Greenhouse business in the Russian Federation. Development prospects

The greenhouse economy plays an important role in the agro-industrial complex, helping to solve serious problems of agriculture. It is a dynamic, high-tech, highly profitable industry, which requires high capital investments and operating costs when doing business.

How has the greenhouse market developed? What are the trends in the development of greenhouse farms in Russia and in the world? Experts of SBS Consulting answered these and other questions in the study, assessed the prospects for the development of greenhouses on the territory of the Russian Federation, formulated the main factors of success, risks and the tools to manage them.

Analysis of global trends in greenhouse production

Global trends:

• Greenhouse market growth: Since 2014, there has been rapid growth due to product sanctions against the EU, support from the Russian Ministry of Agriculture and a high share of imports of profitable vegetables (cucumbers and tomatoes).
• New technologies: Widespread adoption of 5th generation greenhouse technologies has significantly improved the business economics, increasing yields and reducing costs.
• Global agricultural challenges: High-tech greenhouses address climate, water and land challenges, delivering record yields and minimising environmental impact.

Greenhouse facility development:

• Slow growth until 2014: Greenhouse facility growth was no more than 1% due to high investment capacity and operating costs.
• Accelerated growth since 2014: Growth was around 5% per year from 2014 to 2018, with positive growth expectations of up to 11% in the medium term.

Analysis of the Russian greenhouse market

Trends and investment attractiveness:

• Uneven development: Greenhouse development mainly takes place in the European part of the Russian Federation and is limited to two crops - cucumbers and tomatoes.
• Investment attractiveness: The greenhouse business remains attractive to investors, even with the revision of state support programmes.

Challenges and limitations:

• High capital and operating costs: Modern greenhouses require significant construction and equipment costs.
• Technological development: Modern technologies such as climate control and LED lighting have significantly improved the greenhouse business economics.

Development potential of greenhouse production in Russia

Market structure and dynamics:

• Vegetable consumption: The recovery of vegetable consumption after the crisis of 2015-2017 is expected with a moderate growth of 2% per year.
• Seasonality of demand: Demand for vegetables has a distinct seasonality, with a peak in winter, when greenhouses are the main source of production.
• Import substitution: The main growth potential of greenhouses lies in the substitution of vegetable imports.

Growth projections:

• Greenhouse area growth: Greenhouses are expected to grow at 11% a year until 2020, with a slowdown to 2% after 2020 due to reduced government support.

SWOT analysis

Strengths:

• High profit margins for greenhouse production.
• Low cost of natural gas and local fertiliser production

Weaknesses:

• High capital and operating costs.
• Dependence on imported seeds and equipment.

Opportunities:

• Increased demand for pre-packaged vegetables.
• Development of exports to countries with distinct winters and without a significant number of winter greenhouse facilities.

Threats:

• Considerable power of retail chains.
• Increase in production costs due to ruble devaluation and increase in energy prices.

Key findings and recommendations

Key success factors:

1. Location: Minimisation of energy and logistics costs.
2. Technology efficiency: Maximisation of yield at minimum cost.
3. Sales function: Maximisation of mark-up on wholesale price and brand promotion.
4. Product and promotion: Building a strong brand and optimising promotion costs.
5. Government subsidies: Optimising loan servicing costs.

Recommendations for risk management:

• Diversification of the product portfolio and geography of greenhouses.
• Development of programs for the renovation of the greenhouse park.
• Harmonisation of the set of suppliers and development of an effective quality control system.
• Development of hedging programmes for currency and foreign exchange risks.

Conclusion

The development of greenhouse business in Russia has significant potential due to the growing demand for vegetables, government support and the introduction of modern technologies. For successful development of the industry, it is necessary to invest in new technologies, improve operational efficiency and actively develop sales channels. It is also important to take into account the risks associated with changes in the economic situation and dependence on imported equipment and seeds.