Inside the command and control center of Ukrlandfarming, some 20 information technology specialists track every operational detail of the nation’s largest farm on 24 computer monitors. Using global positioning systems that feed real time data on sophisticated maps gleaned from satellite images, they monitor 654,000 hectares of farmland in 19 oblasts, including what machinery is on hand and how much fuel each one has. Pointing to the screens, chief financial officer Natalia Smolyanets explains how each of the company’s 12 farming clusters is strategically structured so that its fleet of John Deere machinery can take fuel-saving routes in the fields.
It’s this kind of sophistication, combined with high-precision farming, that has made billionaire Oleg Bakhmatyuk’s Ukrlandfarming a darling and the envy of Ukraine’s dynamic agricultural community. The company claims to have 70 percent higher corn yields than the national average, for example.
Impressive as it looks, including last year’s 39 percent net income jump to above $750 million, the agriculture company’s eurobond and stock holders are probably wondering more about operations in Russia-annexed Crimea and the turbulent eastern regions, where it has land resources and chicken processing plants.
This week they have that opportunity as a company delegation on May 11 went on a European investor relations roadshow, Ukrlandfarming deputy chief executive officer Ihor Petrashko told the Kyiv Post on the eve of the trip.
As 77.5 percent owner of London-listed egg producer Avangardco, the company’s two egg processing plants in Crimea are idle. Because access to water has worsened since Russia annexed the peninsula, the agricultural conglomerate didn’t plant rice in April on more than 7,000 hectares.
“We are waiting to see what will happen to Crimea and what the policy will be toward Ukrainian companies there,” said Petrashko, adding that egg production there accounts for only 3 percent of total output. A wheat harvest, however, is expected on some 5,000 hectares.
It’s still only is 2 percent of the company’s land bank claimed to be the world’s eighth largest, with plans in place to add up to 250,000 hectares by 2016. When the roadshow crosses the Atlantic Ocean in the week of May 25, American investors will most likely want to hear about risk-management in the restive east, where it farms nearly 50,000 hectares.
Deputy CEO Petrashko expects the political situation to calm down after the May 25 presidential elections. He said production capacity is slowly being moved from the east to the center and south – a new egg production facility operates in Chornobayivka, Kherson Oblast.
Referring to Donbas as an important region where 15 percent of Ukraine’s 45 million population lives, the executive said: “We are reducing some numbers in Donetsk and Luhansk factories and moving them to the center partly and Kherson. This will not influence overall production because our capacity exceed production volumes…this is how we are managing risk…there is no disruption of production and very little disruption of distribution…people have to eat (eggs) and it must be delivered.”
Valued at $4 billion by the Financial Times, the farming giant has outstanding eurobonds worth $700 million, 22.5 percent of Avangardco’s shares in free float, and lenders like Deutsche Bank and Raiffeisen Bank Aval. U.S.-based agriculture trading group Cargill also has as a 5 percent stake worth $200 million in Ukrlandfarming, which plans to start selling its shares on the London Stock Exchange in 2015.
Asia is an important region for Ukrlandfarming, primarily China. Last year Bakhmatiuk said he spent six months developing business ties there. It’s part of the reason why Cargill bought a stake in the company, so that it could sell more corn to the world’s second biggest economy.
Ukrlandfarming is the only privately-owned Ukrainian company whose silos – numbering 10 – are certified to supply grain to China. The company already declined a Chinese suitor in 2011 offering to buy a significant stake.
“We just didn’t agree on the final numbers,” said Petrashko.
But because China wants better food security as populations rise much quicker than grain yield rates, and agricultural land per head decreases, Ukrlandfarming stands to benefit from a strategic partnership to secure a “constant buyer.”
For now, there’s no urgency and “China prefers to work with stable or quasi-stable government institutions. They say they will probably wait on how the presidential elections go and then see,” said Petrashko.
Source: U.S. Department of Agriculture
Looking toward the European Union market that opened its doors for Ukraine fully on May 15 with cancellation of 98 percent of customs duties, the executive said he expects to start egg powder products in about 3-5 years once Ukraine’s government-controlled sanitation standards meet Europe’s.
Previously a quota of 3,000 tons per year had been set, whereas the company produced 23,000 tons in 2013. As Ukraine’s number one egg and dry egg product producer, and the second biggest in the world by number of egg laying hens, its AImperovo Foods egg processing plant alone has a capacity of 6 million eggs per day.
Ukrlandfarming grows its own corn and sunflower seeds, which accounts for 5 percent of revenue, or $113 million, and led Ukraine in corn production with 2.5 million tons last year. Crops make up 32 percent of revenue, or $662 million, as do egg and egg equivalent products.
Petrashko is a proponent of “extensive” rather than “intensive” farming.
“Big producers have better yields because they invest in better equipment, in more working capital (fertilizers, crop protection, better seeds),” he said. “We could do better – we want to increase corn yields from 8.5 tons per hectare to 10.5 tons…we need to further improve, use better technology…we buy companies that produce less and replicate our technologies, put in more money, better equipment…that’s why for us the marginality of mergers and acquisitions is increasing.”
Kyiv Post editor Mark Rachkevych can be reached at rachkevych@
