Russia’s agricultural sector faces a deepening crisis as record inflation, rising costs, and disrupted supply chains force producers and processors to increase prices and cut their product offerings.
Despite recent progress in peace talks, the industry feels the prolonged impact of Western sanctions, and the country has failed to adapt to the changed market realities of the Russian-Ukraine War, according to industry executives and farmers.
‘Nearly impossible to finance new projects or expansions’
Forecasts from the United States Department of Agriculture (USDA) estimate significant declines in Russia’s 2025 grain harvest, with corn production down 27%, oats down 12%, and wheat down 11%. This production slump is coupled with a sharp 32% drop in domestic agricultural equipment and machinery sales last month, which industry analysts say is one of the lowest figures in 25 years.
“Business costs have increased; diesel fuel, tractors, agricultural machinery have all increased, and wages have begun to grow. All this has to be included in the cost of our production,” Oleg Sirota, a prominent Russian farmer and chairman of the Russian Association People’s Farmer, told AgFunderNews.
Sirota added that the current 20-25% interest rates on loans, even with subsidies, make it nearly impossible to finance new projects or expansions. “To be honest, I don’t know such a madmen who would do this with these rates and build in such conditions,” he said.
Vyacheslav Smauz, a farmer from the Voronezh region, one of Russia’s major agricultural areas, told AgFunderNews that the cost of loans for his enterprise has doubled. At the same time, the government has been slow to provide subsidies to offset the increased expenses. Due to these challenges, he is considering winding down his business.
Processing sector ‘forced to increase prices’
The processing sector is also struggling; recently Molvest Holding, one of Russia’s largest dairy and agricultural companies, informed its customers that it would increase prices by least 5% due to the current environment.
“As workers’ salaries have been increased up to the market level and amid the conditions of the deepest shortage of personnel and the ever-rising tariffs for transport and warehouse logistics in the country, we have been forced to increase prices,” a Molvest spokesman said.
“In addition, packaging materials and ingredients are becoming more expensive, while the key interest rate has increased by the Russian Central Bank, which puts additional pressure on businesses.”
As Sergei Mitin, the First Deputy Chairman of the Committee on Agrarian and Food Policy of the Russian Council of Federation, said in an interview with Russian news agency Interfax, while meat production has increased in recent years, primarily in poultry and pork, Russia still relies heavily on imported beef. Furthermore, Mitin warned that cattle numbers are declining as households slaughter their animals to reduce their herd sizes, which could lead to serious supply issues as reproduction levels remain low.
The path to recovery remains uncertain
Despite the bleak outlook, some government officials remain cautiously optimistic about the sector’s recovery in the second half of the year.
Oksana Lut, Russia’s Minister of Agriculture, stated during a press conference on March 18 that the ministry is closely monitoring prices and is prepared to take additional measures if the situation deteriorates further.
She noted that last year, the government provided Rub81 billion ($850 million) in support to the industry, much of it for farm modernization and compensation. She also cited statistics pointing to a growth in the number of acres planted in 2025 compared to 2024 and said the government had it under control.
“According to the [state] plan, the sowing of oil and forage crops, sugar beets, vegetables and potatoes in the domestic agricultural sector will grow,” she said.
However, most independent Russian agricultural analysts are less optimistic, believing that 2024 marked the last year of growth for the sector, which is now facing a significant decline. This is partly due to a severe labor shortage with representatives of leading Russian farming associations such as AKKOR disclosing that the Russian agricultural sector faces the deepest shortage of workers since the end of World War II. An overall declining population combined with high salaries in the military and defense industries have made it difficult for farms to attract and retain workers.
As the Russian agricultural sector grapples with soaring costs, supply chain disruptions, and workforce challenges, the path to recovery remains uncertain. Industry leaders are calling for more government support and financing options to help farms and processors weather the current storm.
