A. Lukashenko: Foreign investors in the dairy industry must participate in the development of raw material zones and ensure deep processing

February 3, Minsk /BELTA/. The processing of agricultural products is of strategic importance not only for Belarus but for any country in modern conditions. This was stated by the President of the Republic of Belarus Alexander Lukashenko on February 3 at a meeting on the development of the Belarusian dairy industry, BELTA was informed by the press service of the Belarusian leader. "Two billion people in the world are starving. All the riots that are happening today in the world, including in North African countries, began because there was not enough food, and what was available was unaffordable for 75% of the population of these states," the President said. Alexander Lukashenko recalled that at the dawn of his presidency, he "repelled all attempts to privatize such industries that ensure the food security of our state." "It was clearly and unequivocally stated: we must cope with this ourselves," the President said. This applied to milk and meat processing, modernization of sugar production enterprises, beer production, and other goods – everything related to food products. Speaking about the dairy industry, the President noted that, "figuratively speaking, milk for Belarus is not just a commodity, but a significant factor in the economy and politics, which has a serious impact on both ensuring food security and increasing exports." Huge efforts and funds have been invested in Belarus for the dynamic development of the dairy industry, and good results have been achieved. Over 5 years, milk production has increased by almost 35%. "Having secured the domestic market, more than 50% of the milk processed has been exported. Last year, almost 4 million tons of dairy products were exported. And the demand for them in world markets is very high. The geography of exports is expanding. We have queues today: give us dairy products. They don't even ask for prices anymore," said the Belarusian leader. Alexander Lukashenko drew attention to the fact that in the new five-year period, the tasks are even more ambitious. By 2015, it is necessary to reach a milk production level of 10 million tons per year and double the export of dairy products. The country will have to build almost 900 new and modernize about 1.4 thousand dairy farms, increase the dairy herd, expand the feed base, and continue the development of the processing industry. The milk processing industry of Belarus is export-oriented: out of 5008 thousand tons of milk processed in 2010 (100.5% of the 2009 level), almost 54% of the dairy products produced were exported. Revenue from the sale of milk and dairy products for export increased by almost 1.5 times and amounted to almost $1.5 billion. In 2010, the economic condition of dairy industry organizations improved. Net profit amounted to Br425.7 billion, and the profitability of products sold was 9.2%. This result is explained not only by favorable market conditions but also by the intensive technical re-equipment and modernization of milk processing enterprises. In 2005-2010, over Br1.9 trillion was allocated for these purposes, compared to the planned Br513 billion. Thanks to the technical and technological re-equipment of enterprises, the output of marketable products from 1 ton of milk in 2010 increased by 6.9% compared to 2009 and amounted to Br1285 thousand. Great attention has also been paid to the structural reorganization of enterprises. The basis of the republic's milk processing industry today consists of 45 enterprises (in 2005, there were 59). Their further development will be carried out within the framework of the Republican Program for the Development of the Dairy Industry for 2010-2015, which provides for reaching a milk production of 10 million tons in agricultural organizations by 2015, and the volume of its processing – up to 9 million tons (4 million tons more than in 2010). At the same time, the export of dairy products will increase to 59% of their production volume (in terms of milk, it will be about 5.5 million tons) and will increase in volume by more than 2 times (up to $3 billion). It is planned to allocate Br31.5 trillion for these purposes, including almost Br1.6 trillion for the implementation of measures for the construction, reconstruction, and modernization of milk processing organizations. Alexander Lukashenko emphasized that Belarus should derive maximum benefit from the export of high-quality dairy products. Significant investments will be required to solve these problems. In particular, cooperation with such large transnational companies as the French-Russian "Danone-Unimilk" (with its capabilities for selling finished products in the Russian and EU markets), which is already operating in the Belarusian market, is promising. In 2009, two joint ventures for the production of whole milk products were created in the republic: SOOO "Unimilk Pruzhany" and SOOO "Unimilk Shklov". Nevertheless, the head of state noted, Belarus may cease cooperation with this company if it fails to fulfill its obligations. The joint ventures began their operations in 2010. However, to date, the investor's activity has actually been limited to bottling milk. "If you do not fulfill my instructions in the first quarter, you will no longer work in the Belarusian market," Alexander Lukashenko emphasized, addressing the management of this company. Requirements regarding the maximum depth of milk processing and investment in the development of raw material zones were clearly formulated during the head of state's visit to "Unimilk Shklov" in June last year. And the company's management pledged to fulfill them strictly. The head of state noted that cooperation with this company is not accidentally considered at the meeting. According to the President, the dairy industry is a tempting morsel for investors, and these issues are increasingly moving into the political sphere. Alexander Lukashenko expressed concern that cooperation with Unimilk is limited to processing and exporting drinking milk, i.e., actually exporting raw materials. "We let it into our dairy market, to raw material resources on the most favorable terms. But I categorically warned against exporting low value-added products from the country. Moreover, the company itself promised to create modern milk processing enterprises and develop its raw material base. However, the implementation of these promises is not yet visible," the President emphasized. "This infuriates me to the core. You have forgotten that you are not working in Russia, but in Belarus. And issues of corruption, issues of division, pressure, all sorts of agreements – all this is unacceptable," said Alexander Lukashenko. "I know everything, even what you are thinking: how you divided dividends, how much your representatives in Belarus received, etc., even where you directed this money," he added. "I warned you that no one will take a penny from you, no one will demand any bribes from you, but work honestly. I have defined the direction of your work," the head of state noted. "You decided: let the President talk, and we will do it our own way here. You are mistaken!" Alexander Lukashenko warned. "And probably after the elections, everyone understood that we are now going to cut the country into pieces and give it away. What we don't need – we'll give it to Danone, Germany, Russia, Poland. So – this will not happen," the Belarusian leader emphasized. "And this applies not only to the dairy industry." Minister of Agriculture and Food Mikhail Rusiy reported to the head of state on the work to develop the Belarusian dairy industry, noting that "a serious struggle is waged for every liter of milk." "You are fighting within the country and shipping milk without added value somewhere unknown. Is that how it turns out? Why haven't you brought order yet?" Alexander Lukashenko reacted harshly. "The position is defined, you must execute it." The President emphasized that Belarus can successfully sell its dairy products on foreign markets on its own. "Create your own transnational company, create distribution networks and sell. Russia is short of food today. They will buy this milk for a long time and always. What are the problems?" he noted. "If Russia doesn't want it – increase supplies to Venezuela. We have increased milk supplies fivefold. They are asking to increase them twofold. There is huge profitability there." As noted by the Chairman of the State Control Committee of Belarus Alexander Yakobson, Unimilk does not fulfill one of the main requirements, which is the need for maximum deep processing of milk and obtaining products with high added value. At the same time, the Russian investor, entering the Belarusian market, undertook such obligations. In addition, Unimilk, as an investor, was supposed to participate in the activities of organizations engaged in milk production, construction, and technical re-equipment of dairy farms through direct investments and credit resources. Investor participation was also envisaged in the creation and development of milk processing organizations in terms of construction, reconstruction, and technical re-equipment. All these and other obligations were to be enshrined in relevant investment agreements, which currently look more like protocols of intent. They are essentially devoid of specifics. The company Unimilk has invested $2.1 million and Br102.3 billion in the development of its two enterprises in Belarus, of which Br75.2 billion was for the purchase of equipment and construction. At the same time, so far, joint ventures are only bottling milk and selling it predominantly to the Russian market. Their production capacities are loaded by redistributing raw materials among processors. For example, half of the milk processed by Unimilk Pruzhany in 2010 came from the raw material zone of the Pruzhany dairy plant, and the other half from 8 dairy plants in the Brest region. At the same time, the 12% surcharge to the purchase price went not to the farmers, but to the dairy plants. "I hope that the governors will settle with the farmers for the period the company has been operating," Alexander Lukashenko demanded. The head of the State Control Committee of Belarus also mentioned several documents on the prospects for further cooperation with Unimilk, which do not correspond to each other or are simply questionable. Thus, the agreement between the Machulishchi agro-combine and Unimilk provides for taking milk from all over the country from the National Bank's farms and delivering it to Unimilk. But what is the point, for example, of transporting milk to Shklov from the Rogachevsky district, if there is a milk processing enterprise there that also produces high value-added products? Another document is an additional agreement between the Mogilev Regional Executive Committee and Unimilk, signed at the end of December last year. According to this agreement, the investor's role in the development of the raw material zone is limited to supplying 3,000 heifers to agricultural organizations in the Shklovsky district in exchange for future milk supplies. That is, agricultural organizations in the district will receive a commodity loan, not real investments. To date, the Russian company has submitted to the State Control Committee a project for the "Feasibility Study for the Development of Dairy Cattle Breeding in the Republic of Belarus with the Participation of OJSC Company Unimilk," which provides for the construction of 300 new dairy farms and 88 heifer-raising complexes with a implementation period of 2011-2019. However, after studying this document, it became clear that state funds are already allocated for the development of 143 farms (almost 50%). "The road must be two-way. Business should be built in such a way that not only the investor has certain guarantees, but also the Belarusian state is confident in investments both in deep milk processing and in the development of raw material zones for processing enterprises," said Alexander Yakobson. In this situation, the investor, not having managed to fulfill the obligations already undertaken, actively raises the issue of acquiring additional assets in the form of OJSC Pruzhany Dairy Plant and OJSC Shklov Butter Plant. It is noteworthy that these enterprises operate with higher profitability and their economic indicators are much better than those of Unimilk Shklov and Unimilk Pruzhany. "The sale of milk processing enterprises should be profitable for the state, the labor collective, and take into account the strategic interests of the country. At the same time, business should be sold, not factories," noted the Chairman of the State Control Committee, explaining that the state invests significant funds in milk production and the development of the raw material base (and this should also be taken into account in the cost of business). The Governor of the Brest Region, Konstantin Sumar, reporting to the President on the current situation, noted that the situation in the country's dairy industry was completely different some time ago, and many enterprises were unprofitable. "You, as strategists, should have seen what would happen in the dairy industry and food products. I constantly warned you: 1.5-2 billion starving people in the world. Do you think the program for the revival of the village was adopted just like that?! I warned you that if we invest in agriculture today, we will get $7 billion from the export of these products in 5 years (in the next five-year period)," the head of state retorted. He also reacted sharply to the report of the Chairman of the Board of the National Bank, Petr Prokopovich, on the large-scale plans for the development of Unimilk's activities in Belarus: "Thank you, we know the fairy tale. It's about something else: while you are doing this, there is profit today. And all this is done for the sake of profit, not for what you are telling me. We can invest this money ourselves, someone else will invest, etc. But we made this decision at your suggestion. How is the profit from Unimilk's operations in Belarus divided today? That's what interests me most. Everything else (as Alexander Serafimovich Yakobson rightly said) is protocols of intent." "I need fairly distributed money. This is the kind of service Danone-Unimilk provided in Belarus – let them receive this much profit. Everything else (means of production, labor collectives) is Belarusian. Give this much to Belarus, and there will be no questions for them," said Alexander Lukashenko. "Let Danone invest 1 billion and take milk from these investments, process it as it should, and we will have no claims against them, but for now you only have