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Collaboration translates into modernization

Article - September 15, 2011
Ukraine is one of the world’s major ‘breadbaskets’, harvesting and exporting enormous quantities of grain. In late May, the government dropped the export quotas it had put into place in fall 2010 to ensure domestic food security after a poor harvest.
Robert Brovdi, general director of Khlib Investbud, a structural trade-export subdivision of State Food and Grain Corporation of Ukraine, comments on his company’s actions to modernize the agricultural sector

What is the government doing to spur economic growth, especially in agriculture?

If speaking about the agricultural sector in particular, the government has a deliberate plan that will allow the country to reach its strategic goals. The plan is to double the volumes of gross output of grain and animal products during the next five years and, in such a way, to increase export potential of the agrarian sector of the Ukrainian economy. One of the important instruments for the achievement of this goal is the work of the State Food and Grain Corporation of Ukraine, created in 2010.

How important is Khlib Investbud for Ukraine’s agricultural sector, and how can it help to develop and grow the sector?

We share the objectives declared by the government, which consist of increasing productivity and doubling gross output of agricultural products in Ukraine. Our company is one of the first to lead by example, demonstrating new ways of short-term investment in the sector.

Today, farmers and other producers have many problems that they are not able to solve by themselves, which prevent them from cultivating good harvests. First of all, loans in Ukraine are still expensive, there’s a lack of modern agricultural technologies and access to high quality seeds for sowing, grain-harvesting machinery is outdated, and there is an acute shortage of fertilizers and plant-protecting agents – a regular agricultural producer simply cannot afford the necessary materials.

Meanwhile, there are also trading companies that sell agricultural products on the foreign markets. These companies appear only when the harvest is gathered; they do not take any part in harvest cultivation, they do not bear any risks, and are ruled in the relations with the agricultural producers only by their own interests and by the conjuncture of world grain prices. This is why the government wants to attract traders who propose to invest from the very beginning of the process of harvest cultivation, not only after harvesting.

At Khlib Investbud, our current activity consists of wholesale purchases of grain on the domestic market, filling of the state intervention fund, fulfillment of foreign economic contracts, as well as completion of intergovernmental agreements. In this way, next year we intend to demonstrate a good example of complex integration in the production of grain – from sowing to harvesting, storage, processing, and realization. This process will not be quick, but right now Khlib Investbud is introducing innovations such as forward contracts among farmers.

At the moment we have agreements with 750 grain elevators which are involved in this program. They are located in such a way that farmers can deliver their products to the nearest elevator. The farmers who sign forward contracts are given concessional terms for buying fertilizers, which means a 20% discount for this kind of product.

How successful has this program been thus far?

The greatest proof of its success is that we were able to complete its first stage in just one month. As of April 29, Khlib Investbud had signed 1,168 forward contracts with agricultural producers for a supply of 860,000 tons of cereals at total cost of UAH1.5 billion ($187.5 million).

The average lot of purchases was 740 tons, which demonstrates that predominantly middle and small producers were involved. After signing indicated contracts, each one received 50% from the value of the future harvest, as well as fertilizers and fuel at preferential prices. In fact, the agrarians received an interest free loan for six months. I’m sure that this form of work will be popular and highly approved of by the producers – which is why it has a good future in Ukraine.