PAVA’s future starch sales negotiations to minimise financial risk

31-Oct-2008 - Last updated on 31-Oct-2008 at 11:29 GMT

Russian grain processor PAVA says it is already in negotiations with major firms to supply products from its new grain fractionation plant, due to be up and running by 2010.

The company told BakeryandSnacks.com that it has signed preliminary contracts with large European food ingredient distributors, as well as Russian brewers and cardboard manufacturers, although it said could not provide any further details “because of confidentiality agreements.”

The new facility, based on the site of its Rebrikha mill in the Altay Territory, will provide wheat gluten, starches and alcohols to both Russian and international markets.

Minimising risk

The negotiations are the latest stage of PAVA’s ambitious development strategy, which will give it full control of its wheat processing chain, from growing its own wheat supply, through to milling and fractionation. The company hopes this will give it a high degree of independence from world market fluctuations as well as allow it to extract all valuable components from the grain, enabling it to maximise profitability. PAVA currently controls approximately 60, 000 hectares of agricultural land.

Galina Balaenkova, PAVA’s director of international business development and investor relations, said: “Even if the situation on the market undergoes serious change, the flexible technology of the plant will allow us to adjust to the new environment. We can respond to shifts in demand by producing more starch products or more alcohol products. This will help minimise risks of the project and provide the company with a competitive edge."

Starch and syrup demand

The company said that it sees significant growth potential in the Russian market for all of its wheat-derived components. Due to relatively high import costs, it said that there is a need for reasonably-priced starch and syrups in particular. The company currently processes flour, bran and mixed feed grains.

The company said: “PAVA plans to gradually transform itself from being major grain processing company in Russia into a leading vertically integrated agro-industrial holding company. Under this concept new lines of businesses are added to the current businesses. These are the new projects for deep grain processing and agricultural business operations - acquiring and farming agricultural land assets.”

This latest move follows an extensive modernisation programme, which has included the recent upgrade of machinery at all three of its mills. It has also recently added an agricultural division charged with the acquisition and development of land assets from different parts of Russia, characterised by high yields.

Balaenkova is scheduled to give a presentation at the German Investment Forum in Frankfurt on November 11, entitled ‘Creating value via vertical integration’.