Glencore weighs up Russian grain

Glencore, which had a $43.7 billion turnover in 2002, specialises in the production and mining of minerals, metals and energy resources, but is also becoming increasingly active on the international agro-food market. To date the company's investments in Russia have been wholly in the metallurgical sector.

According to reports in the Russian national press, the company's interests in the Russian agro-food sector began earlier this year after it took over the grain division of agro-food equity investment company Agros. The Swiss head office will neither confirm nor deny the reports.

But the reports were backed up by Alexei Ivanov, CEO of leading Russian grain company Razgulyay, who said that Agros no longer has a grain business.

According to sources, the aim will be to make International Grain Company one of the leaders on the Russian grain market. To do this, the company will have to first set about establishing a decent infrastructure for the operation - a framework that will have to be built up from nothing.

Glencore established a similar grain operation in Ukraine some years ago. This operation was faced with the same sort of challenges that the Russian operation might have to face. In Ukraine it had to construct all the necessary equipment to establish the operation. Now the division is selling approximately 20 to 30 per cent of all the grain grown in that country. Estimates for establishing the same kind of grain operations in Russia range between $40 to $80 million.

However, some industry observers believe that as a western company Glencore will have difficulties penetrating the market, as the sector has traditionally been fiercely protected and mainly state run. In this still highly fragmented market, the company will be up against leading players such as Agromarket Trade, Aston and W.J. Grain.

In 2003, Russia exported 18.5 million tons of grain, with the entire market being valued at an estimated €4.7 billion.