Farming In Belarus Still A Risky Business

C O N F I D E N T I A L MINSK 000870

SIPDIS

MOSCOW ALSO FOR FAS

SIPDIS

E.O. 12958: DECL: 07/29/15
TAGS: EAGR ECON PGOV PHUM BO
SUBJECT: Farming In Belarus Still A Risky Business

Ref: 04 Minsk 1228

Classified by Ambassador George Krol for Reasons 1.4 (B,D)


1. (C) Summary: Poloff visited a "privatized" collective
farm on July 7 to assess the progress made since the
previous visit in July 2004. Financial loss, alcoholism,
theft, laziness, and government interference remain big
problems. The infrastructure has improved little while
more money needs to be spent on renovation. Without good
specialists, the owner is managing a farm and solely
relying on the opinions and suggestions of the local State
Control Committee. End Summary.

Bottomless Money Pit
--------------


2. (C) Poloff met Vladimir Lukonin on July 7 at his farm
near Dzerzhynsk. Lukonin, a Minsk-based businessman,
purchased the bankrupt collective farm in late 2003
following a government campaign to pressure businesses to
purchase bankrupt farms. Poloff visited Lukonin's farm in
July 2004 and saw the problems businessmen like Lukonin
faced when purchasing the collectives (reftel). One year
has passed, but Lukonin has seen few benefits and zero
profit.


3. (C) Since July 2004, Lukonin has invested and
subsequently lost USD 700,000. When he first purchased the
farm, he had to merge his air-conditioning company with the
bankrupt enterprise, meaning both budgets and revenues were
combined. Most of Lukonin's air-conditioning profits go
straight to financing the farm, which he referred to as a
black hole or endless money pit. As a result, his Minsk-
based business is teetering on.

Weak Infrastructure
--------------


4. (C) Poloff noticed little improvement in the farm's
infrastructure. His water tower, just like the year
before, still had a large hole in it with water shooting
out under pressure. Repairmen were unable to stop the
leak, so Lukonin loses hundreds, if not thousands of
gallons of water per day. [Note: He probably pays a flat
rate for water use and not per volume.] Lukonin still had
not built a fence around his pastures to keep the cattle
in. He priced a fence at USD 20,000, but decided it was
too expensive. When asked why he would not use cheap and
efficient barbed wire, he said the workers would not like
it because it would feel like a prison and not a farm.
Therefore, he continues to pay workers to sit all day in a
pasture to watch the cows. [Note: These people usually
sleep or drink on the job.]

Poor Labor
--------------


5. (C) Lukonin employs 101 people and has only fired seven
since he bought the place. Alcoholism, theft, and laziness
are still large problems. He has been unable catch the
people stealing his fuel, but they managed to steal enough
that the SCC took notice and brought Lukonin to court to
answer for the theft. [Note: The government heavily
subsidies fuel to farms and audits the amount used.] His
employees continue to drink, but Lukonin is paying for some
of the workers' alcohol rehabilitation programs.


6. (C) Lukonin told Poloff his farm would not make a profit
until workers change their mentality. After a year, he has
reached the point where the workers and villagers are no
longer afraid of him and speak to him willingly. Several
times during the trip, Lukonin would scold workers who were
just standing around and not doing much of anything. One
man, who was collecting hay from the field and bringing it
to the barn, saw rain in the horizon. Rather than hurrying
to collect the rest of the hay before it got wet, he shut
off the tractor and went home.

Government Interference
--------------
E

7. (C) After large-scale theft and several years of
neglect, most of Lukonin's cow barns are in horrible shape
and cannot house livestock. However, he still pays three
percent of the barns' worth in taxes per year, which is
expensive since the buildings' over-quoted, government
balance-sheet price per building is USD 100,000. Lukonin
would like to build new ones, but he would have to get
permission from the local State Control Committee (SCC) and
would have to invest at least USD 100,000 just to get the
plans approved and moving. Lukonin would also have to get
permission from the SCC to tear down the dilapidated cow
barns, even though, on paper, they are his private
property. In the end, Lukonin decided to renovate the
buildings, which is not much cheaper.


8. (C) The SCC was waiting for Lukonin at his office after
the farm tour. It was their third visit in a week and they
had already made themselves at home, rummaging through his
farm's paperwork and making sure that the average wage was
high enough. The SCC often fines Lukonin, constantly
interferes in his farm's activities, and often tells him
what to do. However, Lukonin admitted that he sometimes
appreciates the SCC's "suggestions" because he is not a
farming specialist.

Community Support
--------------


9. (C) Lukonin has been involved in community service. He
has sponsored free concerts for the residents and provided
refrigeration for the local grocery store. During Victory
Day, he arranged transportation for the village's veterans
to attend festivities in Minsk and in 2004 financed an
excursion trip throughout Belarus for the village's
children and teenagers. His current project is renovating
apartments for the farm's workers and in 2007 he will begin
building five new homes a year as part of Lukashenko's
rural revival and development plan.

Comment
--------------


10. (C) Lukonin has made many small improvements, such as
buying newer equipment and remodeling buildings, but few
economic advancements have been made. Government
interference and restrictions, unwilling labor, and
Lukonin's lack of expertise in agriculture all greatly
contribute to the farm's failing status. On July 22,
coordinator for the CNFA Lucy Sokolovskaya opined that
Lukonin's farm would not improve without more specialists
who know how to manage a farm. Other businesses, such as
casinos and a major cell phone company, have purchased
farms and reportedly make a decent profit, but these
companies have practically unlimited sources of revenue,
legal and possibly illegal, that they can afford to throw
away. [Note: Some sources have speculated certain
businesses use their new farms to launder ill-gotten
money.] Lukonin seems to have the money now, but if he
continues to lose USD 15,000 a month, he will not have a
business or a farm for much longer.

KROL