Farming is a capital intensive business and especially so in BEF's operating area where the service industry in general is underdeveloped. Since inception Black Earth Farming has invested in (a) acquiring and registering land into ownership, (b) a large fleet of western agricultural machinery and (c) supporting storage infrastructure for the Company’s operations.
Black Earth Farming had a total land bank under control amounting to 308,000 hectares as of 31 December 2012. 250 thousand hectares or 81% of total land under control is in full ownership. The process of obtaining the ownership rights to agricultural land in Russia has been complicated as well as time consuming but is now approaching finalisation. The land not held in ownership is secured via long term lease arrangements generally spanning over 49 years.
Black Earth Farming has since its inception in 2005 broken long fallow on a total of about 250 thousand hectares. The fields have been cultivated or developed back into a productive state by extensive disk-tilling to eliminate long time established weeds coupled with field leveling and fertilizing to reinstate the soil’s productive qualities.
Consolidation and further improvement of the operational efficiencies in and around the existing farm blocks remains the Company’s key target. Divestment of some less beneficial land assets as well as potential swaps of land with other external parties are possible as improvements to the overall quality and value of the Company’s asset base is sought.
The Company believes Russian agricultural land remains undervalued, both in comparative terms and in relation to its inherent production potential. However, no revaluation of land has been made in the statement of financial position. As of 31 December 2012 the Company had 250 thousand hectares in full ownership out of a total of 308 thousand hectares under control, recorded at acquisition cost of USD* 59.2 million. Unlike other fixed assets, land does not depreciate in value over time. There is potential for a revaluation of Russian agricultural land going forward as the sector develops towards higher standards regarding both production and profitability as wells as a more transparent and mature secondary transaction market for farm land evolves.
Black Earth Farming has an extensive machinery fleet that is 100% owned. Contract services are rendered merely for harvesting but still approximately 70% of the Company’s production area is harvested by internally operated and owned combines. In total BEF has more than 75 tractors and 75 combines in addition to seeders, spreaders and sprayers that is operated to seed fields with crops, spread fertilizer and spray with herbicides as well as harvest. Maintenance and capital costs for machinery constitute a substantial part of the Company's operating costs wherefore efficient capacity utilization is a key focus and services from 3rd party contractors are sought when it is deemed economical and reliable.
Black Earth Farming currently has approximately 500,000 tons of total storage capacity split by various types of storage facilities. These include large scale integrated elevators, less advanced non-automated but ventilated silos, modern warehouses as well as older barnyards. In addition silo bags, which are a capital light but labor intense form of storage, can be also be used to store parts of the harvest.
The 5 modern elevators with a sum capacity of 217,000 tons are all connected to rail heads which is essential for longer distance transport and deliveries being deployed as points-of-sale. 3 elevators are newly built facilities and all have a integrated process of sorting, cleaning, drying and storing crops depending on quality upon arrival from the fields. In addition one elevator is a modern newly built facility acquired in 2007 while the other is an older small-scale soviet type.