Vladimir Osadchuk, the General Director COFCO Agri Resources Ukraine, told LDaily about the peculiarities of the Ukrainian agrarian business, the investment attractiveness of Ukraine, plans for developing the domestic infrastructure and the cooperation within the European Business Association.
LDaily: Tell us about the COFCO Corporation, please.
V. Osadchuk: Chinese grain corporation COFCO (China National Cereals, Oils and Foodstuffs Corporation Corporation) is one of the largest producers, processors and sellers of agricultural products, headquartered in Beijing. The corporation is one of the largest state enterprises of the People’s Republic of China. It was founded in 1949 and it owns assets of more than $71.9 billion after several acquisitions. COFCO has offices in more than 140 countries around the world and owns a global trading network. Additionally, numerous capacities for the production, storage and logistics of agricultural products, for example, the capacity of its grain storage is around 31 million tons, of processing – 89.5 million tons per year.
The place of the company is eloquently evidenced by the fact that COFCO currently delivers grain products and oils to more than a quarter of the world’s population.
LDaily: How many years has the company been working in the Ukrainian market?
V. Osadchuk: We have been acting in the Ukrainian market for more than 10 years. We used to act as the Noble Resources Ukraine company, which was part of the Noble Agri Group, until 2016. In late 2015, the Chinese corporation COFCO bought the international agricultural company Noble Agri with its assets in Ukraine. In March 2016, COFCO used this basis and transformed Noble Resources Ukraine into a new enterprise – COFCO Agri Resources Ukraine, specializing in the processing and selling agricultural products, mainly cereals and oilseeds, as well as its promotion to international markets.
LDaily: Can you tell us what Noble Agri was doing in Ukraine?
V. Osadchuk: Noble Resources Ukraine specialized in the procurement and storage of raw materials – cereals and sunflower seeds, as well as the production of sunflower oil for exporting mainly to Europe.
LDaily: What changed when Noble Agri became COFCO International?
V. Osadchuk: Actually, only the shareholders changed. COFCO successfully continued the activities of Noble on an even larger scale. We still work on global deliveries of agricultural products, their processing, storage and transportation. This presupposes the availability and development of appropriate production capacities, as well as the increased mobility of the infrastructure around them.
LDaily: How many years have you been heading COFCO Agri Ukraine and how exactly you personally were motivated for selecting the agrarian sector?
V. Osadchuk: I have been heading the company for more than five years. I was the General Director of Noble Agri from 2013 to 2015 and the General Director of COFCO Agri Resources Ukraine from 2015.
As for the motivation, I can say the following… Ukraine is one of the five largest producers of wheat. Our country owns the largest reserves of black-earth soil in the world, they can be found on about half of its territory. The climate contributes to stable yields of many crops. At the same time, the agrarian sector is full of unsolved problems. First of all, it is infrastructure and logistics, which don’t meet the requirements of modern times. Additionally, there is a shortage of modern processing complexes and storage facilities with efficient equipment.
Such a field of activity couldn’t leave me indifferent. Facing these challenges is the best motivation for me, and it is also the main goal of the company entrusted to me.
LDaily: Which Ukrainian companies are included in the structure of COFCO International?
V. Osadchuk: We have seven Ukrainian companies that are part of the COFCO International’s structure. The first one is COFCO Agri Resources Ukraine headquartered in Kiev, which is engaged in trading.
The second one is Satellit LLC, a plant for processing sunflower seeds in Mariupol with the capacity of 1500 tons per day, built by Noble Agri in 2011-2012. Before the conflict started in that region, this enterprise processed sunflower seeds supplied by agricultural companies from the Donetsk region. Once agricultural lands to the east and north-east of Mariupol were occupied, the plant had to look for new suppliers, while competing with oil extraction plants located in the Dnipropetrovsk and Zaporizhia regions.
The company has a grain terminal with an annual handling capacity of 2.5 million tons of grain crops. It is managed by DSSC (Danube Shipping and Stevedoring Company) LLC based in Nikolaev.
The company also owns four elevators. One elevator is situated in the Razdolnoye village in the Starobeshevsky district of the Donetsk region (PJSC Karakub Grain Receiving Enterprise). Unfortunately, it is in the occupied territory now and was expropriated by invaders in August 2016. Another elevator is situated in the Kherson region and the other two ones – in the Dnipropetrovsk region.
LDaily: What problems did the company face during its existence in Ukraine?
V. Osadchuk: Sure, there are some actual difficult issues we face while doing our business. They mainly relate to logistics and the infrastructure plan. There are also issues that we solve together with several certification organizations. What’s more, there are acute problems of interaction with tax and law enforcement agencies. We have to work in an environment where along with the liberalization of legislation and the ease of doing business in Ukraine, there are still vestiges from the past.
LDaily: Can you elaborate on the interaction with tax authorities, what exactly are the difficulties?
V. Osadchuk: Almost all of our companies, except for elevators, belong to the category of large taxpayers. All of them create jobs and pay taxes scrupulously, these are very significant amounts of money. Initially, our companies had problems with VAT refunds. Those sums were not reimbursed for years. We noticed a positive shift in such issues recently. In this regard, we work very tightly with the SFS (State Fiscal Service of Ukraine) in order to timely recover the VAT amounts generated from the purchases, processing and export sales.
We also have controversial issues when the Ukrainian tax authorities try to shift responsibility for Ukrainian producers to our companies. Of course, we prove our rightness, but it takes us a lot of time and effort. There are enough difficulties today. I would be very glad to evidence the simplification of business rules, especially for such large international investors as us, who work within the framework of existing rules and regulations.
LDaily: How many people do you work with?
V. Osadchuk: We employ 586 people in Ukraine. 69 of them are employed in our Kiev office.
LDaily: Do you, as an agrarian company, have any questions regarding the land reform?
V. Osadchuk: It concerns us indirectly, as we are a company that purchases products grown by Ukrainian producers. Unfortunately, we don’t produce any agricultural products.
LDaily: What are your future plans for the company?
V. Osadchuk: We see great business prospects here and this fact is confirmed by our last investment of $75 million. We invested in a new terminal based on the berths No.1 and No.2 of the Nikolaev Sea Commercial Port. This terminal serves for transshipment of grain and oilseeds and is managed by our company DSSC LLC. We have been building it for almost 16 months. The total storage capacity of the terminal is 127 thousand tons. The terminal is also equipped with stations for unloading road and rail transport. These stations allow us to receive up to 15 thousand tons of products per day. It is a whole complex – a grain dryer, a grain cleaner, a laboratory for checking the grain quality and a ship loading machine. The terminal capacity is 2.5 million tons per year.
When you construct an object of such capacity, you have to plan the whole infrastructure around it. Therefore, roads and platforms for transport in the port of Nikolaev were built for the new complex’ needs.
This example has the direct relation to our plans for the whole country. As I said before, Ukraine suffers from logistical issues. Basically, these are problems with the railway and water transport. We are interested in developing the infrastructure in the country for it to meet our needs. Thus, we are paying attention to the internal logistics and the water logistics. We are working hard in this direction now.
These plans are dictated by the group’s strategy. Being the main supplier of grain, sunflower oil and food for a quarter of the world’s population, COFCO International is creating a global network for providing the population with food.
LDaily: You are among the best top managers among agrarians. Could you please share your success formula?
V. Osadchuk: In fact, the main point is the team, as everything depends on the team that works with you. The most important thing is to make this team result-oriented. And the second thing is to get the team’s feedback to achieve this result together.
LDaily: Is it difficult for a large business to work in Ukraine?
V. Osadchuk: There are two points. The first one is that we are more protected, since we are a foreign company. On the other hand, it’s not easy to work in Ukraine, as we have to devote at least 40% of our daily time to resolving issues connected with different services and various state authorities. We have to make such decisions and take actions 24 hours a day to make our business work smoothly. It takes plenty of time.
Unfortunately, officials often interpret the legislation as it is profitable for them. Businesses have only tools provided by the current legislation, that’s why the process of protecting their position by companies takes a lot of time and effort. We often have to prove to officials the written truths guaranteed by the Constitution of Ukraine and make clear the rules provided by the current legislation. We have to return them to the legal framework, which should work for business and for the benefit of the country, not for the officials. This is the main difficulty for a foreign investor in Ukraine.
LDaily: What criteria of choice was the company guided by while entering the Ukrainian market?
V. Osadchuk: Ukraine is very interesting for business as an agrarian country. If you look at trends over the past 20 years, the production has almost tripled, while the potential of Ukraine is even higher. The most fascinating thing is that agriculture is probably one of the industries that have the greatest progress.
If the liberalization of the land market continues, it will allow commodity producers to develop, so Ukraine has a great potential from this perspective.
LDaily: Does the state somehow support agriculture?
V. Osadchuk: We interact with the state normally. Previously, one of the impetus for the development of agriculture, holdings or large commodity producers, as well as medium-sized commodity producers, was the preferential taxation for agriculture, which helped companies strengthen.
Nowadays, large agricultural holdings are trying to secure preferences like subventions or subsidies, or to restrict the export of certain crops in order to develop the processing in Ukraine by issuing various laws. It’s not bad. However, we are a democratic country, we work in a free market, so letting someone secretly receive funds from the budget which is filled with taxes of all the citizens is unacceptable.
LDaily: Is Ukraine an investment-attractive country?
V. Osadchuk: According to the rating of Doing Business, Ukraine is slowly moving up. We are not the last, but not the first ones. Therefore, there is still much to do for Ukraine as a state to come to the forefront. Nevertheless, COFCO is one of the top 20 foreign investors in our country, that is, Ukraine is unambiguously attractive to us. Still, Ukraine must work to ensure that companies like COFCO remain in the country and continue investing. After all, other large investors from all over the world watch how COFCO works in Ukraine and what problems it faces.
LDaily: What exactly should the state do to improve the country’s investment attractiveness?
V. Osadchuk: There was a right slogan after the Revolution of dignity about liberalizing business and removing all the obstacles from its way. However, we now face some attempts to return those barriers, if we talk about the agrarian industry. This is unacceptable. In general, the state should be aiming at liberalizing business.
Business must work within the law. Everyone must equally understand and honor the law. There should not be different interpretations of the law when a business sees one sense, and the state finds an opposite sense. Besides,
the state, officials should watch business needs and notice its problems rather than play some political games in its expense.
Companies like COFCO are the flagships and strategic investors for Ukraine. A dialogue with companies of such a level should be at the highest level as well. Ukraine will have to learn to listen and hear foreign investors if it wants to increase the investment flow.
LDaily: How long has COFCO Agri Resources Ukraine been part of the European Business Association and what does this give the corporation?
V. Osadchuk: We have been part of the European Business Association for 10 years already, since the times of Noble Agri, from the moment the company entered the Ukrainian market.
For the corporation, this is primarily the protection of rights, communication between companies-members of the Association. It is a consolidated position for cases of some negative influences of officials or bills that can harm business. I mean not an individual position when each company acts separately but a consolidated position of all the members of the European Business Association aimed at protecting businesses in Ukraine.
LDaily: So, do you cooperate with your competitors?
V. Osadchuk: We do, as we resolve issues of the higher importance than competition or rivalry. In this case, we consolidate in order to develop the business not to destroy it. The European Business Association is a unique platform making possible acting together as one block for defending our business rights.
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