Compared to last year, the share of “small” contracts in the “portfolio” of PJSC “Agrarian Fund” increased by 20%. The company becomes a kind of "bridge" for medium-sized agribusiness in obtaining timely reliable financial support from the state. Also, thanks to the forward program, the fund helped to stabilize the situation in the grain market and resolve the crisis with the provision of agriculturists with fertilizers. The results of the annual work, problems and plans for 2018 were told by the Chairman of the board of PJSC “Agrarian Fund” Andriy Radchenko.
Latifundist.com: Tell us about the results of the forward program of 2017?
Andriy Radchenko: We will sum up the results in the first days of January, because the calendar year, but not the marketing year, ends. But I can say that we exceeded the annual plan for financial results by almost 102%. Dividends will be paid in full, as planned.
On the whole, this year the “Agrarian Fund” contracted 666 thousand tons of grain crops in 2017 and announced a new product for the forward - corn. Regarding early grains and food grains, the program was completely closed: 479 thousand tons of food grains. All that remains is corn, which is now being harvested. I think that in the nearest future we will finish and decide on all contracts for it. The total amount of contracts is 2.9 billion hryvnias. Of these, contracts for 2.2 billion hryvnias have already been closed.
Latifundist.com: Are you satisfied with the company's result for the year?
Andriy Radchenko: Yes, we are satisfied. The year was difficult, but interesting. It was quite successful. In 2017, we not only harvested according to our standard program, but also, within a year, started working with the sale of chemical fertilizers.
Latifundist.com: What does the “portrait” of a typical “Agrarian Fund” client look like for the forward program?
Andriy Radchenko: This year we concluded 195 contracts, last year it was 190. At the same time, we are constantly shifting towards a decrease in the share of large customers and an increase in small and medium-sized businesses. If you look at the number of customers, and not contracts, then, in fact, corporate we have only 4%. All the remaining 96% are medium and small businesses with over 50 hectares of land cultivated.
Compared to 2016, the share of “small” contracts in our “portfolio” increased by 20%. We can say that we are keeping pace with state policy: the “Agrarian Fund” is becoming a “bridge” for medium-sized agribusiness to receive timely reliable financial support from the state.
Latifundist.com: Does the forward program compete with bank financing?
Andriy Radchenko: “Agrarian Fund” is easier to get funding than banks. Yes, in comparison with 2013-2014, banks launched financial programs, but it is still difficult for small producers to get money. After all, they have problems with collateral, reporting, etc. The National Bank constantly introduces many different reservation restrictions for banks, which, in turn, leaves its mark on the conditions for customers. With the “Agrarian Fund”, everything is much simpler: our forward program is more loyal and maximally focused on the client. Agrarians feel this and come to us. In addition, the "Agrarian Fund" offers two types of forwarding programs: with reference to the dollar and without it. And the final calculation takes place at market prices that were established at the time of grain delivery. The amount of advance payment is set in accordance with the customer rating system, but does not exceed 65% of the total cost of delivery under the contract. The interest rate level excluding exchange rate fluctuations in the purchase of the crop in 2018 will be from 20% to 25%, taking into account exchange rate fluctuations - 15%.
Latifundist.com: Why are you going into a medium-sized business environment, going from big to small? Is this the "plan" of the Ministry of Agrarian Policy and Food?
Andriy Radchenko: “Agrarian Fund” works autonomously. The ministry receives our regular reports, and they understand that we are doing everything right. This is our initiative - supporting small and medium-sized businesses. To such a program, the "Agrarian Fund" is independently and consciously. On the one hand, it is risk diversification. It is profitable to work with large customers - less operational costs. But, on the other hand, if something happens to the owner, then any partner company has problems.
Small and medium ones are more difficult - more work with securities, but fewer risks and more income. We use an interest rate for using money, and in medium and small businesses this rate is usually higher than that of a large client. This is due to our operating costs, but at the same time, it is a common practice when the retail business earns a slightly lower margin, but has higher profitability in absolute volume.
Latifundist.com: Do you see agrarians growing interest in the forward instruments of the “Agrarian Fund”?
Andriy Radchenko: Yes, trust in the fund has grown. For three years now we have been conducting familiarization work with local and regional administrations, we always announce in advance that there is a forward program and the “Agrarian Fund” - an open and transparent structure. There are no locks! We tell them about the conditions of the striker. We not only talk about this, but also do everything we promise. Demand for our forward programs is growing. Now we are contracting the harvest of 2018, and most applications come to us from the regions.
Latifundist.com: Today, the “Agrarian Fund” occupies about 12% of the domestic market for the consumption of flour. Are you planning to increase these indicators?
Andriy Radchenko: Regarding the food grain market and its processed product (flour), we want to increase our share. Our anchor product is flour, but on the shelves of our stores there are also our other products (buckwheat, oatmeal), and we would like to more actively develop retail in 2018. However, everything will depend on free resources. Unfortunately, on the part of our main shareholder - the state - we are not talking about increasing funds for new programs. And we, as an enterprise, pay taxes, fees, dividends to the state treasury. And only from the balances, we invest in business development.
Latifundist.com: You do pretty well. You cover the debts of the "successors", but at the same time you are actively developing. Whereby?
Andriy Radchenko: People do everything. The success of our company is the professionalism of the people who work here. This is a team result. I will not exaggerate my role in this story, because one in the field is not a warrior. It happens that an effective manager comes to a state-owned company, but, unfortunately, the environment does not allow him to take the initiative. We have a close-knit team that works in one direction.
Latifundist.com: Tell us more about when the previousl y announced flour milling plant will be launched?
Andriy Radchenko: This is one of our pilot projects that we are going to implement in 2018. The site for construction under it is selected. Now the cost and organizational details are being calculated. At the same time, we are at the final stage of concluding a contract with a Turkish manufacturer for the purchase of equipment for the mill. We are trying very hard to get Turkish funding for this. I think that we will sign a contract on the acquisition of equipment before the end of this year. And the production and commissioning of the mill should be expected at the end of 2018 (for the start of production - from 6 to 8 months, for commissioning - about 4 months).
Latifundist.com: How much did your forward program stabilize the situation on the grain market? Have you calculated its possible impact in advance?
Andriy Radchenko: Yes, we calculated that the volume of financing by the “Agrarian Fund” of agricultural producers through forwarding programs amounts to about 25-30% of the volume of bank lending. This is a very serious resource for increasing grain production in Ukraine. Especially, given that in recent years, grain production in Ukraine has grown from 50 to more than 60 million tons annually.
If we did not make a forward, the market would rise more, which means that the price would be higher. The “Agrarian Fund” does not allow the price of grain to develop on the domestic market - this is a fact. Even during the sowing season, any manufacturer can come to us, conclude an agreement and work calmly.
Latifundist.com: Tell us about the fertilizer program - why did you even start selling them? What is the current situation with sales and what results do you expect?
Andriy Radchenko: In the spring, a problem arose in the domestic market with the supply of fertilizers, but no one was in a hurry to solve it. We understood that the sowing could have suffered greatly because of this. And productivity largely depends on the timely introduction of a sufficient amount of mineral fertilizers into the soil.
The situation that developed in the spring required the adoption of a fundamental and characteristic decision. We responded to the request of the government and gave the agriculturists and producers a hand. If we hadn’t done this, the chemical plants (from the influx of imported fertilizers from Russia) would have suffered even more, and, therefore, the employees of the enterprises. It was a logical step on our part. After all, the Agrarian Fund is a company that not only buys and sells grain, but also solves the challenges of the times, manages and trades risks.
Latifundist.com: What problems did you encounter, is this a new field for you?
Andriy Radchenko: At the time when we entered this market, there were many factors on the basis of which the decision was made. On the one hand, these are agriculturists and the existing threat of fertilizer shortages. On the other hand, the price of gas fell, the cost of fertilizers decreased, and the purchase price, too. But today, the margin for mineral fertilizers is still higher for us than for grain. Yes, you’re right, we entered an incomprehensible zone for us. This was a new product, I had to study the fertilizer market, the participants in this game, a little "mess" with chemical plants. Plus, we understood that there was a Russian fertilizer market that was actively seeping into the domestic market of Ukraine with its products. I had to show character. And while we are satisfied with the result.
We had more than 220 thousand tons of fertilizers in our warehouses. About 60 thousand tons have already been sold. We’ll trade another week or two, and then until the end of January 2018 there will be a period of “calm”. And in February-March, sales will resume.
Latifundist.com: How can agriculturists buy these fertilizers?
Andriy Radchenko: Just like grain or flour. You can contact both the regional office and the central office. Everyone (small, medium and large agricultural companies, including traders) is interested in fertilizers, and they are actively buying.
Latifundist.com: The “Agrarian Fund” has an attitude - to whom to sell?
Andriy Radchenko: There is no such installation. Doors are open to everyone. Moreover, we have flexible terms of sale. Recently, we sold a small amount of fertilizer actually in exchange for the 2018 crop (forward agreements). There are cases when fertilizer was sold directly for cash or on spot. We are conducting a constructive dialogue. We are very flexible in terms of customers.
Latifundist.com: Do you plan to keep this direction?
Andriy Radchenko: I think that the “Agrarian Fund” will continue to develop sales of mineral fertilizers, plant protection products, seed, fuel and lubricants. This is all that agriculturists urgently need, and we could provide all these products in one place on favorable terms. Therefore, in February-March, we will end with the sale of fertilizer residues, free up resources, and from April-May, we will try to enter the market with new fertilizers.
Latifundist.com: What about the debts accumulated by the previous AF management?
Andriy Radchenko: Today, this is reflected in the balance sheet of the company as accounts receivable (more than 2.5 billion hryvnias). Criminal proceedings are considered on the fact of theft of these funds, and it will be possible to talk about whether or not they can be returned only at the end of such cases. Now the "Agrarian Fund" has formed reserves of about 1.5 billion hryvnias for this accounts receivable from its funds.
Latifundist.com: You support the appearance in Ukraine of an exchange where futures contracts could be sold. Under what conditions is this possible?
Andriy Radchenko: This is a long way to go. First, you need to adopt all the necessary legislative documents. The deputies have already tried to do something in this direction, but this is far from all. I would look at the global practice of commodity market formation. In addition, firstly, you need to have a good understanding of grain statistics (we, the Agrarian stock exchange and the State Food and Grain Corporation of Ukraine and traders have its elements). Secondly, to build an understandable and transparent infrastructure - to certify elevators (to develop a program with elevators). It should be done just by the exchange, so that the buyer can come, buy grain, and then calmly pick it up, being sure of its availability and quality. To get this, you need to combine existing experience with existing financial instruments, as well as with the real sector of the economy.
In this case, I would take the Chicago stock exchange as an example. Not because there is an index, there are opportunities and technologies (software products, relationships with brokers, transactions). This partner can be CME (Chicago Mercantile Exchange). With him, it would be possible to create a commodity or agricultural exchange in Ukraine.
Latifundist.com: How has the agricultural market of Ukraine changed over the past year?
Andriy Radchenko: Agriculturists who really work with the land, despite all the political and economic problems, continue to develop. Everything is more or less stable with them: they sow, clean, sell. They are trying to abstract from political chaos. Their task is to feed the country.
Latifundist.com: The main task for the “Agrarian Fund” for the 2018th?
Andriy Radchenko: At the end of 2017, we will summarize and decide on plans. We will act on the basis of available resources. The plans are to implement a mandatory forward program so that the portfolio contains 1 million tons of food grain or so. We will see what we contract in the spring (on the spot and on the forward program), and we will expand the product line. Of course, we plan to develop the direction of mineral fertilizers and plant protection products. Depending on the financial resource, we will see what can be further increased. And, of course, we hope for a stable economic and political situation in the country.