Selling North Dakota: Agriculture export business hopingStationed in the heart of Ukraine, Andriy Sova has a pitch for the farmers of his country: Buy American. Better yet, buy North Dakotan.
Stationed in the heart of Ukraine, Andriy Sova has a pitch for the farmers of his country: Buy American.
Better yet, buy North Dakotan.
A representative for the North Dakota Trade Office, Sova is tasked with matching farm equipment buyers with North Dakota sellers. Two thousand miles east in Kazakhstan, Yermek Umarzakov, another NDTO representative, does the same thing.
To the north, in Russia, sales reps from a handful of North Dakota agriculture equipment companies pursue leads.
The collective goal of these efforts: Find landing spots for North Dakota farm products in the Commonwealth of Independent States, a group of former Soviet countries that have become major players in North Dakota’s export landscape.
The state’s trade with CIS countries has endured a roller-coaster ride in recent years, exploding at an astonishing pace over the course of a decade before stumbling sharply during the global economic crisis.
In the past three years, North Dakota farm equipment sales to the region have seen two swings of more than $100 million – first a dramatic rise to a record high, then a harsh slide that erased those gains in a hurry and dealt a body blow to the state’s equipment manufacturers.
Now, North Dakota’s agriculture export sector is angling for a rebound in the fragile but fruitful markets of the former USSR.
Stretch of growth
A decade ago, the idea that North Dakota would lose millions in CIS exports – or have millions in exports to those countries to lose – seemed absurd. The state’s farm machinery sales to CIS nations in 2000 totaled $242,000 – enough to buy perhaps a half-dozen tractors.
That represented less than 1 percent of North Dakota’s farm exports. By comparison, exports to Canada alone accounted for more than half of the state’s ag exports that year, and every other year on record until 2003.
But as the economies of CIS countries evolved in the post-Soviet era, agribusiness opportunities sprung up out of the woodwork. Farmers carving out niches in a formerly state-run industry needed to buy equipment. North Dakota companies were happy to sell it to them, and made for a natural fit because of similar crops and soil conditions in the two regions.
“It was booming,” said Heather Ranck, an international trade specialist with the North Dakota office of the U.S. Commercial Service, which works closely with the NDTO in fostering international trade.
“Their economies were really turning around and becoming vibrant,” Ranck said. “Their stock of machinery was just really old Soviet equipment that was breaking down. They needed everything.”
By the middle of the decade, those needs translated into staggering sales growth. From 2000 to 2003, North Dakota agriculture exports to CIS countries grew 100-fold to $22 million. In 2006, they hit $70 million. In 2008, they peaked at $224 million.
In that year, one of every $12 in export sales for North Dakota came from farm equipment sold in Russia, Ukraine or Kazakhstan.
During the boom, exporters moved to cater their international sales efforts to those nations.
Fargo-based Amity Technology – a company that’s had a foot in Russia since the end of the Cold War – developed a Russian-language website. At Titan Machinery, one side of business manager Olga Hall’s business card is in Russian.
About two years ago, Reinke Manufacturing hired Oleg Alexandrov as its first sales representative dedicated to Russian-speaking countries (his company is based in Nebraska but has a presence in North Dakota and is a member of the NDTO).
“The potential growth is there. It’s very big,” said Alexandrov, who is from Russia and has spent about a month there on business this year. He first came to the United States via a training program that took him to Carrington, N.D.
The agriculture export explosion to CIS countries didn’t just create work for multilingual liaisons. It created local manufacturing jobs as well. At Amity, for instance, a third of the company’s 300 employees in North Dakota work on exports. Ivan Ayubashev, an international business specialist at the company, said without CIS business, those positions wouldn’t exist.
“If we did not have any sales in those countries, there wouldn’t be 100 jobs here,” he said.
A ‘disaster’ of a year
When the worldwide financial crisis of late 2008 struck, however, an export balance sheet that grew fat on CIS sales got lean in a hurry. And not every local employer kept its work force intact.
“There was a disaster,” said the NDTO’s Sova. “We had zero sales.”
Zero is a bit low, but Sova isn’t far off the mark. In 2009, North Dakota farm equipment sales in CIS countries fell to
$63.4 million – a little more than a quarter of what they were the year before. In Russia, sales dropped from $124 million to $26 million. In Ukraine – Sova’s territory – they fell from $57 million to $9 million.
Those losses were bad enough to erase significant trade gains elsewhere in the world. In non-CIS countries, North Dakota agriculture exports grew by more than $100 million; in CIS countries, exports fell by $160 million.
The outlook for 2010 has been even worse so far. Through July, when the most recent data was compiled, North Dakota farm equipment exports were down nearly 30 percent on the year – a slide driven again by sales in CIS countries, which are down 78 percent from the same period last year.
“It’s the same thing like in the United States,” said the NDTO’s Umarzakov. “The banks collapsed. It’s very difficult to get money right now.” Equipment sales from North Dakota to Kazakhstan are down 94 percent on the year.
Many North Dakota equipment companies went through rounds of layoffs last year that were triggered in part by sagging global conditions. John Deere Seeding Group in Valley City furloughed 89 workers. Bobcat cut 250 jobs in Bismarck and Gwinner, citing reduced worldwide demand. Fargo’s Case New Holland plant cut 260.
A Case New Holland spokeswoman said exports to CIS countries fell off last year and this year because of lack of available credit for would-be buyers. She said 20 to 30 percent of the products made in the Fargo plant are for export.
To make matters worse, Russia, Ukraine and Kazakhstan have been battered by a severe drought this year, crippling grain production and further sapping purchasing power.
“2008 was a financial crisis,” said Sova. “Now, it’s a weather crisis.”
In Russia, exporters have also faced something of a political crisis: In 2009, the country imposed steep tariffs and loan limits on foreign-made farming equipment, making it prohibitively expensive to import some agriculture machinery or finance the purchase (a 300-horsepower tractor, for instance, might carry a surcharge of $32,000).
Still a ‘vast’ market
Trade specialists say the news isn’t all bad. Jeff Zent, communications director for the NDTO, said despite the grim results of the past few years, export activity hasn’t ground to a halt.
“We’re not moving the equipment we did prior to the economic setback,” he said, “but even with those challenges, we’re still able to get in those markets, and we’re still moving equipment.”
Rather than scaling back its presence in CIS countries during the downturn, the NDTO is pushing forward, he said – in part to seek out new sales opportunities, and in part to demonstrate a commitment to maintaining a partnership under strained circumstances.
“We’ve got some great customers there,” he said. “If you’re just there when the times are good, well, they can get that kind of service anywhere,” he said.
Even in a down year, the NDTO managed to bring about 100 international guests to West Fargo for the Big Iron Farm Show this week. That group included a dozen visitors from Russia, a handful from Ukraine, and about two dozen from Kazakhstan, including the Kazakh agriculture minister.
An entourage of exporters and political leaders – among them North Dakota Gov. John Hoeven and U.S. Secretary of Agriculture Tom Vilsack – rolled out the welcome mat for the guests. U.S. Congressman Earl Pomeroy went so far as to call North Dakota and Kazakhstan “twins separated at birth.”
Gabdullin Azat, a Russian farm equipment distributor who partners with Reinke, was on hand at Big Iron to gather information on new equipment and livestock breeding. He acknowledged the crisis hasn’t made life easy, but said the growth potential of agribusiness in Russia remains strong.
“This is a vast, infinite market,” Azat said through an interpreter. “The fact that I’m here, it means that we are interested in developing and expanding.”
Readers can reach Forum reporter Marino Eccher at (701) 241-5502