The recent $200 million purchase of a five percent stake in Ukraine’s largest agribusiness holding UkrLandFarming by American Cargill, one of the world’s largest producers and suppliers of agriculture products, captured the world’s attention.
It also provided a glimpse into the value of a company that boasts of having the world’s eighth largest agricultural land bank, as well as its plans to make inroads into the Chinese market, where Cargill is already a big player.
But it won’t be easy to enter the world’s biggest market of 1.3 billion consumers.
UkrLandFarming’s owner, Ukrainian billionaire Oleg Bakhmatiuk, has said the company plans to export grain and corn to China. So far, the State Food and Grain Corporation (SFGC) is the only Ukrainian company doing significant business with the world’s second largest economy.
A corresponding agreement signed in 2012 implies 90 million of tons of grain are to be provided by SFGC to China over 15 years in exchange for a $1.5 billion loan and another $1.5 billion to purchase Chinese services or equipment. The deal was signed on behalf of the state-run company and the Export-Import Bank of China.
In the 2013-2014 marketing year ending in July, SFGC is expected to export four million tons of grain. However, its grain terminal is limited to just 2.5 million tons of grain per year. As of the end of 2013, it had exported two million, Robert Brovdi, first deputy chairman of the board of the corporation said in a recent interview with Business TV channel. Agriculture Minister Mykola Prysiazhnyuk earlier said that SFGC plans to buy 2 million tons in February 2014, according to UNIAN news agency.
At the end of 2013, UkrLandfarming announced plans to export 2.5 million tons of grain in the 2013-2014 marketing year, while Bakhmatiuk voiced plans to start building a terminal with the ability to move 5-10 million tons per year in 2014. So far, the main recipients of the company’s grain are European Union countries that receive 50 percent of its exports.
Maria Kolesnyk, an expert at AAA agricultural agency, says cooperation with the state agency is much more beneficial for China than the one it could have with a private supplier.
“China is a very interesting market and almost all states and exporters are fighting for this market. However, it’s not the country that will play under somebody’s conditions,” Kolesnyk says. “That’s why working with a state-run firm is a bargain for them. By giving…loans to Ukraine, China can push it regarding price and other conditions which is impossible to do with (private) business.”
The agriculture sector is not the only example of how loans and investment from China work. For example, a Chinese company is slated to build a high-speed passenger transportation service from the central Kyiv train station to Kyiv Boryspil Airport. The project is worth $372.3 million and is financed by the Export-Import Bank of China and is to be commissioned in 2014, according to the State Agency for Investment and National Projects of Ukraine.
A large Chinese state firm in September also announced its interest in bidding to construct a large ring road around Kyiv worth more than $582 million.
UkrLandFarming – which owns 77 percent of London-listed egg producer Avangardco – still hopes to directly enter the Chinese market, which is related to the recent deal, in particular. It has been providing Cargill’s grain department with 1-1.5 million tons of grain annually, according to the company’s official statement. “The companies are now also discussing development of other projects, in particular, mutual support for UkrLandFarming to enter Asian markets, including China,” it reads.
China has rejected imports of U.S. corn after it found genetically modified cultivars in supplies. In 2013 the country rejected 601,000 tons of corn, according to ProAgro, a Ukrainian agricultural news portal. Meanwhile, Igor Petrashko, deputy head of UkrLandFarming, has announced the company’s plans to export 750 million tons of corn to China in the 2013-2014 marketing year in a November interview with Kommersant daily newspaper.
“Such a deal at the level of shareholder’s capital in one of Ukraine’s largest producers is an important factor for stable agricultural sales in fast-growing China market,” said Roman Topolyuk, an analyst at Concorde Capital investment house.
Kyiv Post staff writer Anastasia Forina can be reached at [email protected].
