A Russian holding company Miratorg intends to expand its business outside livestock breeding — it will engage in the production of vegetable for the so-called Borshch set: potatoes, carrots, beet. Profitability of the vegetable growing business is higher than for meat, experts say.

RBC published an interview with Miratorg’s President, Viktor Linnik. “We plan to grow potatoes, onions, carrots, beet, garlic, primarily in the Tula region, where the company has about 4,000 hectares of land with the option of irrigation,” he explained. In Linnik’s words, in total Miratorg owns more than 6,000 hectares with the option of irrigation, including in the Bryansk and Kursk regions.

The holding company traditionally employs a vertical integration model and focuses on deep processing, so the project involves the construction of a warehouse and a high-tech plant to process vegetables, covering the needs of retailers and catering establishments,” Linnik told.

Miratorg’s President did not disclose the amount of investments in the project, noting that the company would determine parameters of the project within a couple of months.

Vegetables will be supplied to retail stores packed. Miratorg does not rule out deeper processing in the future. In particular, the holding company could run its own production of potato chips or French fries. “But we will consider it not earlier than in a year,” Linnik summed up. He also said that potatoes, garlic, carrots and other vegetables would be produced under the brand “Miratorg”.

The Ministry of Agriculture reports that this year the harvest of potatoes is lagging behind last year’s figures due to adverse weather conditions in the summer: as of October 23, 2017, it amounts to 6.1 million tons of potatoes, compared with 6.3 million tons a year earlier. According to official statistics, potatoes were planted over 2.05 million hectares in 2016, with 83% of them (1.71 million hectares) belonging to Russian households.

The cultivation of vegetables in the field in Russia is usually the task for small businesses, performed with low efficiency, said Andrei Sizov, head of an analytical center SovEcon. In his opinion, big players and active consolidation will arrive in this industry in the coming years.

In recent years, profitability in the meat industry has been declining against weak demand growth trends, according to Darya Snitko, chief of economic forecasting, Gazprombank. In her opinion, big pork and poultry meat producers have the EBITDA margin averaged about 20%. Gross profitability of growing vegetables in the field can be 50%, even higher — with irrigation, she concluded.