Ukraine has every chance to establish its own agrarian brand
Oleh BAKHMATIUK on how to develop political muscles by means of food
According to Oleh Bakhmatiuk, general manager of Eurasia’s largest agro holding company UkrLandFarmig, thinks that the agrarian-industrial complex (APC) will make Ukraine one of the world’s top food producers and suppliers, on a par with the US, Brazil, and Argentina. He believed that this was possible back in 2003, when he began to work in the APC and became finally convinced that he had made a right choice in the crisis-ridden 2008, when only this sector showed a sustained growth. “The agrarian sector is now taking the first place in Ukraine, having outstripped steel making for the first time,” the businessman says, speaking about preconditions for world leadership.
Ukraineis quite capable of creating its unique global-scale agro brand. “The national agro sector can reach high productivity without using GMOs. So we should advance the idea that Ukraine is a non-GMO agrarian producer,” he says convincingly. This message will undoubtedly arouse interest, first of all, on the part of the middle class which cares about health of individuals and families, he said in answer to The Day’s question.
The businessman adds that what can also help take a leading position is the fact that the world is changing its attitude to agrarian products, as was the case with oil and gas in the 1970s. At the time, energy resources became a political, rather than purely economic, commodity. As a result, energy security is measured today by the clout of certain countries, not by money. In Bakhmatiuk’s view, the APC is now in a similar position, for the question of food security is now coming to the fore. He is convinced that, to radically change the situation on the Ukrainian agrarian market, about $30-40 billion should be invested. Clearly, this is enormous money. And none of the leading agrarian countries had so large funds at its disposal in the initial period. Where can the nation take these funds from in order to tap its agrarian resources?
In the businessman’s opinion, we must solve a few problems. He is sure very much depends on the investment situation inside Ukraine. The recent drawing of Euro bonds by his company showed that the first thing investors ask is whether the rules of the game are transparent and the domestic economic situation is predictable. “The first condition for the entry of big capital [into the APC] is guarantee of democratic rules of the game. There will be no miracle without transparent and stable rules of the game,” he says. The current political situation in Ukraine is affecting the investment inflow process, but investors still remain interested, he says.
Then we should finally decide on how to develop the APC. “Our officials, regardless of their political attitudes, are still in the thrall of USSR-era economic postulates. If we are to integrate into the external environment, we must forget certain things of the past,” he explained.
In what direction should the APC move? It is the state charts the course. Bakhmatiuk thinks we should focus on friendly markets. He means Asian markets. “If Ukraine becomes tomorrow an area of interest for China, Japan, and Korea, it will be able to attract considerable investments – about $40 billion, which is necessary for building the entire agrarian infrastructure.
The state also supports the idea of moving in this direction. It will be recalled that Ukraine and China have signed a $3.5-billion-worth contract on the supply of maize. “But what really matters is not the contracted supplies and credits but the growing interest in Ukraine as a result. The largest importers of maize and other foodstuffs, such as Japan and [South] Korea, immediately reacted. This will set a very good precedent for Ukraine as well as enable us to choose the ways of managing financial flows,” Bakhmatiuk says.
When The Day asked the businessman the pattern of what agrarian country Ukraine should follow, he replied: Latin America. He explained that small-scale state-subsidized players, medium-scale players, who guarantee national food security, and big producers (“the state’s gold stock”) which will attract huge investments to the APC, should account for 40, 20, and 40 percent of the market, respectively. In Bakhmatiuk’s view, they will be “pumping” their agrarian produce onto the external market, from which Ukraine will derive political benefit. “Ukraine has every chance to establish its own ‘agrarian Gazprom,’” the businessman says, stressing the great advantage of agrarian sector development. If there are no force-majeure circumstances, Ukraine can achieve this in 10 years’ time, he adds.
An attractive prospect, isn’t it? But, as the experience of successful agrarian countries proves, Ukraine needs a powerful agrarian lobby, at least on the level of parliament, for this purpose. The Day asked Bakhmatiuk why he thinks this lobby has not appeared over the past 20 years. “Because there was not much trust in the APC’s potential. Now we hope there will be more trust,” he says. “And would you like to go to parliament, for there are some colleagues of yours there?” The Day’s correspondent asked Bakhmatiuk. “No, I don’t want to go to parliament. I am not interested in politics as a matter of principle,” the billionaire answered and added that his main goal is to make UkrLandFarming a small part of the abovementioned “agrarian Gazprom.”
“I am shaping a global-scale player, a public resource company. Eggs and maize are the two chief drivers that will ensure economic growth for the company and create demand on foreign markets. The company will be oriented to the Middle East, Northern Africa, and the markets of Asia, above, all, China,” he says, explaining his plans. The agro holding is already selling 1.2 million tons of produce to foreign markets. In two years’ time, exports are expected to rise to 3 million tons. These plans need major investments. Bakhmatiuk says he has already invested $1.3-1.4 billion in the implementation of the idea of creating a global-scale player: two egg-producing and two seed-making factories were built, grain elevators increased their capacity to 1.27 million tons, and 22,000 jobs were created in 22 regions. It costs about 100 million dollars a year to maintain this “agrarian machine.”
But the businessman is not going to stop at this. His immediate plans include commissioning three more grain elevators with a total capacity of 750,000 tons and two bio gas plants based on the Vanguard technology in 2014, developing the infrastructure, and carrying out a large-scale joint Ukrainian-Chinese invest-project – a grain transshipment terminal with a capacity of 3.5 million tons a year. Also under consideration is a project of building, together with Chinese partners, a seed-making factory and a plant protection appliances facility. In spite of a complicated foreign market situation and the domestic sugar price situation, the holding’s factories will not be sold because the optimal market is expected to be restored in the medium term, i.e., a year later. The plans also include an experimental project to irrigate 1,000 ha of cultivable land in southern Ukraine.
To implement its plans, the company has acquired $275-million-woth Eurobonds and intends to enter the Hong Kong-based IPO stock exchange in late 2014. “The company will also try to secure a part of bonds in order to reach the figure $500 million,” he says.
Asked by The Day if the company is interested in entering the European market, Bakhmatiuk said: “Surely, we are planning to supply about 300 million eggs to Europe this year. But, in my view, the markets of Indonesia, Korea, and Japan are more promising. They are very well disposed to us, and we will enter them faster than those of Europe. Europe will be a bonus in 3 or 4 years’ time.” The businessman explains the lack of access to the European market for Ukrainian agro products by the fact that about 80 percent of European agro producers are subsidized by the state because public employment in the countryside is a way to solve social problems. But he is convinced that this market will soon show a shortage of eggs due to reduced deliveries from the largest supplier. “Analysts forecast that India will begin slashing supplies to the European market in three years’ time because the domestic demand will be on the rise. So Ukraine, owing to the low product cost price and a favorable geographic position, will have no alternative but to supply to the EU market,” he says.
