Sergey Bulavin, CEO of AgroGeneration: Agrobusiness is “agro” on the one hand, but “business” on the other.

Sergey Bulavin, CEO of AgroGeneration: Agrobusiness is “agro” on the one hand, but “business” on the other.
Management should be characterized by pursuit of growth, balance of stability, social responsibility, and interests of different stakeholder groups, focus on the intensive company value increase for the benefit of shareholders, as well as maximum return on investment.

BS: Over a year under your management AgroGeneration succeeded to achieve astonishing results. What contributed to the company’s ability to demonstrate such superior operational and financial performance in such a short period of time?

SB: Before my appointment as СЕО in early 2020 the company’s Board of Directors has set quite ambitious targets for top management – to optimize the company’s operations at all levels. Basically all of those targets have been achieved. Some of the results have been demonstrated this year and published in our official release and reporting. Some of them will be demonstrated in 2021. Their full effect will be visible in the 2021 financial year-end results.

The last agricultural year was good for wheat. This crop’s yield was 4% higher than the planned yield, and around 18% higher than Ukraine’s average yield. Also wheat quality was significantly better. Food-grade wheat percentage was higher and feed wheat percentage was lower, which also had its impact on our overall result.

In terms of sunflower, in 2020 its yield wasn’t that good in AgroGeneration, just like in other companies. Yet the shortage of yield was considerably compensated by market prices.

Moreover, our company’s team undertook cost optimization targeting both production and corporate centers in France, Cyprus, and Ukraine. Regarding administrative expenses optimization, we carefully analyzed all expense items – from office maintenance to publicity related expenditures. Those of you that follow our company’s development are aware that we changed addresses of our offices in Kyiv and Paris, and also significantly optimized expenditures on our office in Kharkiv. We changed our auditor. BDO company is our new auditor now, it carries out audit for both France and Ukraine. This auditor change facilitated cost optimization as well.

We did a lot in terms of production too that year. First of all I mean technologies optimization and company infrastructure optimization. All of the abovementioned optimizations resulted in 15% economy in production and 50% economy in the corporate center. In absolute terms these are substantial savings.

All these optimizations and improvements were possible owing to smooth teamwork of the corporate center, farms, and support of the Board of Directors. This facilitated the achievement of EUR 19.5 million ЕBITDA comparing to its negative result of EUR -1.2 million in 2019. Moreover, we finished the year with a net profit of EUR 2.6 million.

BS: Has coronavirus crisis had any impact on the company’s operations? To what extent were you able to adapt to the new reality?

SB: One can say that coronavirus crisis has not had any strong effect on agricultural business in the short-term perspective. It will have some effect on it in the long-term perspective though. We’ll keep on monitoring and assessing it. As for the actions taken by our company, immediately after the beginning of quarantine we have qualified it as a long lasting event and organized the work of our teams in such a way that would limit office attendance by employees.

We still practice it, even though our country is in the green zone. Yet based on what I saw, the situation was almost the same in February before the onset of the next wave in March. There may possibly be one more wave, that’s why we will try our best to limit office attendance. We test our employees on a regular basis, like PCR and other lab tests. Now in addition to the purchase of crop protecting agents, we include in our budget such personal protection items as masks, sanitizers etc. I must admit that in 2020 coronavirus had no significant influence on the company’s operations. The company operated in an unordinary mode, but all field works were completed in time.

We were sort of ready for the remote work because a part of our team is in Paris, a part of the Board of Directors is in USA, our corporate centers are in Kyiv and Kharkiv, and our farms are in regional centers. We used online communication platforms even before we switched to the remote mode. For us it simply increased the amount of online communication, which already was a usual and customary experience.

BS: The new agricultural season has its specifics. Which of these specifics can pose risk to business development?

SB: Warm weather came with a delay this spring, so we were forced to delay the sowing campaign, but we still managed to meet the agronomic deadlines. There is enough rainfall in the Kharkiv region. This fact gives us hope that this year will be quite good, especially in the south that suffered from a considerable shortage of rain for quite a long time.

Warm weather came with a delay this spring

There are also certain plant disease risks related to the abundance of moisture. For this reason we decided to apply some additional crop protecting agents, because we want not only an abundant but also a high-quality harvest.  In general, the condition of crops is good, but this is a critical moment to immediately react to any signs of diseases and pests, so we can keep both the quality and the quantity of crops. 

We are provided with fuel, fertilizers and all equipment required for field works. At the beginning of this year, we upgraded the stock of our sprayers having purchased five new ones and our tillage machinery.  We are planning to further upgrade the equipment fleet, but the budgeting will depend on this year’s performance.

The company has drones, too, but so far, they haven’t been used to spray crops. We use them to get an accurate fix on the location of our fields.

They are extensively used by the division responsible for land measurements. The weight drones can carry is still under question, so in the meantime they are in a disadvantage if compared to the classic foreign sprayers. Nevertheless, drone technologies are developing, and it is possible that we will make more use of them on our fields in the future.

BS: The company currently specializes in crop farming. What other crops do you farm beside wheat and sunflower that have already been mentioned? Why?

SB: We chose wheat and sunflower to be our primary crops for a reason. First, the last four years have been droughty in the Kharkiv region. These droughts came about at different times of the year, but they were regular.

This year is a little different, and we hope it will be better than the years before. But now we must reconsider our approach to production and risks, because the more we spend on production, the higher the risks of losses due to drought. We chose wheat and sunflower, the crops that are most adapted to the shortage of water in our region. Even corn loses a lot in yield due to the lack of water. Besides, these two crops require a balanced working capital load. In other words, the cost of farming these crops is lower than that of corn. That is why, taking into consideration the climate peculiarities of the Kharkiv region over the past 4 years, these two crops remain on top, although in case of climate changes we will revise the crop map for the next year (note: 2022 harvest).

Agribusiness is about agriculture on the one hand, and yet about business on the other hand. Our agronomic technologies affect the company’s economy as a whole.
Taking into account weather risks we selected the hybrids best adapted to non-intensive production in order to minimize losses in case of risk events.

The wheat we grow comes from Ukrainian selection, and the sunflower is a foreign hybrid. We are constantly experimenting and testing new varieties and selections to choose the best ones. 

Changes are taking place not only in climate, but also in the cost of fertilizers and the cost of our products. For example, we had been intensively cultivating peas in the Kharkiv region until India, the main buyer of peas in the world’s agricultural market, limited its import. On the other hand, if demand for peas returns, we will easily come back to legume farming.

BS: What are the perspectives of the company development for 2022-2023? What is your strategy? 

SB: We have planned an experimental introduction of No-till technology in one of our farms. We will extend the application of this technology to other agricultural companies in case we see its effect and if it makes sense from the economic point of view, of course.

We are also considering the introduction of a sprinkler or drop irrigation system for arid regions, which may have a huge positive effect on crop cultivation. The quality of soil in the Kharkiv region is very high, and making up for the lack of water, we could boost its potential. Regarding the practical side of the issue, one should note that this technology requires considerable investments, so as long as land rights remain undefined, farmers are very unlikely to invest much in irrigation. For this reason, we will implement these or other technologies depending on the course of development the land market takes. 

In the nearest future, our agricultural company will only be engaged in the cultivation of crops because any vertical integration has its pros and cons. We are experts in crop growing and we will keep doing what we are good at.

Farmers deal with two risks: weather and world prices. Ukraine’s domestic market is involved with the world market in terms of export.

Today Ukrainian farmers lose out to farmers from Western Europe in terms of yield. But it should be noted that in European countries governments grant subsidies to farmers. Thus, a state shares natural risks with its farmers. And if a farmer gathers poor crops or loses his harvest, the state will compensate for his losses. There is no such thing in Ukraine, unfortunately, so farmers and agricultural workers can only count on themselves and mind their own performance. Everyone wants high yields, but everything has a price to pay. And it’s the right balance between yield and its cost (seeds, fertilizer expenses) that can give us the best rate of return.  We want good harvests, but they depend on economy and risks. And since we can manage these risks, we can perform efficiently.

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