Ukrlandfarming was founded in 2007 and has become Ukraine’s top vertically integrated agro-industrial corporation, exporting to 40 markets. With clients that include major global corporations such as Cargill and Glencore and investments worth over $2.2 billion in agricultural assets, the company is a major player in a field that is poised to gain great relevance as the world seeks providers of global food security. Founder and chairman Oleg Bakhmatyuk discusses Ukraine’s largely untapped agricultural potential and why now is a good time to invest
What is the company’s business model and why has it been so successful?
We consider one of our biggest achievements our ability to create such a large-scale model of technologically advanced farming operations and feel that this can be used as a showcase for Ukraine’s potential. It demonstrates that it is possible to implement and operate a very high-tech model of agriculture by introducing state-of-the-art technology, as we have done through innovation and tight controls as part of our commitment to precision farming. Forecasting, field management and other innovative techniques have all been woven into our operations.
How do you see the agricultural sector evolving?
The growth of the sector in Ukraine is almost 25 percent annually, according to our Ministry of Agrarian Policy. This is a thriving sector that is moving towards a new paradigm whereby the market should be stratified into three main segments: small farms whose job it is to provide food security to local markets, medium-sized companies operating in holdings, and a top layer of high-tech, large-scale, large-volume producers who can achieve the best benchmark of effectiveness in the industry and contribute to global food security. That is how we see our role at this company.
You have said that Ukraine’s agricultural potential is still largely untapped. How much room is there for growth?
For example, Germany, like the US, is among the world’s top agricultural technology producers, and we think that there are many opportunities for Germany to explore Ukraine’s agricultural sector. The field of precision agriculture, and farming inputs such as crop protection and chemicals, are all uncharted terrain and there is a wealth of opportunities there for German investors to tap and explore. Food security is also a very powerful tool and a source of influence when we are talking about regions like the Middle East or North Africa, who need help with their food security. This is where Ukraine could come into play, providing a value proposition to leading global financiers and institutions. There are great opportunities for those with a technological excellence who could use Ukraine as a testing ground for new technology, agricultural machinery, and precision agriculture, which is the new industry buzzword.
So you are saying that now is a good time to get in?
This could actually become the battlefield for very healthy competition between the US and Germany to be the early bird who eats the worm. And by investing in Ukraine, they would acquire a fair amount of control over the commodity flows to important markets such as the Middle East or Asia. Ukraine could be viewed like the Brazil of Europe as it was 20 years ago. Over the next 10 years Ukraine can easily double its output; it can triple its grain exports, or better yet, convert a lot of grain into high value-added products such as animal proteins.
Is the Ukrlandfarming Group open to partnering with German investors or businesses to realize its global ambitions?
We are open to exploring opportunities, although we are aware that since 2014 the business investment climate has deteriorated, and we ourselves have sustained painful losses in eastern Ukraine. But we have a project to build a seaport in the Black Sea. This company is not just a grain grower, we are a vertically integrated chain including many key assets like grain silos and logistics, and the crown jewel in our company will be the port that we intend to build to ship grain to our customers. The project, which is worth anywhere between $200 million and $800 million, is currently on hold, but we are actively looking for partners to join us and inject capital. We hope that after the election a window of opportunity will open up and we will make our pitch to investors in Europe, Asia, the Americas and the Middle East.
How important is the EU market for the company?
The EU is particularly protective of its own markets when it comes to importing food products. Ukraine in the past four years has been forced to pursue opportunities away from the Russian market, and we are exploring Asia, traditional markets like the Middle East and Africa, and we are also looking at the EU, which is probably the most difficult market to enter. But Ukraine has been making successful inroads with poultry, for instance.
What about the German market specifically?
Germany sets the tone for the quality of food and quality of manufacturing equipment. The German market is one of the most lucrative markets there are, and we are very excited about entering it. But we expect a lot of resistance from local industry associations. The flip side of the coin is that as more German investors come into Ukraine, the easier it will become for Ukraine to export its farming products to Germany because both sides will be bound by mutual interests. Germany is one of the largest producers of agricultural commodities and technology, probably only second to the US, so Ukraine is an attractive and natural market for German investment.
What can you do to pull down the entry barriers?
The grain market is less of a challenge because it is open in Spain and Italy. We are interested in the egg market and the EU has granted Ukraine a very small quota for egg products, but even this has triggered a wave of opposition from industry associations in Poland and other EU countries. We can produce high quality eggs and egg products at low prices, but as long as we face these barriers, there is little we can do. We all appreciate that the EU opened high-margin market for Ukrainian farming products. But Ukraine can’t fight on its own, and badly needs advocates to help promote trade.
How is your company recovering from the events of 2014?
In 2014 the company was delivered a nearly lethal blow, losing nearly 50 percent of assets in the east due to the conflict, after being the dominant player there. We have now substantially recovered the lost volume, but most importantly we have reduced our dependency on domestic markets, and are now split 45-55 percent. Our strategy is to sell 70 percent to export markets and 30 percent to domestic markets, thus reducing our exposure to sovereign risk. We currently export to around 40 countries and are contemplating entering Singapore and Indonesia. But many of those markets do not offer high margins, and they are far away compared with the EU. Over the next five to seven years we hope that the EU market will open up to us, and we must be ready.
How do you see the future of Ukrlandfarming and of Ukraine as a whole?
After the war with Russia, Georgia received $5 billion in international grants and its population is a tenth of Ukraine’s. If Ukraine had received that kind of aid, this would be a different country. The world is not as willing to donate to Ukraine, as there is all this negative coverage about corruption and so on, and while we admit that it exists, there are good news too. The country is getting stronger under new leadership, and seeking internationalization. There is a new cohort of people who will fight for a better future, but society has become more marginalized through poverty, and people are tired of living without hope, they need to be given new hope. Unless major economic transformation takes place in two or three years, Ukraine could fall an easy prey to populism, leading to consequences that would not benefit either Ukraine or Europe.