To Russia With Potatoes

Steven Lawtiens just wanted to farm. But, in his native Holland, an agronomist’s degree and farming skills handed down by his father were not enough to start a farming career. He needed land, and, in Holland, land is at a premium. Over the last five years, the market price for land in Holland has doubled, to $60,000 per hectare. So why not rent a farm? Because you end up working just to pay the rent, with nothing left to live on. And then there are the production quotas. Holland, like most of Europe, is “suffering” from overproduction of foodstuffs. So farmers are allocated a production quota—without this, you cannot sell your goods.

So Lawtiens turned his eye eastward. For the past year he has been farming in Moscow’s Dmitrovsky district. The economics could not be more different from Holland. Here, land is plenty and cheap: just $300 per hectare. And, of course, Russia has no overproduction problems, quite the contrary. But it does have its own “specific” problems.

Lawtiens runs a 180 hectare farm which the Dutch firm he works for, Rassvet Flayvo, rented for 49 years. Rassvet Flayvo was set up as a joint stock company in 1998, with seven Dutch shareholders and a $1.5 million bank loan. The company initially sought to establish a dairy operation in Russia. But the August 1998 financial crisis scotched those plans and the firm decided to get into something that offered more immediate returns on investment. So they planted potatoes.

Last year, Lawtiens’ farm yielded 20 tons of potatoes per hectare. At the neighboring Yakhromsky sovkhoz (state farm), once a top performing local farm, the average yield was 7 tons per hectare. The huge gap in returns can be explained quite simply: Lawtiens had at his disposal state-of-the art agrotechnology, advanced equipment, special protective technologies for plants and first-class potato seeds.

And yet, despite such results, Lawtiens’ farm did not reap huge financial rewards. This, after all, is Russia, not Holland. Russians, Lawtiens said, are not yet used to paying for high quality foodstuffs. The average Russian is kept busy trying to buy a sufficient quantity of foodstuffs on a very limited income. So the market for Rasssvet Flayvo’s premium quality potatoes is still somewhat limited.

Perhaps Lawtiens came to Russian at the wrong time? When half of the population is spending all their incomes on food—how can we talk about quality? ... The Dutch farmer admits that these thoughts have dogged him more than once. Peering through the icy window at the snowy field outside, he says: “Winter too, will pass.”

Lawtiens is actually the second director of Rassvet Flayvo. His predecessor, Johannes Panman, did not last a year. The company was threatened. Not because Panman was a lousy director, simply because he was too Dutch.

“Panman fell prey to his own trusting nature,” Lawtiens said. “Year-round, he kept rehearsing like a prayer: ‘I don’t need aides, I am my own driver, my own interpreter, my own logistics manager and press-secretary.’”

A very naive—if not dangerous—business philosophy for Russia. Those who do business here know how crucial it is to find a trustworthy Russian one can work with. As a result, Panman was taken for a ride by everyone he came in contact with, starting with the tractor driver and ending with the director of the vegetable warehouse.

In the case of the latter, he offered Panman a “deal”: he would wholesale all of Panman’s potato crop for him at one ruble per kilo, then the two would split the profits. Back then, Rassvet Flayvo did not have its own storage facilities, so Panman had few other options. The vegetable warehouse director surely made money from Panman’s potatoes. But, according to his accounting books, there was no profit left to split after all the potatoes were sold—a story Panman apparently still believes, despite the fact that, for the past two years, retail prices for potatoes in Moscow have fluctuated between R5-6 per kilo.

Panman was simply too used to taking people at their word. Such blind faith nearly erased his Dutch shareholders’ dreams. The firm was on the rocks, so one of the shareholders, Ian Bakker, shouldered all the risk and bought up the stock of the other six founders. And then he hired a young new director, Lawtiens, and gave him carte-blanche.

Lawtiens’ first step was to hire a local farmer, Alexander Buchin, as his executive director. This despite the fact that Lawtiens had been working in the former USSR for the past four years—as representative of the Dutch firm Agrico in Minsk, then in Syktyvkar, Tyumen and even Yakutsk. Even with such broad experience, Lawtiens said he knew he could not fathom the whole of Russia in just four years, especially on his own. So today Buchin is, to use the old communist lingo, Lawtiens’ “eyes, ears, mind, honor and conscience.”

“The main thing is not to try to impose our European rules here. I’d rather change myself,” Lawtiens said. “And it looks like I am going to make it, right Alexander Ivanovich?” he adds, turning to his trusted Right Hand. “Don’t you worry, Steven, everything is under control!” the wise Buchin replies, rubbing his palms together to make his point.

This does not mean that Lawtiens turned a blind eye to the typical difficulties of doing business in Russia —i.e. theft and drunkenness. This is rampant at Lawtiens’ farm. In the run-up to the spring sowing campaign, Lawtiens was already on his third “rotation” of tractor drivers—very few can withstand the test of time. Lawtiens said that all he is looking for is ten reliable people who don’t waste precious working time on smoke breaks or drinking. But this seems to be even harder than selling the potatoes at prices that are well above normal Russian rates. But Lawtiens is bullish. Buchin told him it took their neighbors (a German agrofirm) ten years to stabilize their “staff composition.” Lawtiens also admits that he needs to cure himself of his “socialist views” where he gives his lazy workers too much benefit of the doubt. But he said he reminds himself of his priorities: high yields and high profits, not socialist laxism. This helps him change himself and focus on profits.

As if problems on his own farm were not enough, Lawtiens also has to worry about problems flowing over from neighboring villages. In a holdover from the late Soviet era, the residents of these villages consider potatoes growing in what used to be obschee (“common”) fields to be fair game. Villagers often “borrow” a couple of kilos from Lawtiens farm. Since the law is no help in this area, Lawtiens has to make his own law: he budgeted for armed guards. This is less expensive than incurring the “shrinkage” wrought by the neighboring villagers. It’s quite simple, really: a handful of workers with a well-thought-out “division of labor” can dig up one or two hectares of potatoes in one night. Ten quiet, dark nights and you have lost 10-15% of your premium potato crop.

And that is just the nights! Last September, a bus drove up to the farm’s field in broad daylight and kind-hearted, otherwise law-abiding citizens burst into the field and began filling their sacks with premium potatoes grown from Dutch seeds. The Soviet philosophy dies hard: “The state won’t get any poorer if I just take a few kilos for myself,” thinks the Soviet-minded potato picker. “Plus, I am actually doing the state a favor in the end, for these potatoes will all get rotten in the rain anyway.”

When Lawtiens and Buchin approached the potato poachers, the lesson in economics was not well received. “Comrades,” Buchin said, “excuse us, but these are our private potatoes.”

“Private?!” the comrade potato rustlers replied. “Come on, give us a break! Private potatoes are only found in a home garden.” Indeed, Russia does not have many large-scale, private potato growers, so the farmers had a hard time convincing the freeloaders to empty their sacks and hit the road.

Obviously, Lawtiens is not easily scared off by purely Russian difficulties. Ask him to list the most pernicious problems plaguing his operation and you will be surprised. What tops his list is not Russians’ disrespect for private ownership or the arbitrary behavior of Sheremetevo customs officers (who, he said, search him as if he were an enemy of the people, even though the most dangerous “contraband” he brings to Russia are spare parts for his Dutch tractors). He said he can even put up with the brackish water from the local artesian well, which somehow has been contaminated by sewers from the local cattle breeding farm. “After all,” he says, dismissively, “you can buy bottled water in Russia now.”

No, the biggest inconvenience Lawtiens admits to is the absence of “fricadel special”—the most popular type of fast food in Holland. “I will make a point of asking the Dutch ambassador to Russia to extend assistance and send me a whole truck of my favorite fricadels,” he jokes.

This reveals much about the seriousness of this Dutchman’s intentions—even a shortage of his favorite food doesn’t send him scurrying home. Of course, he has had something besides work keeping him “down on the farm.” What little spare time he had this past year he spent courting—and marrying—his pretty Russian wife Olga. Does his Russian wife like his job? “Let her get used to it,” Lawtiens answers laconically, like a true Russian husband.

In a late night conversation over strong tea, Lawtiens reveals that his hottest passions are Formula-1 racing and “looking for ways to reduce overhead.” The first passion might actually soon be satisfied on Russian soil: Moscow Mayor Yuri Luzhkov is reportedly considering bringing Formula-1 racing to Moscow. Cutting overheads, well, this may prove a more elusive dream.

“There is no way I can pay workers less,” he says, thinking out loud. “Even though their salaries are higher than at neighboring farm collectives ... It would be great to cut the rents on the potato warehouse and the land ...” This is just a pipe dream—Russian authorities are notorious for charging foreigners ten times what they charge Russians, be it for an entrance ticket to the Pushkin Art Museum or rent for a wooden silo in Dmitrov.

“But then you can cut labor costs by introducing new machines and mechanisms facilitating labor during storage, sorting and packaging of the potatoes,” Lawtiens says, his eyes shining with excitement. This is what he will likely spend last year’s profits on. Of course, he could try to take the profits back to Holland. But, then, repatriation of profits has never been the most attractive side of the Russian investment climate. For where else could a Dutch farmer find such a wife, such friends as Alexander Ivanovich and endless quantities of land at $300 per hectare?   RL

Mikhail Petrov is special correspondent for Tribuna daily newspaper. He writes on economic issues. This is his first article for Russian Life.