Localisation of Agricultural Plant Seed Production in Russia

On 1 September 2023, Decree of the Government of Russia No. 754 dated 16 May 2023 On Approval of the Rules for the Localisation of Agricultural Plant Seed Production in the Russian Federation (hereinafter the “Decree” / the “new Rules”) came into force. The new Rules were developed by the Ministry of Agriculture of the Russian Federation (hereinafter the “Ministry of Agriculture”); they regulate the organisation of production of agricultural plant seeds (hereinafter also the “seeds”), including plant varieties protected as selection achievements, in Russia.

The Ministry of Agriculture considers the goals and objectives of localisation of seed production to include, in particular, import substitution, reducing the risk of losing competence in the field of selection and seed production of key crops, overcoming the technological dependence of domestic agricultural production on imports and achieving technological sovereignty in the agro-industrial sector. It seems that it is import substitution which is the main purpose of enacting the Decree and implementing the new Rules for the localisation of agricultural plant seed production in Russia.

In accordance with Clause 2 of the new Rules, the localisation of agricultural plant seed production is understood as the implementation of a set of measures including breeding a variety/hybrid of an agricultural plant and/or growing its seeds, including their preparation for sowing/planting and sowing/planting, care of agricultural plants, harvesting and processing of their seeds, growing of seedlings and young plants and digging up agricultural plants in Russia. Localisation activities may be carried out by Russian legal entities, individual entrepreneurs (IEs), companies with foreign participation or foreign individual entrepreneurs.

Foreign companies conducting agribusiness in Russia and engaged in producing seeds of agricultural plants should pay special attention to the Decree, since, according to the provisions of the new Rules, such companies will only be able to continue operating in Russia through joint ventures (hereinafter the “JVs”) established jointly with Russian legal entities. At that, share of the Russian legal entities in a JV must be at least 51%, and such legal entities must not have any direct or indirect foreign participation.

Further, the new Rules establish two groups of criteria that companies/IEs need to meet in order to localise seed production: (1) criteria for breeding (obtaining) plant varieties/hybrids and (2) criteria for growing seeds in Russia.
1. Criteria for breeding include:
1.1 Having two land plots in ownership and/or under other title on the territory of Russia located in different regions for VCU tests;
1.2 Having a nursery for plant/hybrid breeding in ownership and/or under other title on the territory of Russia;
1.3 Carrying out a full breeding cycle on the territory of Russia with the participation of scientific organizations and higher educational institutions;
1.4 Having a set of real estate items and technological equipment in ownership and/or under other title for conducting research and breeding plants/hybrids.
2. Criteria for growing seeds include:
2.1 Growing of bred plant varieties/hybrids from original and elite seeds produced in Russia or delivered by foreign participants in the territory of Russia with the participation of scientific organisations and higher educational institutions;
2.2 Having land plots in ownership and/or under other title in Russia;
2.3 Having production facilities and equipment located in Russia and required for seed production.

It is important to note that, in accordance with the Rules, companies or IEs carrying out the process of localisation of seed production in Russia must meet all the above criteria. If any discrepancies are established, localisation of production may be difficult.

In view of the new Rules, foreign companies that own exclusive rights to selection achievements and wish to market patented varieties of agricultural plants in Russia will have to change the scheme of conducting their business in Russia. The following options seem to be currently available:
1) To establish a JV and grant this JV a licence to produce and market seeds of patented plant varieties/hybrids. As seeds of most agricultural plants can be marketed in Russia only if such varieties/hybrids are included in the State Register of Varieties and Hybrids of Agricultural Plants Allowed for Use (hereinafter the “Register”), it is also necessary to grant a consent to the JV for inclusion of the variety/hybrid in the Register;
2) To grant a licence to produce and market seeds of patented plant varieties/hybrids to a Russian legal entity (e.g. local partner) and provide it with a consent to include the variety/hybrid in the Register;
3) To transfer the rights to the patent/obtaining the patent to a JV or a Russian legal entity (e.g. local partner), which will also be granted consent to include the variety in the Register.

It seems that operating through a JV (option 1) will allow foreign companies to better control production and distribution processes in Russia than granting a patent licence to a Russian legal entity (option 2), since in the latter case the foreign company (licensor) will only retain the rights to receive royalties and control product quality, without any additional corporate control. Option 3, on the other hand, may be unacceptable for many companies, as it leads to alienation of intellectual property rights, without retaining any patent and/or exclusive rights.

Further, the new Rules establish the requirement to submit to the Federal State Agricultural Plant Seed Production Information System a plan for localisation of agricultural plant seed production. Such plan must be submitted annually, no later than 1 March, in the form approved by the Ministry of Agriculture. At this time, the form of the plan has not yet been approved or published. The plans submitted by the companies/IEs will be approved annually by the Ministry of Agriculture not later than 1 July of the relevant year. Once the plan is approved by the Ministry of Agriculture, the seed production process can be arranged (implemented).

In addition, the Russian Government adopted Decree No. 1034 dated 26 June 2023 (as amended by Decree of the Russian Government No. 2285 dated 23 December 2023) On Certain Types of Goods to Which Quantitative Restrictions on Importation into the Russian Federation May Be Applied. In accordance with this Decree, during the period from 1 October 2023 to 31 December 2025, the Ministry of Agriculture has the right, if necessary, to determine and submit to the Government of Russia proposals on quotas for the supply of seeds of the agricultural plants listed in the Decree into Russia. In accordance with this list, quotas may restrict imports of seeds of such important crops as potato, wheat, rye, maize, etc. According to preliminary information from the Ministry of Agriculture, the final quota parameters will be determined on the basis of market and domestic seed production needs, as well as taking into account the supplier's localisation plan.