Voronezh is in the heartland of Russia’s agricultural regions. Just two hours from the Ukrainian border, the countryside runs a luxuriant green across Russia’s famous black earth farmland. This is the most fertile soil on the planet and home to Primebeef’s prolific herd of Black Angus bulls, one of the largest in the world.

Russian-born Ilya Nitsenko was working in real estate and finance in New York when his father Sergei called him in 2008 and asked him to organise a trip to Nebraska to look at cattle. Nitsenko Snr had hit on the idea of supplying Russia with high-quality beef, as it simply didn’t exist in Russia, but to do so meant building an entire production chain from feed corn to steak houses and burger bars. Within months, Ilya had abandoned his New York life and shipped 240 of Nebraska’s finest pure breed Black Angus cattle back to Voronezh to start his family’s own herd. “The call came out of the blue, but I set it up and then slowly got pulled into the whole project,” Nitsenko tells bne IntelliNews in an exclusive interview. 

The timing was perfect. The Nitsenko family business began making a name for itself as the producer of the best steaks in Russia and couldn’t keep up with demand. Then sanctions swept away what competition there was from the market. Finally, the sharp depreciation of the ruble in December 2014 meant that any competitors who wanted to get into the high-end beef market would find it hard, as it became very expensive to import quality cattle.

Beef used to make up 70% of the Soviet meat diet. But the meat production was a by-product of the communist drive to ensure every citizen had enough milk. Every region had several milk farms and when the cows grew too old and stopped producing milk, they were slaughtered and their meat was sold off cheaply. Following the 1991 collapse of the USSR, farms could no longer afford to feed their cattle and slaughtered them to raise cash to keep the collective farms going during those difficult years. Today, beef still makes up only 22% of the total meat consumed and Russia has been a net importer of beef for nearly two decades.

That is starting to change with the Nitsenkos’ Primebeef, which is part of the family’s Zarechnoe agricultural holding. The 250 bulls imported from Nebraska were used to seed the herd and today there are more than 60,000 head of cattle on eight ranges in the Voronezh and neighbouring Kaluga regions. 

The stocky Black Angus bulls were originally a hardy Scottish breed and produce what is regarded by many as the finest steaks in the world, after wagyu beef from Kobe in Japan. In Moscow, Primebeef’s steaks are already famous. The restaurant that the Nitsenkos opened in the capital together with lawyer-cum-restaurateur Alexander Rappaport only serves Voronezh Black Angus steaks, and to fine effect: the eatery is constantly booked out for weeks in advance, and the company is now snapping at the heels of the city’s top-end establishments.

Raising the steaks

Sergei Nitsenko made his first money in the 1990s in retail and real estate, and brought his two sons in to help run Primebeef. Andrei runs the restaurant in Moscow, while Ilya is in Voronezh and in charge of the production and development of the business.

The company is unusual as a meat producer in many ways. In the West, few combine all the stages from field to plate, as the scale of operations is too big and there are large risks at every stage of the business. It makes more sense for smaller companies to specialise in each stage. But as Russia’s beef industry was basically non-existent when Nitsenko started, he had to start big and build a meat production from top to bottom. “My dad had to bash down doors to get this project going, but now we have great support from the regional governors in Kaluga and Voronezh, as well as support from the federal government,” Ilya Nitsenko tells bne IntelliNews.

Nitsenko Snr invested his own cash to get the cattle farm going, but Ilya says it would not have been possible to build it up to the current size without state support. Since the showdown with the West over the fate of Ukraine started in 2014, Russia is now pushing as hard as it can to be self sufficient in as many basic products as possible. The country already produces so much chicken that it has recently started to export, and it is close to self-sufficiency in pork. But as beef is the hardest animal product to develop – largely because cows have a much longer gestation period than chickens and pigs – Russia is still several years away from being self-sufficient in this category.

The state has been pouring money into setting up giant farms and providing entrepreneurs with subsidised loans to help the sector along. Among other measures, farms don’t have to pay taxes on profit. ”The subsidies make it possible, but the trouble with subsidies is you don’t know for sure if you are going to get them. And they don’t cover things like investment into equipment, and that runs into the tens of millions of dollars,” says Nitsenko.

All in all, the Nitsenko family has invested a total of RUB12bn ($400mn at today’s exchange rate) into the Primebeef project, of which a quarter was spent on the processing plant, a quarter on developing feed and associated farming, and the rest on the herd.

Nitsenko says the company is still in the investment phase, but it has stopped expanding and is now focusing on efficiency. The processing plant slaughters some 36,500 cattle a year, or a little over half of the total head count, but the company wants to increase this number from 30 bulls an hour to 50 to improve profitability. “We don’t want more land or farms, but we need to increase productivity further. Once the numbers are up we can process more meat,” says Nitsenko.

So far, most of the investment has been organised using Russian bank loans, but Nitsenko says the company remains open to the possibility of an IPO or more likely bringing in a strategic partner. “We are not looking for stupid money, as that only brings stupid problems. We are more open to a private placement with a strategic investor as that is the nature of any business,” he explains. “Our goal is not just to make money, but to create a lasting business that will evolve with the market. There is so much still left to do as there is so much opportunity in the market.”

Four pillars of beef

There are four pillars to raising beef: genetics, breeding, feeding and farming. In developed markets, beef is produced by a complex of many interlocking businesses. No producer takes on more than two of these aspects, as together they are costly and risky. For example, if a bull misses even one day of feeding, then its quality drops dramatically, says Nitsenko.

Likewise, running a farm, especially a big one, is a hugely complicated task. In the US there are three beef-producing market leaders, but none of them raise their own cattle; over half of the bulls that go into their processing system come from herds that have fewer than 100 head of cattle. In this context, Primebeef’s 60,000-strong herd is extremely unusual and one of the biggest herds in the world. “In other markets you have a well-developed system and it is easy to source any aspect from hundreds of companies that already exist. In Russia we had none of that, so we had to build everything from scratch,” says Nitsenko.

The whole project kicked off with the establishment of the genetics firm in Kaluga in 2008, whose experts are attempting to create the perfect bull. They don’t splice genes, but they track the cattle from birth and scientifically measure its physical attributes, which are then mixed and matched to improve the stock.

Primebeef has 22,000 animals that are considered to be seed stock and the genetics branch extracts eggs from the best heifers and artificially inseminates them with semen from the best bulls. The breeders introduce the fertilised eggs to other cows, which act as surrogate mothers to produce the best possible calves. The genetics team also ensures that the calves are mostly males, which produce better quality meat than females.

Genetics is also big business in its own right. In 2008 Primebeef bought a 50% stake in two unproven yearlings called Replay and Powero (pedigree cattle get names), which Nitsenko paid $68,000 and $74,000 respectively at auction. The two bulls are in Russia now and when Primebeef auctioned off 50 of their offspring to other Russian farmers looking to get into the beef game, the most expensive went for $27,500 and the average price for the other 49 bulls was $8,500, netting almost $250,000 in profit for the company on just this year’s offspring.

Feeding is equally important, as it directly affects the quality of the meat. Primebeef boasts that its Black Angus are fed on a corn-only diet and the company also produces the corn – another example of its vertically integrated operations. Last year, Primebeef built five huge silos to store enough feed corn for a year and this year might even produce a surplus of corn that it can sell.

About 10,000 head of cattle are on the feedlot at any time, where they are given four types of corn with some special grasses and straw added to produce a healthy diet. The corn gives the meat a particular sweetish taste that is the hallmark of Primebeef steaks. The company uses no chemical or pharmaceutical additives in its feed.

The young cattle are brought to the feedlot from the farm where they are carefully fed until they reach at least 500-650kg at an age of 18 to 22 months, after which they are taken on a short drive to the processing plant a few kilometres away. “The cow and calf farming is the riskiest part and very expensive. It is extremely important to be super-efficient at every step in this part of the business as it can easily go wrong,” says Nitsenko.

Last year the company built a full-cycle processing plant. The cattle are delivered to one end of the building and out of the other end comes trucks stacked with boxes of steaks and other cuts ranked, sorted and labelled for delivery to the company’s customers.

The crisp white and red building is a state-of-the-art production line, using equipment mostly shipped from Germany that can produce a variety of products. The best cuts from the Angus bulls are either packed and wrapped for retail sale in Russia’s high-end supermarkets, while larger cuts are less elaborately packaged and sent to hotels, restaurants and cafes (shortened to “HoReKa” by staff of the holding company Zarechnoe), which are the most important customers.

One cow is slaughtered every two minutes, but the company has imported standard humane practices from the US, which is fast and hygienic; the cows literally have no idea of what is going to hit them. With most of the pieces now in place and fully functioning, Primebeef is on track to reach the processing target of 50 cattle per hour.