

In this process, Russia not only successfully ensured its food security but also greatly enhanced its export potential. Even facing the fluctuations in world crop and livestock product prices, the financial situation of Russian farmers has been significantly strengthened. Danilov said that, at present, the Russian federal government and the Central Bank of Russia are taking measures to curb the rise in food prices. These measures include implementing quotas and export tariffs on agricultural products and processed products, raising the benchmark interest rate, and subsequently increasing the interest rates of commercial and subsidized loans of farming enterprises. Under the circumstances of rising prices for many means of production (mainly agricultural machinery), these restrictions pose a challenge to inefficient land users, who may go bankrupt. In contrast, efficient landowners may expand the area of land under their control.

Anastasia Romanovskaya, Marketing and Export Director of Lysterra, believes that the most significant new trend in Russian agricultural production at present is rapid development, with all kinds of crop yields at a high level, which has made its position in the international agricultural product market increasingly prominent. Russia has become the largest exporter of wheat and flax, occupying an essential share in the global wheat trade. Its high-quality wheat products are sold all over the world, making a crucial contribution to ensuring the global food supply. At the same time, Russia is also among the top three exporters of sunflower and rapeseed, and its rich oilseed resources have strong competitiveness in the international market.

In the process of rapid development of Russian agriculture, there are also many challenges. Financing issues have become a significant bottleneck in the development of agriculture. Romanovskaya talked about how, similar to the global agricultural market, Russian agriculture also faces the problem of high credit interest rates, which dramatically increase the financing costs of agricultural enterprises and bring considerable pressure on their capital turnover and production and operation. In addition, the continuous rise in the price of industrial inputs further compresses the profit space of agricultural enterprises. There are also some problems with international payments, such as the sanctions from the US causing Russian agricultural banks to disconnect from SWIFT, making global payments very difficult, affecting the import and export trade of Russian agricultural products, and limiting its further expansion in the international market.

Moreover, Romanovskaya said that the import seed ban in the 2024 season had also once affected Russian agriculture. Farmers were worried that the shortage of seed supply would affect sowing and production plans. However, this predicament also prompted the Russian government to increase support for the domestic seed industry, invest more funds in seed research and development and production, gradually achieve self-sufficiency in seeds, and reduce dependence on imported seeds.

Farmers' Planting: Actively Introducing Efficient and Innovative Pesticides; Seeking Favorable Credit Conditions

In today's global agrarian landscape, Russian agriculture has been deeply integrated into the world market and is highly sensitive to global price fluctuations. Danilov is optimistic about farmers' investments. He believes that even if investment activities are somewhat reduced, in the near term, neither the ups and downs of global food market prices nor the many restrictive factors such as sanctions, monetary policy tightening, and export quotas and tariffs will cause a sharp downturn in the situation of Russian agriculture. In terms of cultivated land area, the possibility of significant changes is minimal; the impact of weather conditions on crop yields and total output is greater than that of political and market factors. At the same time, Russian farmers are well aware of the key role of pesticides in maintaining yields and reducing production costs, so they have not reduced the use of pesticides. Based on this, Russia continues to consolidate its food security defense and occupies an important position in the global crop product export field.

Pesticide registration plays the most critical role in Russian agriculture. According to Romanovskaya, at present, Russia has a unique government control system that can accurately track the use of every liter of pesticide. This makes the range of registered crops have a significant influence on the farmers' planting decision-making process. In addition, the balance between price and quality is also a key consideration for farmers. If farmers trust the producer or seller, they are willing to pay a slightly higher price for products of somewhat better quality, as quality is related to whether it is possible to obtain the maximum yield in the limited planting season. Once the opportunity is missed, it may lead to the loss of the whole season's harvest. Especially for the planting of profitable crops such as orchards and vineyards, where up to 20 treatments are carried out per season, the role of innovative products cannot be ignored. As long as the product is unique and has proven its effectiveness, farmers are willing to pay for it to solve practical problems. In addition, the cost of agricultural machinery puts considerable economic pressure on farmers, and its high price forms a sharp contrast with pesticides and agricultural chemicals. Nevertheless, since agricultural production cannot be separated from mechanical operations, farmers have to purchase them. This situation has also prompted Russia to vigorously develop its own agricultural machinery construction industry, which is showing a better development trend year by year.

Aleksandr Zhelonkin, Executive Director of Agro Expert Group, believes that the cost of planting crops is continuously rising, with the prices of production materials such as fertilizers, pesticides, and agricultural machinery showing a clear upward trend. This cost pressure is gradually spreading to more marginal crops, which has had a particular impact on farmers' input decisions. At the same time, due to the tightening of monetary policy, farmers' demand for credit term contracts has significantly increased. They are looking for more favorable credit conditions to maintain the continuous development of agricultural production. A series of factors are intertwined, shaping the current development path and future direction of Russian agriculture.

Multinational Companies Exit the Market and Return in a Roundabout Way, and the Share Has Leaned Towards Domestic Enterprises

In recent years, the activities of multinational companies in the Russian market have shown a complex situation, and the original market balance has gradually been broken. Both Danilov and Romanovskaya said that after the outbreak of the war, some multinational companies took action, but only Corteva and FMC, two American companies, announced their exit from the Russian agrochemical market. Danilov revealed that FMC later returned under a new name and trademark, and other companies supporting sanctions also had similar situations of exiting and then returning in a roundabout way. Therefore, as Zhelonkin said, although the activities of multinational companies in the Russian market have decreased, it is not sure whether this is a stable trend. At the same time, large multinational companies such as Syngenta, Bayer, and BASF still choose to stay in the Russian market. Syngenta has even established a formulation factory in Russia.

In contrast, Russian domestic companies actively respond and seek development, and the market is witnessing the redistribution process of its share leaning towards domestic enterprises. Zhelonkin said that Agro Expert Group had prepared for this situation and increased the production of products that could potentially replace the output of multinational companies that were leaving the market. Danilov is confident in the development of Avgust. He revealed that the agricultural chemical treatment area of Avgust was close to 60 million hectares in 2023 and more than 65 million hectares in 2024. For many years, it has been in a leading position in Russia, and its product range is continuously expanding. The company pays great attention to product quality. Although it does not have products based on patented active ingredients, 99.9% of the formulation products it supplies are produced in its ultra-modern formulation factories, which meet world standards, and high-level experts provide comprehensive information and technical support for product application. The company also controls 285,000 hectares of farmland, used to demonstrate the efficiency of technology and products, and is about to complete the construction of Russia's most advanced plant protection research and development center, which will expand the company's R&D capabilities and consolidate its position in domestic and foreign markets.

Lysterra has developed production bases and built new workshops to expand production capacity. Romanovskaya mentioned that in the process of creating the market, the company indeed faced the problem of labor shortage and the unwillingness of the younger generation to engage in agricultural work. Another major challenge is financial expenditure, such as the need to provide long-term credit of up to 180-210 days to support farmers. At the same time, in most cases, Russian enterprises need to pay foreign suppliers in advance, which puts tremendous pressure on financial stability. In the process of business promotion, the costs of demonstration trials, exhibitions, and field visits cannot be abandoned, so there are still many inevitable costs in the business, but the company is still striving to develop, seize the opportunity of the increase in the share of Russian producers, and move forward actively.

Import Quota System: In the Final Approval Stage, Expected to Take Effect in 2025

To further encourage domestic pesticide production, the Russian government has planned to implement a quota system for the import of crop protection products in recent years. The purpose of this policy is to prevent the shortage of certain products, improve the utilization rate of domestic factories, establish new production supply chains, and achieve the domestic production of pesticide-active ingredients through quotas. Undoubtedly, the implementation of the import quota system will have an impact on previous trade partners. How is the progress of this plan? What is the attitude of domestic enterprises towards it?

Romanovskaya said the import quota has been discussed for a long time but has not yet been implemented because its mechanism needs to be improved. Otherwise, farmers may face a shortage of certain products. All participants need to be ready to meet market demand, which is the primary task, so it is still in the preparation stage.

She further stated that once the policy is implemented, it will be a good development opportunity for Russian enterprises, promoting the development of Russian production and food safety. From an investment perspective, companies will have to localize production to have unlimited quantities, which will bring opportunities to invest in local producers or build new production bases. From a strategic investment perspective, once the agrochemical product import quota system is implemented, enterprises will carefully weigh the pros and cons and choose to localize production in Russia. This strategic shift will create broad prospects for investing in local agrochemical producers or building new modern production bases.

Danilov pointed out that restricting the import of certain agricultural chemicals is reasonable and necessary to ensure Russia's economic and food security. It can reduce import dependence, protect domestic crops, and create advantages for Russian companies in the production of agricultural chemicals, which Russian pesticide producers welcome. Currently, the introduction of quotas is in the final stage of negotiation and approval. It is expected to take effect in 2025, targeting only those imported products that have similar products in Russia. At the same time, Danilov emphasized that the import pesticide quota issue is not only beneficial to domestic producers but may also have a synergistic effect, promoting the positive process of the Russian pesticide market and the entire chemical industry. For example, it can encourage former importers to build production facilities, use domestic production facilities for tolling, invest in the scientific and labor potential of Russia, restore the production of active ingredients, etc. All these will help strengthen the Russian economy, increase budget revenue, and promote the growth of the domestic output and the labor market.

Production Stability and Supply Chain Crisis: Truly Reliable Partners Have Been Tested

In recent years, the rapid development of the global pesticide market has been put on hold. Zhelonkin said that various factors in the industry have undoubtedly brought shocks to the entire market, and influenced on Agro Expert Group also. Due to market changes, they had to look for alternative solutions for trace amounts of components urgently. Fortunately, the company's R&D potential and professional development team played an essential role during this critical period. With the wisdom and efforts of the team, they were able to adapt to the new reality as soon as possible, ensuring the continuous and stable development of the company's business. Although the logistics chain has been improved, the increased delivery time of components still had a particular impact on the company, but the company controlled this impact to the minimum through reasonable planning and adjustment.

Danilov pointed out that compared with the energy crisis suffered by China and the EU from September 2021 to the beginning of 2023, the impact of sanctions and logistics challenges on the Russian pesticide industry is relatively small. Over the past few decades, China has been the leading manufacturer of chemicals in the world, and nearly two-thirds of the active ingredients used by Russia and all multinational companies are synthesized in China. Other raw material components are produced not only in the EU and the US but also in China and India.

Russia has long signed contracts with China in yuan, and even after 2022, this cooperation model has not changed, ensuring the stability of trade between the two sides. However, due to the risk of secondary sanctions from the US, mutual settlements with China have become complicated. Despite many difficulties and additional transaction costs, Russia and its partners have worked hard to find solutions and finally ensured the stability of supply and payment. Looking at the US secondary sanctions policy, the trade volume between Russia and friendly countries is considerable. Due to the transaction costs related to mutual settlements in trade, all parties have invested billions of rubles in developing new effective mutual payment mechanisms. It can be affirmed that the considerable investment in the development of alternative mutual payment systems will not lead to the interruption of trade between Russia and other countries but will simplify the process and create a more stable and independent development environment for the Russian pesticide industry and other trade fields.

Romanovskaya recalled that when the Western sanctions were imposed, they had already prepared for the next agricultural season. In this process, she thanked their business partners for helping them find similar materials for the missing raw materials. Although the process was full of difficulties, as she said, with support, everything is possible. Now, the Chinese and Indian pesticide adjuvants they use have proved their quality and stability in practical applications, so the company will not easily change suppliers. During this period, some Russian scientific research institutions also actively participated, assisting in formulating recipes and conducting tests, fully reflecting the spirit of mutual cooperation and overcoming difficulties together in the face of challenges. In this challenging industry environment, only by becoming truly reliable partners can one survive and develop in adversity.

Re-evaluation and Adjustment of Dependence on External Suppliers

After experiencing complex market challenges, Russian domestic pesticide companies pay more attention to building long-term and stable cooperative relationships with suppliers. Their experience coping with crises has made them cherish the reliability of partners more, thereby consolidating their reputation.

Danilov pointed out that for a long time, Russian enterprises have established successful cooperative relationships with suppliers of active ingredients and adjuvant formulations. In the past few years, facing severe challenges such as the global pandemic of COVID-19, the energy crisis, and the illegal unilateral restrictions implemented by unfriendly countries, both sides have moved forward together. Now, although they are facing a difficult period again, these experiences have fully proved the reliability of partners, which has extensively promoted the establishment of corporate reputation and the consolidation of long-term cooperative relationships.

From a macro perspective, the current Russian pesticide market urgently needs to reduce its dependence on the supply of foreign active ingredients and adjuvant formulation components, and carrying out production domestically is the key to reducing this excessive dependence. Danilov confidently stated that the new scientific research center of Avgust will play an active role in achieving this goal. The center is scheduled to start operation in 2025. It will become the most prominent plant protection technology R&D center in Russia, with the development of active ingredient synthesis technology being one of the critical research areas. He believes that the Avgust Scientific Research Center will closely cooperate with Chinese partners, not only helping them as suppliers of active ingredients but also attracting them as production investors to enter the Russian market. Given that Russia has the conditions to produce a variety of low-tonnage chemical intermediates and has sufficient domestic raw materials and energy resources, such investments are expected to show strong appeal.

Rendering of August's new scientific research center in the Moscow region

Zhelonkin believes that it is feasible to reduce dependence on external suppliers to a certain extent, but the scope is relatively limited. Given the relatively weak production capacity of active ingredients in Russia at present, the paramount consideration at this stage is to reduce dependence on secondary components. To this end, Agro Expert Group actively establishes cooperative relationships with local secondary component manufacturers. Zhelonkin revealed that many local projects for the localization of the production of secondary components for pesticides have been launched recently. In addition, Agro Expert Group is also committed to independently developing secondary components, aiming to use lower-cost raw materials by increasing the degree of conversion, thereby reducing production costs and enhancing competitiveness. In terms of supplier selection strategy, Agro Expert Group has long adhered to the path of strategic cooperation with suppliers and establishing long-term stable relationships. Despite many turbulent factors in the macro environment, this long-term cooperation model has achieved significant results in ensuring stable supply and providing strong support for the stable development of the enterprise.

Romanovskaya said that Lysterra fully demonstrates the stability of the enterprise by actively participating in exhibitions, warmly inviting business partners to visit the headquarters and production bases, and strictly complying with regulations in all matters. Romanovskaya revealed that Lysterra's funds and output have been growing every year, which is a significant sign of the continuous expansion and good development status of the business. At the same time, the company launches 3 to 5 new products in the Russian market every year, which fully reflects its strong momentum and firm determination for continuous development.

Lysterra's production base in Ryazan

Looking to the Future: "Inaction Breeds Fear, Action Breeds Confidence!"

Looking to the future, Russian domestic enterprises are actively exploring development paths. By focusing on technology research, development, and innovation, they are committed to developing a diversified product portfolio and expanding their business territory by being involved in multiple links to the agricultural industry chain. In terms of market expansion, while consolidating their domestic market share, they are also actively entering the international market, seeking development opportunities in the CIS countries as well as in a broader range of regions such as Asia, the Middle East, and Africa. Through optimizing services, strengthening integration, and enhancing brand image, they improve their competitiveness and influence in the global agricultural market.

As a benchmark enterprise in the Russian agrochemical market, Avgust has always adhered to its core goal of helping farmers improve the profitability of crop production through technological innovation, thereby increasing business profits. Danilov said that around this goal, Avgust continues to expand its business territory. On the one hand, it continuously enriches its product portfolio, developing 10 to 15 new products every year to promote enterprise development. On the other hand, it actively implements large-scale investment projects, among which the construction of Russia's most prominent plant protection technology research and development center is particularly crucial. At the same time, the company has strengthened and upgraded its main production facilities in Russia, Belarus, and China. As an agricultural holding company, it is also about to complete significant investment projects in the fields of grain storage and transshipment and dairy farm construction. Russia is the core of its business, with about 2/3 of the plant protection products sold domestically and 60 representative offices covering all critical agricultural areas. In addition, it also occupies a considerable share in the external markets of more than 20 countries. It has long maintained a leading position in the related markets of Kazakhstan and Belarus. In the past few years, the company has continuously improved its business scale and image. In the future, it will focus on completing existing projects and optimizing technical and business processes.

Zhelonkin also demonstrated Agro Expert Group's international expansion plan. The company will continue to expand in the CIS region and plan to enter countries such as Azerbaijan and Armenia. The Russian pesticide market is considered a top priority due to its vast potential. The company has developed a strategy to promote vertical integration projects and plan horizontal integration, focusing on improving business, striving to increase the market share of non-commoditized products, and consolidating its position among key consumers by improving operational strategy and expanding domestic market coverage.

Agro Expert Group's factory in the Volgograd region and its workshop

In addition to the main pesticide business, Lysterra has also developed fertilizers and biological products. At present, the company has become a producer that provides a comprehensive solution system for crop protection and care, including a variety of chemical pesticides, nutrition systems, biological products, and various adjuvants. The company's products are not only supplied to Russian farmers but also exported to other countries in demand. The company has already carried out sales in the CIS countries and is now researching the possibilities of exporting to Asia, the Middle East, and Africa. Romanovskaya finally said, "Inaction breeds fear, action breeds confidence! We believe in our suppliers and customers, who help us to be more innovative and better day by day."