Interview with Evgeniy Leng, General Director of Ukrzernoprom Agro Company
- What is the current role of your company on the grain market of Ukraine?
Nowadays, many companies try to revise their crop rotation in order to minimize their area under wheat. The reason for such kind changes is trivial and simple. We have no appropriate price for wheat. Furthermore, considering the current grain market trends and nearly absence of bank financing in the country along with severe demand slump, it is easy for companies to understand that the only way to cope with the situation is to cut their wheat sowing areas. This is the best decision for those actors who have no sufficient funds in order to provide each hectare with financial and other resources for the purpose of getting the best quality crop. In other words, there is no point in wheat planting, if you have little confidence about receiving the quality crop.
As for Ukrzernoprom Agro Company, we are going to reject of some wheat sowing acreage in favor of other crops. This season, our sowings will include only high-yielding Canadian varieties of milling wheat.
- What kind of fertilizers, crop protecting agents and seeds do you use for wheat production?
Our company uses various resources for wheat production. Concerning crop protecting agents, we apply Antal fungicide protectants made by Nerthus company and humid growth-regulating chemicals (Lignohumid, Gumat potassium) before the seeding procedure. As a weed management tool in the period of vegetation we use one herbicides application. Depending on the level of weed infestation Gersotil, Kalibr or Saratsin and Mikodin blend are applied. As appropriate we treat plants with one or two fungicides applications of Skif and Fital made by Kemiline Agro Company against plant deceases. If it is necessary to deal with pests we use Knockout or Bimer according to the pest type. As for fertilizers our company applies compound fertilizers before the sowing depending on sowing area. In the southern and central regions we apply Ammophos, while in the western and northern regions we use diammophoska. We also make spring fertilizing of our lands with ammonium saltpeter. For quality improvement Rozasol and carbamide micronutrients are very helpful.
As for seeds we saw about 75% of our acreage with Warwik wheat seeds of Canadian breeding. We also use Ukrainian wheat seeds bred by the Plant Breeding and Genetics Institute in Odessa and by Crop Physiology Institute or Mironovskiy Scientific Research Institute. All these institutions produce seeds by themselves and renew their elite seeds from time to time.
- What is the top-priority market for your wheat sales?
For our company each market has its priority until its participants are able to pay the money. In addition, it is quite hard to list our potential customers because everything is unpredictable in Ukraine. Sometimes market condition changes in such a way that wheat price on the inner market of Ukraine is considerably higher than that of the world market price and traders had even the premium income. Besides, currently wheat is sold with a discount. I should say that credit debts of most producers caused such kind of situation. Furthermore, for some part of producers the situation is more complicated because they have foreign currency credits. That is why, many Ukrainian wheat producers hardly make both ends meet nowadays. It is worthwhile to mention that along with existing debts wheat processors have no access to credit resources and cannot provide normal payment for our production. Talking about wheat exports, I should note that it is centered in the hands of 7-8 companies which are the only credit-worthy enterprises. These companies have long-term credits in the western banks. Certainly, they have a strong-arm while dealing with producers. A good arbitration exists nowadays between wheat cost in Ukraine and abroad. This arbitration definitely goes to traders’ pockets. Furthermore this arbitration has an impact on non repayment of VAT.
As a matter of fact, government officials still shift bribes which they receive for VAT repayment using financial resources of producers. For example, the company with non repaid VAT has to pay a bribe which it takes from the farmer’s wage. That is why, all the bureaucracy connected with repayment of export VAT exists thanks to the farmer. This is the law of economics where it is consumer who pays the taxes at the end. I should add that not only the taxes paid by him but also extortions.
- Many experts believe that the most popular crop of this season will be corn. Is Ukrzernoprom Agro Company planning to extend its corn sowing areas in comparison with the previous marketing year?
It should be noted that corn production is much more expensive than that of other cultures. That is why, the decision to increase corn acreage depends primarily on financial resources availability. This year Ukrzernoprom Agro Company has such an opportunity. That is why, we will increase our corn planting areas. Last year, we sow small quantity of this crop. At that time we were confident that the market condition would be unfavorable. Actually, we were wrong.
- What kind of technologies do you use in tillage?
We use a mixed tillage system. According to the crop type we choose plowing or disking. Traditional plowing is used for sunflower, corn and rapeseed sowings. While for other cereal crops minimal tillage and disking are more appropriate. We also have the practice of traditional plowing replacement with chisel plowing in the central regions.
- What kind of equipment does your company use for field works?
Our company is large-scaled, that is why our equipment varies. As for our branches, home-produced equipment prevails there. But our major branch MTS-Technology and MTS-Harvesting have mostly foreign-produced equipment such as John Deere, Deutz Fahr, Kuhn and other brands. We also have a long range of tillage equipment (ploughs, disk tillers and cultivators), fertilization equipment, self-traveling and tractor-dragged spraying machines, pneumatic planters, etc. For harvesting we use CLAAS, DEUTZ FAHR harvester series. This equipment is our most impactful force in the field works.
- Do you have the necessity of new agricultural equipment purchasing or production process modernization?
Modern trends of innovative technology development in the sphere of movable object design upgrading of agricultural equipment are connected with high agro-engineering and environmental requirements. First of all, they define the necessity of woodland conservancy and soil conservation along with quality improvement and power capacity reduction of technical operations while tillage. That is why, we conducted the renovation process of our motor vehicle park in our branches two years ago. Actually, we have no necessity in new equipment acquisition nowadays thanks to professionalism of our mechanists and tractor drivers who provided the correct maintenance of our foreign produced vehicles right in time. Besides there exists the fact that it is impossible to store the equipment without deterioration, and current technologies develop very fast.
- What is your opinion about the grain market condition in the period of stabilization after the stroke of financial crisis?
Currently we can observe the market stagnancy. It is also possible to say that we reached the bottom in times of financial crisis. I mean the lowest possible level for country’s economy. There was no way lower. Nowadays our economy has grown for few percents but it is still far away from the level existed two years ago.
- Does your company use credit resources?
Generally we work with our own resources. We have a list of partners with whom we have already settled the forward contracts and received the prepaying. We do not open credits any more because of expensiveness of this resource nowadays. Besides, the government does not lend credit support in the field. However, it is worthwhile to note that Ukrzernoprom Agro Company engages credit resources particularly. Although credit conditions depend not on bank sphere situation but on friendly relationships and our reputation.
- Are there any changes in the agricultural market development strategy due to the shifts in the government structure?
I should admit that there were no special changes after new persons appeared in the Ministry of Agrarian Policy. We can hear no fresh opinion about real market situation and agrarian concept of country’s development. Although unnecessary 150-pages documents still exist. We do not know what we are doing in the agrarian policy. In my point of view, we need to form a clear development concept written on few pages with key points to obey. I agree that each point in that document will be worth of dissertation but this is not the issue.
Unfortunately, nowadays corruption became a part of government body. It starts eating that body as a cancer and many officials think that government appointment is firstly the possibility to become richer. The most disappointing thing is that they steal from losses. They have to study to steal from income. But for that they need to think at least which is hard for them. Nowadays we have such problems which can be solved with a stroke of the pen. There is no need in searching of high financial resources, it is just enough to use someone's mind.
- What is your opinion about cancellation of land sale moratorium in agriculture?
As for me, I vote for moratorium lift but in distant prospect. It is impossible to lift the moratorium nowadays. Currently we have the proprietary classes in Ukraine which is 30 % of the country’s population. They have certain amount of land. If the land sell moratorium is lifted today we will have deep social changes as 30 % of population will not be proprietors any more. This can cause massive economic, political and social consequences. Moreover, we need to take into account that Ukrainian elite is quite irresponsible. Supposing moratorium to be lifted today there will appear leaders to start their promotion and misleading farmers with the fact of cheating.
I consider that this question should be covered by our press and television before taking some decisions. Actually, public hearings are also possible. Furthermore land sale permission process should be gradual. Our actions need to be accurate and liberal. During 30-40 years Ukrainian lends should be cleared of foreign capital and stay in national property. I also think that the certain barrier of land property should be formed. In addition while giving permission for private land property we need to keep farmers class as it is done in many countries due to not economic but social and political aspect of this issue. For example, the average allotment per farmer in France is 100 hectares, while in Norway this amount totals 110 hectares. In such a way farmers’ class was preserved. And this factor is a serious political constraint. Its conservatism hampers the country’s changes in the development strategy, etc.
Believe me that the right of state ownership to land is one of the main rights in the civilization history. That is why, we cannot risk doing fast steps in this sphere as they cannot be brought back.
- What is the current situation in the bakery industry in Ukraine?
For those people, who came in the government, bread was always considered to be an administrative resource. As a result, the bakery industry remained without investment. In addition the situation on the bakery market was considerably complicated by that fact that many market agents took a large amount of foreign currency credits. Bread price could not rise at that time like dollar after crisis starts and hryvnya devaluation. In addition bread producers asked the government to assist in credit repayment were rejected. Now they have to solve those problems on their own. As for me I consider the existence of two ways of this industry development. First one is gradual expiration due to impossibility to pay great credits. The second one is the repeated implementation of administrative measures by officials. Furthermore, even before the crisis officials dealt with bakery industry in the way that no resources were left for reconstruction. With law bread prices regulated by government this product was almost presented to the Ukrainian consumers remaining the industry empty-handed.
- What kind of flour milling market difficulties can you list?
The main difficulty of wheat processing industry is out-of-time actions of previous government which caused the crisis. After crisis outbroke in the west of the country in May 2008 Yuliya Timoshenko’s government fought with inflation using narrowing of hryvnya mass. They started to tighten hryvnya mass and fought in such a way with inflation. At the start of that process I noted that hard crisis is inevitable. In such a way government which wanted to target the inflation targeted downward trend in the economy instead. As a result, after few months crisis started in Ukraine, banks stopped giving credits in hryvnya. The most depressing fact was that wrong actions were chosen to minimize crisis input. No plan about country’s recovery from crisis existed. In addition I think that faster reaction was needed in order to transform different things to micro- and macroeconomic instruments to make financial resources unnecessary.
