Agricultural market Interview

As long as landowners’ interests don’t suffer, they are indifferent to our activities, and this is disappointing, as we do a lot

Dietrich Treis, the General Director of PJSC UIFK-Agro, told about the company’s achievements under his leadership, about how to encourage people to work, about the need to improve production and the problems faced by the agrarian business.

: Your company has been operating in the Ukrainian agricultural market for 10 years. You have been leading the company for not too long. Which main achievements do you have for now?

D. Treis: The company exists for about 10 years. We are now renting 3700 hectares of land. Also, we have an elevator with about 20.000t of storage capacity. The company changed ownership 2 years ago, that was the time when I joined the company. Since then, we bought almost a completely new machine set, we invested in the production by getting better seeds and more fertilizer, improved crop protection and achieved higher yields. If the company was in the lower parts of the yield ranking in our region before, we are now at the top. We have improved our productivity and performance. How much you produce is always a big question. For a short period of my management, we were able to introduce GPS guided tractors and precision farming. This was not new for Ukraine, but it was a technological leap of decades for this farm.

: How have you managed to improve production performance?

D. Treis: Money is the easiest part. I mean new machines and higher inputs in the production. Change people’s approach and the way how they work is more difficult.

: Which companies do you cooperate with?

D. Treis: Well, they are all Ukrainian companies legally. If we talk about grain traders, there are international traders as well as Ukrainian. Also, we sell products to processing companies like Kyiv Mlyn or Obolon. If you buy bread in Kyiv, it is probably made from our wheat. However, we export the main part of our products to international companies. We do not now export by ourselves. Maybe we will also sign export contracts in the future.

: How many people work at your company?

D. Treis: We have about 90 employees at the moment.

: What do you do to encourage professionals to work here? Are there only Ukrainians?

D. Treis: I was the only foreigner so far. We employed another German recently, as we are looking for increasing our business. However, the rest are Ukrainians, mainly from villages where we rented land. Agricultural work is seasonal. Machines have to run 24 hours, often without weekends. Also, we depend on the weather. We can not work in the fields if it’s raining, and it is difficult to plan the working time.

We have to be attractive to attract people. The first argument is the salary. We also try to create a good work environment. It has changed a lot since the owner had changed. There was a strict difference between blue-collar and white-collar workers before. Today, we celebrate the Christmas party together. We have events everybody takes part in. We try to be socially responsible for our employees and help them when they have problems with health. We try to make people feel more comfortable while working for us. We have a room for breaks and showers so that people could change their clothes, which is not standard for most other farms.

: How do you stimulate your employees to self-develop and improve their qualifications?

D. Treis: We encourage them to take part in seminars or other kinds of training. Surely, everything is at company expense. If we see a better performance, people get a higher salary or a promotion.

: You mentioned equipment. What kind of equipment have you brought here the last time?

D. Treis: Today, the equipment comes mainly from the EU or the US. Two years ago, when we were getting started, there were mostly old tractors and old equipment. You could hardly find any electronics in it. It is probably one of our biggest achievements – to make people work with new machines. Today, we have GPS-guided machines which have more electronics than a modern car has.

: How did the purchase of new equipment influence the company?

D. Treis: First of all, it showed people that a new era started with a new approach, still, there are higher demands. We have also improved performance and accuracy. Like mentioned before, we made a technology step of 20 or 30 years.

: Do you use drones?

D. Treis: No, we are now still in the process of development. I think we will use different drones later. In agriculture, you have only a year for trials. For instance, I seed grain in autumn but see the result only in summer next year, when I harvest the grain. If I want to change something in the production process, I can do this only the next season. The production cycle is much longer in agriculture than in other industries.

We introduced quite a lot of new things and we are still not using all the possibilities of our new equipment. We would not benefit very much of drones at the moment. Nevertheless, we use satellite pictures (NDVI ) for vegetation control.

I can revise it only next year and think: “Oh, it wasn’t that I wanted to have, so I need to change something”. Only after a year, we can change something. The once-a-year-try is the specificity of agriculture, which is similar to drones.

: How such kind of innovation will change the industry? Maybe we will have new positions or some professions will not be needed anymore in a few years?

D. Treis: Precision farming is already used in many farms and we will implement it in the next season. Here is how it works – you divide a large field into smaller parts and give more or less fertilizer depending on the yield potential and soil quality. This works automatically using the GPS position. In the future, we will see tractors working without an operator like cars which will be driving without drivers. So, farms will need fewer operators but the requirements for drivers will be much higher.

: You will need more IT specialists than just simple workers.

D. Treis: Well, we need them now. We have a lot of computers and screens sized like a small TV in our tractors. The machines move guided automatically by GPS. The future tractor driver must be able to use all the new electronic and computerized equipment. The work preparation and work control is or will be computerized. Maybe the work order will be totally prepared on a computer in the office and an operator will work just for safety reason in a tractor or near it.

: What about the general agricultural business climate in Ukraine? Which opportunities and problems do you have in Ukraine in comparison with European countries?

D. Treis: I have to say that the big advantages of Ukraine are large fields, good soils, and moderate climate. If we are talking about the business climate, it is not as moderate as the climate and not as fertile as the soil. It is like very cool and very deep water – it is difficult to get in and to swim. Once you are in and you did not sink, it is okay. However, it is very difficult to convince foreign investors to invest in Ukraine. Those who are in Ukraine and know how to deal with that can make a good business. Nevertheless, it is very difficult for foreigners to get used to it. The biggest obstacle is the lack of legal certainty.

: You are still here and continue to work. Could profit be the reason?

D. Treis: We are profitable and we have a good development. Those who are already here and got used to the local conditions can make a good business. However, I wouldn’t say it is a good investment climate. Please, do not understand me in the wrong way. I have been in Ukraine for 20 years, and I like to be here and work here. Still, it is not a secret that the Ukrainian economy is still poor, and foreign investment is at a very low level. Since investors are not in a hurry to invest in Ukraine, there must be some obstacles. The profit can be high, but the risk is also very high.

Investors always look for new opportunities, but for some reason, they do not come here.

: What stops investors – the political situation or the war in the east of Ukraine?

D. Treis: Both. I think the majority of people abroad do not know that the war is far away from Kyiv and many other regions of Ukraine. The war is, of course, an important reason for not investing in Ukraine. Corruption and legal problems are also important reasons. Ending the war depends not only on Ukraine while the corruption and the legal situation depend only on Ukraine. Since bribing is a criminal act in most of the western countries, also when performed abroad, so international companies must be very careful.

If the corruption was less and the legal situation was safer, much more people would come to Ukraine. Everybody who came and spent a good time here would tell others that Ukraine is a safe country and the war is far away. Ukrainian government probably can not stop the war but could do a lot to improve the investment climate. If the economy would grow and there would be a real fight against the corruption, the war would end by itself.

: What about the communication with the state authorities? Some agricultural companies had issues with the fiscal authorities.

D. Treis: In my opinion, I shouldn’t communicate with them. I make business and they do their work. In Ukraine, you have to communicate more with the state authorities than in Germany. There are no big problems and, generally, we have good relationships. In agriculture, we have no profit tax but a fixed tax depending on the land we are renting. The system is very easy and it limits the scope of interpretation. It limits the interest of checking us. Last year, we had several controlling bodies in our farm. Fortunately, we went through this without major problems.

Some of the laws and regulations in Ukraine come from Soviet times, and the system is over-regulated. There is also a necessity for decommunization

: How do you think, will the land reform change the situation? Which kind of reform do we need to create better conditions for agricultural business in Ukraine?

D. Treis: In my opinion, the expectation in the land reform is over-estimated. It will lead to a drop in production and small and medium-size farmers will be sacrificed for the land market.

Most farms lack finance and have a long list of necessary investments. If the land market opens the money needed for the production, this money will for purchasing land, not for production. Everybody tells you that you have to lease cars, lease buildings and so on in order to increase liquidity. So, why farmers should buy land? The usual argument is that you can use the purchased land as collateral when the land market is open. Nevertheless, farms lease that land and do not have it in ownership today. Banks usually take more than 100% collateral for credits. That means you have to take your own money at first, buy land for e.g. 120.000€, give it as collateral to the bank in order to get a credit of 100.000€. The interest rate you have to pay on top. I do not see how this improves the financial situation of the farm.

Most small and medium-size farms hardly have money for buying land. Due to their size, their needs for credits are too small to be interesting to banks.

Regarding the required reforms for agricultural companies, they have the same requirements as other companies from industries have. First of all, make courts working as they should work and the law must be the same for everybody. The problem is not the law, it is in implementing the laws.

: How will this reform affect the investors, if it is made?

D. Treis: This will depend on whether a foreigner is able to participate in the land market. Of course, they are also interested in buying land. This would increase the demanding side and hence increase the land price. Therefore, actual landowners – they are mostly people from rural areas on the lower part of the income scale – would get more money for their land.

Also, it will depend on how the reform will be implemented. The purchase should not break the lease. If after the land sale the lease contract is still effective, like foreseen in the law, the market will be less affected. What I expect, if a new landowner tries to cancel the lease contract in order to get a higher lease rate, investors will feel insecure and refuse from investing in agriculture or even move out.

In this discussion, most of the people forget that we already have the land market. It is a lease market but, nevertheless, a free market. In addition, it is a myth that there is a free land market in almost the rest of the world. Most of the countries have any kind of restriction for agricultural land.

: How do you communicate with landowners? Do they agree with company politics?

D. Treis: We have different levels where we communicate with the landowners. First of all, there is a payment for the lease rate. We pay the land lease in money or pay with grain, whatever the landowner wants. Before working in Korzhi, I used to work in the Khmelnitsky Oblast. Most of the people took grain there, and people in our regions preferred money.

Each village has its annual festival. This year, we organized animation for kids, free candyfloss and some medical equipment for the FAP (ward). We also give presents to veterans and older people on May 9. In the village where our base is, we organized a football tournament for 3 times. My son plays football in Kyiv, and his team comes to Korzhi and plays with three local teams. Last May, the Korzhi adult football team took part in the regional championship. We organized a cheerleader team to support them and sponsored the team.

Further, we provide medical service, a kind of small medical insurance for the landowners. A doctor has a consultation-hour in the village once a week and organizes further help in the hospital if necessary.

What’s more, we assist villages in repairing water pipes; we clean snow or buy doors or windows for public buildings.

We try to make life in villages more attractive and stimulate social life. People became less interested in the way how companies work and what they do during the last years, as long as they pay the lease rate. The younger generation, in particular, has no relation to agriculture. Unfortunately, they do not appreciate long-term relationships, and most people look for a short benefit.

: As one of the biggest agricultural companies, do you have the competitors?

D. Treis: Actually, I would say we are a comparatively small or medium size company. 3.700 ha is rather few when you have neighbours with ten thousands or even hundred thousands of hectares. Nevertheless, I am not afraid of competition. We have a different approach than they do, and I think we can compete with them very well. Since grain is a world market product, a farmer in Australia or in South America is also a competitor for us.

: What plans does the company have for the future?

D. Treis: First of all, we have still enough plans for our existing farm. We have achieved a lot but we still have a lot to do. We are also looking for more land, either in our region or another place in Ukraine.

: Does the company support the lifting of the freeze on land sales in Ukraine, and if so, under what conditions?

D. Treis: I would postpone the land market for at least five or ten years so that farms could accumulate financial resources to buy land. Most farms still work on the financial limit. Money is needed for working capital of the production. They have to buy seeds and replace machines. If they buy land, the money will be tied up.
Most people argue that if the land market is open, farms can use this land as collateral. They forget that farms do not own the land and have to buy it before they can use it for collateral. Of course, farms are interested in owning the land rather than paying rent for it. Still, you need to have financial resources to buy it. The problem with the land is that you have to buy it when it is offered. If you do not buy it, somebody else will do it. Very likely, this ‘land plot’ will not be on the market again for a long time. You can buy a tractor every day, and land can be purchased only when it is offered.

I would also wait until the legal situation in the country improves. We already see some fraud land deals. When the land market is open, I expect more problems. Unfortunately, most landowners are less educated, and during Soviet times, they were not raised to be independent people. Today, lease payments is an important part of their income. If they sell the land, they will lose this income.

: Do the constant changes in tax legislation of agro-industry hinder the activity of the company?

D. Treis: Investors like stability. Permanent changes bring uncertainty to the business. You never know if your business will be still profitable next year when the taxes will be changed. In particular, this is so because the Ukrainian government likes tax jumps from zero to twenty or more percent. With these changes, your business plan will be waste paper.

Any changes can lead to errors in the bookkeeping, especially when they come at short notice. For example, the land tax is paid according to the rateable value of the land. So, it is calculated by the average rateable value of all land plots in each village. Since this year, it has to be paid by the value of each individual land plot. Agricultural companies now have to pay the tax but the website where you can get the land value is still working in a testing regime and the given value can be wrong.

Stability is important. If changes are necessary, this should not be done with large steps but should be well prepared.

Please read: The most important recommendations on business protection in Ukraine for 2019

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