Gamechanger: Russian Agriculture and the prospect of Digital Currency Investment

Russia has been the focus of bearish ire for nearly a decade now. Having spent a considerable amount of time studying the Russian state and economy, I admit I have shared in this pessimism, particularly with regard to energy. However, just as new forms of energy are emerging, so too is the Russian economy rising to the challenges of the global economy by focusing on its extraordinary capacity for food production and export. Though large gains have been made in a relatively short amount of time, there is still considerable room for growth in a world of growing demand for the second most valuable resource on the planet, after water: food.

Just as the Russian and Soviet states required a large amount of foreign investment to develop their energy reserves and industrial economy, so too will 21st century Russia require the wealth and talent of the world to become its breadbasket. Though tensions with the West limit Russia’s ability to attract this kind of investment conventionally, the growth in digital currencies around the world present an opportunity to attract a new kind of investor and to this end the Kremlin has cautiously entered into discussions on digital currency policy and strategies. Though this article is in the realm of speculation, my aim is to highlight what could be an enormous opportunity for investors in the not too distant future.

The Kremlin and Cryptocurrency

As with any state, the natural concern with regard to digital currency is preventing a large outflow of wealth from the country. In this way it is only logical that the Russian state would want to exert a considerable amount of control. Though the Kremlin state is infamously opaque in its dealings, this level of regulation could result in a safer investment climate for the state and investors alike.

In January 2018 Russia’s Finance Ministry finalized legislation that would strongly regulate the sale and exchange, but not outright digital currency trading. In February State Duma Committee for Economic Policy Sergey Zhigarev proposed the legalization of digital currencies as a means of payment for the intent of attracting foreign investment. On May 20, 2018 the Russian Justice Ministry declared that digital currencies are indeed property under the law. Though speculative at this point, the likelihood of the state imposing a safer regulatory environment for investors is much greater than expecting one to arise within an unregulated private sector. One need only look back to the Yeltsin years to see the poisonous effect a largely unregulated market had on investors and the state itself: by the end of the 1990s many foreign investors had become the victims of greenmail scams and other forms of fraud while key resources were at a high risk of falling into the hands of foreign interests, along with much of the wealth derived thereof. With this history in mind, it seems only natural that the stronger Russian state of today would want to regulate the in-flow of new wealth from the cryptocurrency market. That the state has a well documented interest in building an attractive environment for foreign investment bodes well for those looking to invest through digital currency.

A more controversial approach to attracting digital foreign investment in Russia is a state-backed crypto-currency that has been dubbed the cryptoruble. The concept is simple: a digital currency where all mining is controlled by the state and that may be exchanged for other crypto-currencies, but is convertible only into rubles. In this way the state may attract foreign direct investment (FDI), avoid sanctions, and be able to track and regulate the money invested by keeping tabs on a single digital currency with direct access to the Russian economy.

President Putin is said to have given strong consideration to the cryptoruble and has met with his economic advisor Sergei Glazev and Russian-Canadian Ethereum founder Vitalik Buterin about development and implementation. However, Finance Minister Anton Siluanov has expressed doubts along with top officials at Russia’s Central Bank. First Deputy Governor Sergei Shvestov stated in January that “The appearance of a cryptoruble in the foreseeable future is unlikely”. Nevertheless, the conversation on state-backed digital currencies remains ongoing and will be worth watching in the coming months.

Whether through a state-backed digital currency or more conventional means, it is apparent that Moscow wishes to attract foreign investment through a digital currency strategy that is advantageous to both the Russian state and investors alike. Though still in its infancy, this strategy shows the potential for an enormous opportunity for digital currency-based investors in the future.

Nothing new under the sun: The re-emergence of Russia’s agricultural sector

With oil prices still relatively low, the growth in liquified natural gas (LNG) shipments into the European market that cut at Gazprom’s marketshare, the emergence of new and cheaper forms of green energy from countries like China and Germany, as well as mounting political tensions with the West, there is much reason to be skeptical on the Russian economy. But while Russia has struggled with its energy sector, a new sector has emerged that humans require to an even greater degree: food.

Food production and export has played a significant role in the history of modern Russia and the country has always been among the largest global food exporters. However as the world turned first to industrialization, then to consumerism as means of economic development, agricultural production paled by comparison. To mirror changes in the global economy, the Soviet Union sought rapid industrialization in the 1930s, then turned increasingly toward energy exports in the 1980s. While the 1990s saw tremendous hardships for Russia with low energy prices and political instability, Vladimir Putin’s rise to power in 2000 coupled with rising export prices saw a decade of massive growth in the Russian economy. Since then, a global economic crisis and low energy prices have done significant damage to the Russian economy; nevertheless, the country remains very politically and socially stable as a result of Putin’s consolidation of power. Ironically it is by returning to its traditional power base of food export that we could see Russia re-emerge as a much more significant player in the global economy in the coming decades.

In March 2018 President Putin announced a fascinating figure: agricultural exports accounted for nearly twice as much money than that of arms exports last year, and Russia still remains among the world’s top arms exporters. In 2017 Russia emerged as the world’s largest food exporter and there is still considerable room for growth, particularly in the central and far-eastern regions of the country.

From a geo-strategic perspective, Russian food export could help feed the world. At a time when some of the world’s most significant regions for food production are under threat from severe weather, drought, and flooding, Russia’s Far East deep water port of Vladivostok offers direct access to the world’s largest food markets in the Pacific and Indian Oceans. Furthermore, its surrounding administrative region of Primorsky Krai offers some of the richest, but least developed agricultural land on the planet. One need only look at the catastrophic weather events in South Asia and the Americas last year, as well as the horrific droughts East Africa has been experiencing for nearly a decade to see that agricultural production is under threat from climate change. If humanity is to rise to this challenge, it must increasingly look to less conventional climactic regions as a source for food: Russia’s vast territory and access to two oceans offers perhaps humanity’s best hope of managing global food insecurity.

Important players are beginning to take notice of Russia’s enormous agricultural potential. Investors from China, South Korea, and New Zealand have flocked to Siberian farmland and Japan’s Hokkaido Corporation along with Russia’s Sauri Corporation have collaborated to construct greenhouse produce production facilities in Russia’s far North Eastern region of Yakutia. American venture capitalist Jim Rogers, who has stated in interviews that “farmers are the billionaires of the future”, has taken a large position and a board seat in PhosAgro, Russia’s largest fertilizer provider. Perhaps most significantly, China’s Hebei Port Group has announced plans to construct a large grain terminal in Primorsky Krai that will link food producers in Russia’s Far East to an infrastructure corridor that services China’s densely populated Eastern and Southern provinces.

While high level investors are being drawn to Russian agriculture, the market remains relatively impenetrable for ordinary investors seeking a piece of the vast potential. By creating a well regulated digital currency market within Russia, the state is laying the groundwork for the kind of financial infrastructure needed to make offerings to ordinary investors from around the world. Russian agriculture still needs to raise billions to fund the kind of technological and infrastructural advances needed to maximize its potential as a breadbasket to the world. This may present an enormous opportunity to digital currency investors in the near future. With global food insecurity on the rise, investment in Russian agriculture may be one of the most positive impacts digital currency investors could have in the 21st century.