Agricultural market Editor's Choice Interview

Ukraine has great undiscovered potential for investment, but be sure to do a thorough homework before investing

The interview with CEO of COFCO Agri Ukraine Volodymyr Osadchuk on measures that should be taken to improve the investment climate in Ukraine and not only.

The head of the company as powerful as COFCO AgriUkraine must adhere to principles and be mighty. However, it is the case when the uncombinable combines – modesty, work addiction — these simple but essential life values that cannot be replaced by any post, and most importantly — authenticity in every sense of the word.The interview with Volodymyr was warm and very informative. So now, LDaily knows the position of the representative of one of the largest companies in the Ukrainian agricultural sector  regarding investment attracting, optimizing the process of maritime logistics, the need to improve the judicial system and breakthrough business processes in 2016.

LDaily: Volodymyr, please tell us about the current state of the Ukrainian agricultural market. With the advent of another economic crisis, business in Ukraine has stopped dead. How do you assess the current situation?

V. Osadchuk: According to the statistics on export-import operations in Ukraine, more than a third of Ukraine’s currency earnings comes from exports of agricultural products and processed products. Agriculture is one of the industries that still maintains its level in the crisis situation and even increases production output.

At the same time, changes in tax legislation and reductions in financing by the banking sector compel commodity producers to minimize costs, optimize technological processes and seek ways to sell their products according to the most optimal schemes, which ultimately leads to a decrease in the share of trade in national currency (UAH) and, accordingly, to a decrease in the share of trade with small and medium-sized producers.

LDaily: What adjustments did the crisis in the country bring to the work of COFCO Agri? Perhaps you resorted
to the use of new methods in management? Can you identify some new work trends?

V. Osadchuk: First of all, we constantly monitor changes in operating, trading and production activities and adapt to the current needs. In trading, for instance, we pay more attention to our counterparties. The fact is that our activity is export-oriented, which means that we must confidently and clearly know from whom we buy products in order to further reimburse VAT.

As for operating activities, we are connected with domestic and marine logistics. Therefore, the constant control over transportation of products from domestic elevators to ports becomes more and more urgent, since problems with rolling stock, lack of fuel, theft of products in railway transport, and constant issues regarding defense of the investor’s interests at the level of the authorities lead to the search for solutions for optimizing costs and applying alternative options allowing to compete with other market players.

In view of production activities, we also constantly analyze production costs and apply innovative mechanisms for providing the enterprise with raw materials. It’s about optimizing logistics, controlling product quality and similar activities. This is the most important and pressing issue for us, since our oilseed processing plant is located in Mariupol, near the ATO zone, and, accordingly, the raw material area of the enterprise has been significantly narrowed since the beginning of the military operations in the Donbass.

LDaily: In your opinion, what measures should the state take to attract investment and improve the country’s image in the world?

V. Osadchuk: I would like to emphasize that, first of all, the executive and legislative branches of power should match their behavior to their words. If an investor has already invested or plans to invest, and both the investment and the return on investment are based on the current legislation, the changing rules of the game after the investor has finished the project and has already started its activities, are not any longer a question of respect, first of all, to the investor, and — create a negative image for further investment in Ukraine.

If officials say that Ukraine should increase its position by 40 points in the doing business rating for the period of 2017, then we should already define the main directions of the program of action towards the cancellation or adoption of new regulations, in order to allow the investor to make appropriate adjustments to his investment activities.

We are talking about capital investment expenditure. Agriculture is one of the key industries in the country’s GDP and, apart from land, a number of means and items are required to support it. Thereunder, the state should already take care of creating a favorable climate to attract investment in sectors related to the agroindustrial complex, namely, the production of machinery and tractors, agricultural machinery, seeds, plant protection products, logistics, storage, processing and the like.

LDaily: In your opinion, what repels investors from our country and what should we do about it?

V. Osadchuk: There are several reasons for this. At present, the first and most important reason is the annexation of Crimea and military operations in the east of the country. We invested in port logistics, when this situation was just developing. But in 2014 we managed to prove to the company’s investment committee that it was the right time to invest in Ukraine, and there could not be a further escalation of the conflict to the southern regions, since at that exact time that the dates of the presidential elections and formation of the Verkhovna Rada of Ukraine had been already scheduled.

The second reason is that the judicial system must be transparent and open at all levels in order to protect the interests of all market participants, ensuring that the judge is an independent expert and makes decisions in accordance with the evidence and any relevant information provided by the parties. 

Moreover, there should be a clear position of the government regarding development of the country as a whole and all budgets. The government shall report publicly on the work done and inform people about any plans. Today, people solve their most pressing problems on their own, while some ministries and government departments have already taken a populist position and are now afraid to make any decisions.

LDaily: How do Ukrainian agricultural companies manage to compete with the foreign ones? In your opinion, in what way does this competition affect creation of the business climate in the country?

V. Osadchuk: Both Ukrainian and foreign companies create liquidity in the market. The main difference between a Ukrainian and a foreign company is the amount of capital and its value. Unequivocally, given the presence of the company’s regional offices all around the world, the capital cost is cheaper and access to the markets is greater for a foreign enterprise.

At the same time, any Ukrainian company needs to do more to get a decent reputation and access the market. On the other hand, Ukrainian companies are more at risk when supplying products to regions where an international trader cannot deliver products due to certain international restrictions. And this risk is balanced out by the high margin status of the market for the Ukrainian company.

LDaily: Nowadays, people often mention that the year of 2016 was rather successful for the development of the Ukrainian agricultural sector. Do you agree with this opinion?

V. Osadchuk: I agree to some extent. That year was successful in terms of gross production. But when we produce a lot, the price does not always match the desired one, so the commodity producer may not always receive the expected profit, but at least, he does not lose. Apparently, there were more difficulties regarding storage and transportation of the cultivated products, because the abovementioned issues with logistics added a lot of troubles and losses for each of us.

LDaily: What advice would you give to an investor who is looking to invest in Ukrainian business?

V. Osadchuk: I would definitely advise to invest in Ukraine. Every industry still has a great undiscovered investment potential. But before investing, the «homework» must be done: legal, tax, land, technical analysis of the project and the facility, so that in the future the investor would not spend money and time defending his investment, because not only the investor benefits from each cent invested in the economy of the state, but also the society and the Ukrainian economy as a whole.

LDail: And what about the immediate COFCO Agri development plans?

V. Osadchuk: The first thing we want to implement is to show the shareholders that the investments are working at full capacity, and we also plan to study the possibility of further investment in Ukraine. In particular, the issue of logistics is the most urgent at present. I will explain the case with the example of the chain — the commodity producer, the exporter and the final buyer. The trader-exporter must properly determine the needs of the commodity producers and sell the product to the end user when he holds tenders. In most cases, the period of the product sales by producers and the period of the product receipt by end-users do not coincide, therefore, the trader-exporter must calculate in advance all the logistics: from the commodity producer to the final consumer. So, when there are even minor issues related to the logistics, the whole scheme collapses, and the exporting company sees significant losses.

At present, we are actively working on improvement of the logistics. So, answering your question about the development plans, I would say that optimizing the logistics of rail and river transport is the priority for us. As for our company, these are the additional advantages for more efficient use of own capacities and satisfaction of the company’s needs. The fact is that the Mykolaiv seaport has a draft less than the ability to load Panamax type ships, and up to full capacity at the berth, therefore such vessels should be loaded on the roadstead. And these are still the additional costs that can compensate for the river logistics development.

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