#1 producer in Ukraine #1 producer in Europe

#1 producer in Ukraine
#1 producer in Europe

Oleg Bakhmatyuk's interview in the special report 'Ukraine Business Future' published by FOREIGN POLICY MAGAZINE

Ukrlandfarming Group (ULF) is Ukraine’s top vertically integrated agro-industrial corporation managing one of the country’s largest farmland portfolios. The company grows crops capitalizing on Ukraine’s high-quality black soils and producing corn, wheat, eggs and meat. ULF is also a leading Ukrainian exporter of agricultural commodities to Asia, Europe, North Africa and the Middle East. The company is determined to build up exports further to fully benefit from the continued growth of global demand for food. ULF’s СЕО Oleg Bakhmatyuk explains why Ukraine’s farming sector is becoming increasingly important and attractive to foreign markets both economically and politically, and why the global investment community should set its sights on Ukraine and explore it through the prism of ULF’s rich and unique experience

Prior to founding Ukrlandfarming in 2007, you held a series of top management positions at major Ukrainian companies. What motivated you to switch gears and invest in Ukraine’s agriculture?

Before founding Uklandfarming, I spent years working in the energy sector. After the breakup of the Soviet Union, the energy sector was a difficult industry to do business in. At the same time, the challenges faced by the sector turned it into a center of gravity attracting the best of talent. We had to find an ingenious way of completely revamping the energy systems without shutting them down and then rebuilding and relaunching them from scratch. It was like rebuilding a plane in mid-flight. To succeed, it was important to consider the political influences while keeping profitability goals in mind. Later, I decided to apply that experience to the farming business. Agriculture has been a key contributor to the country’s GDP for a number of years and Ukraine’s number one exporting industry. The country is a leading supplier of foodstuffs to such important markets as the Middle East, North Africa and Asia. Globally, Ukraine ranks second only to the U.S. by agricultural exports. It wasn’t always the case – some 10 years ago agriculture was a sector that had potential but few knew how to develop it. I took up the challenge and decided to give it a try.

What competitive advantages does Ukraine possess as a global food supplier?

The global market is a pretty pragmatic place. But even in tough market conditions, Ukraine’s coming out on top, outperforming other suppliers, Poland, to name but one. Our number one competitive advantage is high-quality at an optimal price. Second, comes our vast stock of black earth. Ukraine’s agricultural potential remains to be fully harnessed. Thirdly, we follow global trends and apply state-of-the-art technologies in crop farming and livestock farming. Our fourth competitive advantage is our workforce, exceptionally committed and dedicated to their job. All those factors combined have contributed to the sector’s solid performance as evidenced by ample research: 70 percent of the country’s land area is used in farming operations, agricultural exports reached 42.5 percent of total exports in 2017, which is 4.5 percent higher than in 2015, while the sector’s contribution to GDP has reached 11 percent of Ukraine’s GDP. The market could potentially grow at a rate of 20 percent per year. Ukraine is potentially capable of exporting a lot more. To reach its full potential, the country needs a favorable environment, both at home and externally.

What models of agricultural export development should Ukraine apply to succeed in foreign markets?

Ukraine’s success as a food exporter should chiefly be credited to the enthusiasm of certain businessmen. There’s the case of Brazil and Argentina though. Both countries used extensive government backing to promote their products to European markets where they’ve gained a dominant market share as meat suppliers. Ukraine holds a lot of potential in trading with the Middle East, a region that’s been through a rough patch and one that is suffering from food shortages. Another potential market is Asia where population growth and steadily increasing food imports have turned food supply from a purely commercial to a political matter. Ukraine is capable of meeting those countries’ demand for grain and meat just as Brazil and Argentina have done for the European market.

In parallel to that, we need to grow value-added food exports, not just raw farming inputs. Attracting potentially interested foreign business partners is what this country needs more than anything else.

What interest should the U.S. take in Ukraine’s farming sector?

The U.S. is the biggest player on the world market followed by the European Union and South America. Ukraine has all it takes to play in this league. But we need a ticket to join. One country that sees potential in Ukraine is the U.S. It could become our global investor leading us into the premier league and make a lot of money while at it. To become a leading food exporter, Ukraine would need some $20 billion worth of investments. Investments should be made into building silos to store grain, increasing crop yields and implementing new farming technologies. Major U.S. manufacturers have it all, such as GSI and John Deere. So, at least half of those investments would go back to the U.S. to buy American goods and solutions. The U.S. can become Ukraine’s strategic partner in developing its farming sector.

At the same time, Ukraine finds itself in a difficult political situation. How is it affecting the farming sector’s performance and food exports?

Hostilities in Eastern Ukraine have now been going on for several years. Despite that, two industries have shown active growth, being agriculture (up by 4.4 percent over the past year) and IT (up 22 percent). True, we now have to operate under very challenging circumstances. Grain exports, however, keep growing year after year. We positively can and will export more.

According to USDA statistics, global grain production is shrinking. How do you think the current season is going to play out and is it expected open up new opportunities for Ukraine in terms of unraveling its potential of addressing food shortages on a global scale?

Currently, those shortages are not acutely felt, that’s why people don’t take them seriously. But very soon, as the world’s population continues to grow, those concerns are going to become more and more serious. While it may appear that our planet has sufficient resources, there’s the threat of soil depletion posed by intensive farming practices. Ukraine holds a huge potential for feeding the Earth’s population. For example, Ukraine has more black earth than the total stock of quality soils of Argentina and Brazil combined. Ukraine has a vast farmland area while consuming only a small share of what it produces. Ukraine currently produces some 60 million metric tons of grain per year, of which it only consumes up to 20 million tons, the rest is exported. Analysts agree that in the next five years Ukraine could easily reach a volume of 100 million tons, of which 80 million would be available to help feed the world.

To reiterate an important point, Ukraine should adopt a smart strategy to add more value to the grain it produces. We could continue exporting 40 million tons and the extra 40 million would go into animal protein production – poultry, beef, pork and eggs. Such a strategy would benefit us a producer and appeal to investors. It would also make Ukraine’s more attractive for foreign financiers. Those opportunities need to be advertised more actively to foreign audiences.

In 2010, the company launched its trading arm, ULF Trade AG (Switzerland), now selling to such global players as Bunge, Noble Resources, Cargill and Glencore. How did you manage to attract those multinationals?

Ukrlandfarming attracts such global companies by its scale and production capabilities. Ukrlandfarming also owns over 3 million metric tons worth of capacity in grain storage. We are capable of dispatching grain straight to the port and can avoid the extra logistical costs that competitors have to bear. Then again, Ukrlandfarming attracts those companies by its scale and production capabilities. ULF Trade AG is more than just a trading company, it’s also a production company. The world is a very pragmatic place. Bunge, Noble Resources, Cargill and Glencore buy from Ukrlandfarming because it makes business sense for them. We, for our part, appreciate their business because we make good money on it.

Does Ukrlandfarming act as Ukraine’s ambassador on the global market?

Ukrlandfarming manages a large farmland portfolio, we are also a major food exporter. All this allows the company to act as a showcase for Ukraine, demonstrating and advertising its potential. That was the idea behind ULF’s creation – to build a company that would represent an index-wide product range. Grain, eggs and meat – we are here to demonstrate Ukraine’s capabilities to the rest of the world. We have succeeded in gaining a solid market position in key markets of the Middle East, North Africa and Asia. We have created a platform, on which to build a more global company by trading with global partners. If you look at Ukraine through the prism of Ukrlandfarming, you’ll get a very attractive picture.

What has Ukrlandfarming done to build that platform?

Over the past four years, we have invested over $2.2 billion into agricultural assets in Ukraine. We are working hard to help [our subsidiary] Avangardco regain its second place globally as a producer of chicken eggs. We’ve sustained losses not only due to the political developments of 2013-2014, but we’ve lost a considerable share of the domestic market in Ukraine’s eastern regions. At the same time, despite all those challenges, Ukrlandfarming stands tall. We have weathered the storm and we continue growing and succeeding under these very tough market conditions. We are not only growing production but also implementing the best technology. Without a doubt, our growth pace would be faster if we were getting government support as is the case in most other countries.

What is the key message that you would like to get across to U.S. readers about Ukraine’s agricultural sector?

Ukraine is a European nation that has a unique geographical location and a huge potential. Each investor can expect a quick payback if they invest in Ukraine’s agriculture. Let’s recall how oil, having been just a commodity, skyrocketed in price and influence following the first oil crisis that hit the Middle East in the 1970s. The same is happening today in the food market. The world is bound to develop a global food deficit. Investing in the food market is a chance to make the right choice. This opens up opportunities to make economic gains and also acquire political capital, to control food reserves just as successful investors now control oil reserves. For my part, I’m determined to grow Ukrlandfarming into a major global player.