On the three guidelines for a successful farmer

With the limited land and material resources the factors of success are taking the center stage for managers of large companies. This is the conclusion made by experts and managers of the large agrarian companies during the international conference “Effective management of large agrarian companies: organization and strategies,” held by the association “Ukrainian Agribusiness Club.”

The first factor are investments. “The current year will show if the Ukrainian farms are good or bad from the point of economic management. For many companies the year 2013 will become transient when a lot of agrarians will reconsider the way of doing business,” president of “Ukrainian Agribusiness Club” Alex Lissitsa shared his view on further development of the sector. According to him, over the past four years, inspired by significant rise of prices for agricultural products, many investors started actively investing into the agricultural sector without understanding its specificity. That is why today they are facing various problems.

“Today we can see that in order to increase the overall production with the limited land resources the world agriculture is using modern agricultural technologies. Leading Ukrainian agricultural companies also achieve good results due to the implementation of modern technologies. However, Ukraine requires significant investments into the agrarian sector,” president of the agrarian company Harmelia John Shmorgun outlined one of the main tasks for the agricultural complex. According to him, the main problem of the modern agrarian business is macro risks control, and management.

The second factor is vertical integration. The best decision to minimize those risks, according to experts, is the effective model of business organization.

“The vertical integration is the most important and reliable way to ensure stability of the large agrarian companies. Using this business model it is possible to have the maximum risk security,” Director for Research of the Danish Resource Institute of Food Economics Mogens Lund remarked. To avoid these risks, he says, protected selling channels are needed. The state promises its assistance.

The third factor are markets. According to the First Deputy Minister for Agrarian Policy of Ukraine Ivan Bisiuk, signing the Agreement on the Free Trade Area with the EU will be of help. “It will allow us diversifying our markets in the future. We are speaking about markets of 500 million people (without Romania and Bulgaria) and 600 million EU citizens with them,” he emphasized. Bisiuk said that Ukraine and the EU have already agreed customs duties and exportation quotas on 1,800 trade lines. There are 339 left, including grains, meat, and milk. According to him, Ukraine is able to export 40,000 tons of pork, 12,000 tons of veal, 36,000-40,000 tons of poultry to the EU. “It is clear that producing 1.15 million tons of poultry (when the Vinnytsia project, realized by Myronivsky Khliboprodukt, is launched this number will reach 1.5 million tons) the right to export 40,000 tons does not play any role,” he says. However, according to Bisiuk, it is not the amount that matters but the possibility for Ukrainian companies to diversify their export owing to the markets of the EU members. “It gives significant hopes for the prospects of the development of agricultural sector in future,” he summed up. According to him, this year the expected growth of gross output production will make 8.2-9.3 percent. At that, according to the First Deputy Minister for Agrarian Policy and Food of Ukraine, “the amount of the direct assistance from the state is limited and any improvement should not be expected.”

Where can the money come from? The participants of the conference came to the same conclusion: by launching the free market of agricultural land. However, they immediately put themselves straight: this market is unlikely to start working soon.

“A total of 70 percent of interrogated share holders are against opening the land market. That is why I do not think that the rules of the game will change in the near future,” Lissitsa named the main reason. According to him, the country already saw that in 1990s agricultural lands were given out. “They gave lands out and expected to create six million farms. But everything ended up with a chaos. That is why I believe that the government will have enough experience not to launch the land market before 2016 until the presidential election is finished,” Lissitsa remarked.

Deputy Chairman of the Board, Head of the Department for Corporate Business at UkrSibbank BNP Paribas Group Jean-Luc Deguel does not believe that the agricultural lands will be sold soon. He thinks that the law “On land turnover” launching a free land market will not be adopted earlier than in five years.