Aug. 15 (Bloomberg) -- Montana lone ranger Darrell Stevenson knows it’s wise to drink upstream from the herd.
When Russian President Vladimir Putin banned U.S. and European meat last week, the third-generation cowboy already had a leg up on the competition. With a ranch 550 kilometers (340 miles) south of Moscow, he stands to benefit from a market increasingly walled off from foreign rivals after Russia struck back against countries that imposed penalties over Ukraine.
“Sanctions in the long run aren’t good for anyone,” Stevenson said by phone after a 30-hour journey back to Hobson, Montana, from St. Petersburg on Aug. 9. “In the short term, they’ll stimulate the growth and development of domestic herds. Within a year, a considerable amount of Russian-raised beef will be available.”
Russia is scouring the world for produce ranging from Chilean salmon to Egyptian oranges to fill a $9.5 billion hole left by restrictions on food imports imposed last week. Much closer to home, the ranch near Voronezh run by Stevenson and his partners is jumping into the fray to help feed a nation of 143 million that imports about 40 percent of its beef.
With the government embarking on what Prime Minister Dmitry Medvedev calls a “new page” of agricultural development in the wake of tit-for-tat sanctions, the biggest challenge for Stevenson and his team is the lack of ranch knowledge and infrastructure in the country. Collective farming in the Soviet Union focused on dairy; cows were slaughtered for beef when they started to produce less milk.
Before the Soviets chose guns over butter, Russia was an agricultural superpower prior to the 1917 revolution, among the world’s biggest wheat exporters with a flourishing beef industry. As the country learns again to feed itself, its ranchers have looked to the U.S. and Australia for expertise and resources.
In recent months, both countries have levied economic sanctions against Russia that were met by countermeasures announced by Putin. Russia already banned most U.S. beef imports early last year after saying they contained a feed additive.
In retaliation for the sanctions imposed on Russian companies and individuals over accusations of meddling in Ukraine, the government in Moscow banned an array of foods and agricultural products from the U.S., the European Union, Norway, Canada and Australia. The measures will “clean the shelves for our producers,” Medvedev said.
Ilya Nitsenko, deputy director of beef producer Zarechnoe with more than 30,000 head of cattle in the Kaluga and Voronezh regions, is left unmoved by the economic showdown.
“We’re used to working in a country where the business environment changes all of the time,” he said in response to a question about the recent sanctions. “We haven’t been doing anything particularly new. We just took the models that already existed in the States and Australia and adapted them to our conditions.”
In 2008, in the face of warnings that raising cattle in Russia was “a strange, stupid and unprofitable idea,” the company shipped 250 cows and 10 bulls from Nebraska by plane, he said.
Zarechnoe’s products now feature on the menus of the Goodman chain of steakhouses in Moscow. Its Angus beef also won another convert, an American-style steakhouse in the Russian capital which had previously said it would only use beef from the U.S.
“We went down there a week ago Monday with my chef and sommelier to check it out,” Ken Frost, general manager of Chicago Prime in Moscow, said by phone. “They were saying it was going to be exactly like U.S. beef and to my surprise the facility and the cattle were top notch by American standards.”
Chicago Prime sells as many 4,000 steaks a month and is now reprinting its menus with only Russian beef, Frost said.
It’s “something exciting to sell,” he said. “Chicago Prime only sells the best. Russian beef from Voronezh.”
Government policies have also helped. Then-President Medvedev signed the Food Security Doctrine in February 2010 that seeks to boost the share of meat consumption produced domestically to 85 percent by 2020 to reduce price swings and dependence on imports. Now serving as prime minister after swapping jobs with Putin in 2012, Medvedev said this week that he signed a decree to redraw the country’s agricultural plans, with the government planning to allocate additional funds to do away with dependency on food imports.
Stevenson formed Stevenson-Sputnik LLC with two Russian partners in 2010 and has since transplanted about 1,500 head of cattle by air and sea to their ranch. The group has invested $18 million in the venture, which is backed by subsidized loans from state-run OAO Sberbank and a guarantee from the government to reimburse 30 percent of costs.
The ranch is already supplying steaks directly to consumers in St. Petersburg, Russia’s second-largest city.
Stevenson-Sputnik partners Sergei Goncharov and Alexander Buzuleyev started buying embryos and semen from Stevenson in 2007 to improve their Russian herd. Stevenson said he decided to go into business with the two ranchers after his father put him in charge of the family business in Montana.
“Supply is still the major concern,” Stevenson said. “Russia is still in the growing phase and more cattle are simply needed.”
Most of the cattle that Stevenson-Sputnik and other Russian producers have imported has been flown in on Boeing Co.’s 747 jumbo jets from the Great Plains, more than 5,000 miles away, adding to costs, Stevenson said.
Russia’s ban since 2013 on U.S. beef over the feed additive has led to increased shipments from Europe, according to Stevenson. Neither the restrictions introduced in 2013 nor last week apply to frozen embryos, sperm or livestock, Stevenson said.
“Russia has been replacing the shortfall with some beef from Holland and Belgium,” Stevenson said. “Brazil can pick up the extra slack in the meantime as it’s the largest beef producer in the world. The U.S., Canada and Argentina don’t have as many cows combined as the single cow herd of Brazil.”
Stevenson said it was too early to say how much meat his ranch can provide and at what price.
“There is no reason why beef raised and slaughtered in Russia can’t be cheaper,” he said “In terms of quality, there has to be a proper and consistent grading system introduced.”
Stevenson has spent all of June and some of July at the ranch in Voronezh, where his team have helped transform villagers into cattle hands.
“The biggest concern for Russia is that they can’t yet produce what they consume,” Stevenson said. “There is a vast amount of resources and so far they haven’t reached their potential.”
--With assistance from Anatoly Medetsky in Moscow and Brad Cook in St. Petersburg.