Agricultural market Interview

Improvement of the effectiveness and innovativeness is key for the development of our enterprise and prosperity of our employees

Evgeniy Radoveniuk, Ph.D. in Technical Sciences, the CEO of BZK Grain Alliance told about the opportunities of Ukrainian land market, peculiarities of doing agricultural business in modern realities and about the social responsibility of the enterprise.

: Tell us about Grain Alliance, please.

E. Radoveniuk: Last year, BZK (Baryshivska zernova kompaniya) celebrated its 20th anniversary in Ukraine. The enterprise started its history in 1998. In 10 years, it has already become a member of Grain Alliance. Today, BZK receives 100% investments from Sweden, works on the land of 56 thousand hectares and actively develops. Over the past 10 years, we have increased elevators’ capacity five-fold to 256.000 of tonnes for storage. We actively update machinery fleet, involve new investments into production. We strive to be as maximum efficient, stable, socially responsible, strong European agribusiness, and responsive to Ukrainian village as possible.

: In what territories do you work?

E. Radoveniuk: We work in Kyiv, Cherkasy, Poltava, and Chernihiv regions.

: Why have you chosen these regions?

E. Radoveniuk: These are regions with deep agriculture traditions and high culture of arable farming. It is natural that we put them on priority. Climatic zones play not the last role: these territories are not as risky as the East and South of Ukraine, although we have trouble zones in Cherkasy and Chernihiv regions. In general, we concentrate on technology sophistication of different levels, adopting new, modern technology. This helps us reduce weather risks.

: The company now owns 5 elevators. Do you plan to increase their quantity?

E. Radoveniuk: This depends directly on production volumes and volumes of our land bank. It is clear that the increase of these features will determine the development of elevator economy. Still, we consider that our higher priority is to optimize the work of already existing capacities. We work primarily on increasing the capacity of elevators, first of all, in Pyryatyn and Nizhyn. We have built these capacities from scratch, using new technologies of grain storage. We also focus on creating viable logistic mechanisms, optimizing work following the principle “receiving – storage – shipping.”

: Tell us, please, where do you export raw materials?

E. Radoveniuk: The geography of our shipping is quite wide. We export grain to European and Asian countries. For example, we have been cooperating with Japan for a long time in exporting soya beans. In this cluster, all our products are grown according to the high-quality standards. We do not use any genetically modified components. Operation of calibrating our plant in Baryshivka, which is fitted with modern equipment for processing grain for Japanese production, contributes to our clients’ respect. We work with the help of traders so far, shippings go through seaports. In nowadays realities, agricultural producers need to have significant production volumes to become independent players on this market.

: How can you describe the agricultural sphere in Ukraine?

E. Radoveniuk: I would say this is a driver of the Ukrainian economy. What I heard is that the agri sector makes 18 billion out of 42 billion of the export profit. This is a great contribution. This sector is actively growing and developing. It is quite competitive. We see that after the conflict in the East of Ukraine had started, numerous large entrepreurs suffered, this significantly affected the industry markets. However, the grain market is actively developing. Moreover, it stimulates the development of related industries. If we take a look at transport, road service, railway lines, the agricultural sector is one of the biggest customers of carriers’ services. In general, agricultural production is a very perspective industry, from the perspective of productivity, technological effectiveness and production results. It has very high potential. This industry will be developing further. Despite that, we cannot lose focus on certain restrictions. Last year, there was probably the biggest harvest for the whole history of the country. The logistics system was not ready for such volumes of transportation, and it was very difficult to ship grain. That is why logistic is an infrastructure which will require the most investments within the nearest time.

: Do you mean Ukrzaliznytsya?

E. Radoveniuk: Mainly, yes. Just yet, Ukrzaliznytsya is a kind of a ‘thin place’ for agricultural producers. Nevertheless, I think that investments will be provided, the logistics sector will be developing and everything will be fine.

: What other market trends do you notice?

E. Radoveniuk: It is already clear that we have an extremely low influence on forming world grain prices. Long story short, we have high production expenses compared to price proposals. On the one hand, there are constantly low prices for grain on the world market due to its density and high competition. On the other hand, there are internal issues which impact the production value. Ukraine is now moving towards European integration, so there is a natural outflow of the labor force. Next, expenses on prime costs components grow annually. They are fuel and lubricants materials, fertilizers, land lease, salaries… At the same time, there is high competition among agricultural producers. Under these realities, profitability in the production sector will be gradually tightened. It will demand both costs optimization and searching for directions of vertical integration, organizing production systems for creating additional value. And even in such terms, I consider the agricultural industry as prospective in Ukraine.

: How did the crisis influence this industry?

E. Radoveniuk: Probably, this is one of the industries which has not only unsuffered from the crisis, but vice versa has been intensively developing and growing. Even devaluation processes in grain production have positively influenced the industry sometimes. All we know – we sow 8 and harvested 11, sow 13 and harvested 16. Such a long operational cycle worked in favor of the agricultural sector. Significant consequences of the financial crisis, international crises minimized their influence on the industry. During this period, agricultural producers not only have been actively developing and capitalizing but also have been warrantying the stability of the Ukrainian economy.

: Concerning development issues – what innovations have you already implemented at production and what do you plan to introduce?

E. Radoveniuk: We were one of the first in the industry who implemented informational technologies in the agri-sphere. However, progress does not stand still, and we already see which directions need investments. Over the last couple of years, we concluded that essential changes are necessary for sowing technologies. Today, we are implementing a program of precision agriculture in our fields. This is a complex which includes the latest technology, informational systems, new approaches to the sowing process. If we will be investing in the development of elevators’ infrastructure the next 4-5 years, the past year and a half were dedicated to sowing. The new units we have purchased are more efficient due to their technical characteristics. For example, we are already using sowing baskets produced by Sweden company Vaderstad, and we see that they confirm the reputation of sowing machines which are among the best in the world. We have also launched systems of synchronous driving, which speed up the sowing process and reduce the number of used units. This system works confidently in one of our regions. Other our innovations are in elevators’ sector. In 2014, the expected issues occurred with the gas supply to Ukraine. At that time, we realized an energy-saving strategy, according to which our elevators were equipped with power generators working on the after cultivation wastes. We have already reduced the use of natural gas in elevators for 70%. Last year, during the “active season”, the price for natural gas grew from 9000 to 14000-15000, and this almost did not impact our activities. We became even more convinced in energy saving and its efficiency when our expenses at the standard moisture of maize amounted to 5 UAH per ton while with gas, this figure could reach 200 UAH. This helped us save about one million dollars. That is why it is probably fair to mention that we are one of the largest energy-efficient enterprises. We have one more innovation – an organizational one. This year, we canceled the position of the chief agronomist from our C-suite team. We introduced a “chief agronomist” team instead. This is a group of experts working together, discussing offers and making decisions. This is a kind of collective brain. We’ll see the results of this innovation later, but the idea is interesting from different perspectives. First, the multidimensionality of decision making is growing, as there is a variety of opinions; secondly, this reduces the possibility for abuses or one-sided decisions.

: How many people work at the enterprise? How do you motivate your employees?

E. Radoveniuk: Our team has over 1100 employees today. A lot of people, I know. This is due to the social responsibility of our enterprise is. For many rural communities where the company operates, we may be the biggest employer. This imposes responsibility both on work positions and a respectable salary.

Everyone knows that wages in Ukraine have increased significantly and have grown in the real value over the past three years. BZK has always been paying market net payroll unlike many enterprises which pay salaries “under the table”. The wages are transparent – we pay taxes, people are socially protected. A lot of concerned experts already appreciate this advantage – let it be a little bit lower salary, but there are pension contributions, sick leaves, and other social guarantees. Additionally, there are bonus systems for the quality of work and personal achievements. This is what is related to the financial side.

There are also non-financial aspects. For example, there are English-learning working groups sponsored by the company. The studying is included in the working hours. Sometimes, we are asked: “Why do villages need this?” We are striving to look further than just today. The domestic agricultural industry is increasingly integrated to the world economy. Due to the visa waiver system, our people can travel more. We are interested in our employees’ development, so that they can, first of all, communicate with the world and have access to the international social environment. We want our employees to feel freely and be part of the world community. Separately, during the past year and a half, we have been starting to organize business trips for employees at the capacities of leading European manufacturers of equipment, seeds and agrochemistry of Europe and America. We want people to see German, Austrian, and Swedish culture, so they do not work in isolation from the rest of the world, but see the best practices and understand that it is possible to develop further.

: Do you feel the lack of skilled personnel?

E. Radoveniuk: Yes, of course. The gap is felt keenly in the area of the regular labor force. In my opinion, there are several reasons for this. First of all, there is an outflow of workforce from Ukraine to Poland, Germany, etc. However, once salaries increase, we observe the reverse process, when our employees come back from abroad to the company. Next, there is a natural “aging” of experts who have been yet prepared in the educational institutions of the Soviet Union. Unfortunately, the country’s technical and vocational education (TVE) has passed the destruction phase. As a result, there is a systemic problem with the qualitative vocational education of the staff of working specialties. We face exaggerations when the system of higher education prepares excess of “white collars” which are not much needed in manufacturing industries. The country extremely needs smart lathe operators or mechanics instead. We face an interesting situation when employees of working specialties can have higher salaries than experts with economic or legal education. This problem is already keenly felt and, unfortunately, is not solved so far.

: Concerning the question of the land market – how does its absence influence the company?

E. Radoveniuk: We work in realities. If there is no market, there is nothing you can do. We have to work and grow grain, so we work. Clearness and transparent rules of the game are the most important factors for the industry. The land market is absent, but you still can work. There are many countries where land does not stay in turnover, instead of this, the agricultural industry works efficiently. There are countries where land is in private ownership, and it works efficiently as well. Of course, the land market will be existing. Still, it is crucial that the market, not certain usage patterns be in Ukraine. If there are patterns, there will be an effect. ‘The market’ means ‘competition’, and this is always good. The industry will win thanks to the best technologies, the best approaches, and investments. If enterprises become owners of the land on which they work, they will be interested in long-term investments. No one in the right mind will cut a cow for even a hundred of kilos of meat, am I right? On the one hand, competition always gives a choice and opportunities for improvement. On the other hand, the land will become the subject of collateral for bank capital, which may enable agribusiness to credit more qualitatively. Landowners and ordinary people can also benefit from the market. The land will have a high price, so agricultural enterprises will compete for it. This is also a winning situation for the state, as there will be additional revenues to the budget, which enable them to pay off on international obligations. If there are land patterns, only those who have access to these patterns will win. The agro-industry itself will rot slightly.

: What risks does the company face while working in Ukraine? How do you minimize them?

E. Radoveniuk: The biggest risk is some kind of chronic uncertainty, instability. These factors can be minimized by focusing on long-term relationships with business partners. We follow this principle. If there are strong relationships with our shareholders, they are ready for working in a long-term perspective. If there are relationships with banks, these cooperations are also stable and long-term. We prove to our partners that our cooperation is based on integrity and honesty. We have been working with three banks for already 12 years, and our cooperation becomes closer. We have long-term relationships with consumers, which involve trust, certain aspects of plans integration, aspects of thinking and culture. In terms of absolute uncertainty, long-term relationships are the thing which helps us keep going. One supports another and this is always great. The weather is among other risks. Agro production is very wether-sensitive. Geographical diversification, promptness of manufacturing process, their speed, stable financial partners, and globalization provide the opportunity to work efficiently.

: You told us that one of the characteristics of the company is its social responsibility.

E. Radoveniuk: This is one of the cornerstones of our work with rural communities. In 2013, we created a charitable foundation which is called BZK today. This is a part of our strategy for the formation of large, active, stable and socially responsible agricultural enterprise. The foundation finances different programs in the directions of education, health care, development of rural territories. We help schools with energy efficiency, new heating systems, the material supply of studying processes, and Internet connection. We support feldsher-midwife stations (FMS) or ambulance stations with the repair of premises, providing visits of experts from regional or district health care establishments with appropriate technical equipment. We also support the development of rural sport – build playgrounds for the smallest village inhabitants.

: Could you please share the company’s plans for the next three years?

E. Radoveniuk: First of all, we always improve what we create. And the increase of efficiency and innovation is a guarantee of our enеerprise development, as well as the welfare of our employees.

Secondly, we improve the effectiveness of the work of our elevators group. We want to increase the capacity, improve the quality of processing and logistics. This direction is also very important for us.

The third point is active and smart growth of the land bank. We want to achieve larger scales.

Fourthly, we are studying new directions of vertical integration and recycling. Although we have not come to certain projects yet, we are now actively studying this topic.

Please read: Doing business in Ukraine during the period of political instability: what to focus on

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