Founded in 1998, Agrotrade Group is a vertically integrated producer of grains and oilseeds. Initially a grain trader, Agrotrade has today grown into a large holding company that operates at all stages of agricultural development. Here, Agrotrade CFO and COO Olena Vorona explains more about how her company contributes to Ukraine’s agricultural market, the country’s largest export sector
What product and technology milestones best define Agrotrade Group today?
In 2006, Agrotrade Group started to cultivate and grow grain and oilseeds. At this time, there was a lack of high-quality seeds. Therefore, in 2008, Agrotrade Group began to produce its own seeds in order to supply in-house production and sell seeds on the side. In 2014, a seed factory was built for high-quality calibration of seeds. Then, in 2015, cultivation of organic grain started. Today, Agrotrade Group cultivates 70,000 hectares on a rental basis with more than 30,000 landowners. Moreover, there are 2,500 hectares of land for growing organic grain, 2,000 hectares for the production of niche products, and 3,000 hectares for seed fields.
What are some of the more popular services Agrotrade offers today?
Our post-harvest service consists of siloes with 550,000 tons of consistent storage, with the possibility of expanding to 600,000 tons of storage place due to availability. Furthermore, our trading department has experience exporting produced grain to consumers in Africa, Asia and Europe.
How has the 18-year moratorium on the sale of agricultural land affected Ukraine’s agriculture market?
The moratorium on the sale of agricultural land significantly affected the state of the agricultural market and for many years restrained investments in the land bank for irrigation, organic farming, planting gardens and shrubs, and other forms of intensive farming. The lack of the right to control land plots, especially the impossibility of selling the land for agricultural purposes by the landowner who received it when collective farms were split up, has led to the fact that today there are no privately owned land plots formed into fields or land plots big enough for cultivation. For example, fields of 100 to 200 hectares belong to 50 to 80 shareholders. Each shareholder owns land of approximately 1 to 8 hectares. Renting each individual piece of land requires documenting: signing of contracts, preparation of technical documentation, registration, and appropriate extensions after the rent term expires. This huge work requires significant human resources and a serious budget to keep the leased land bank in good standing.
How has the closed land market affected your business?
In our case, Agrotrade has more than 30,000 shareholders, the number of which grows every year without increasing the total area of cultivated land due to the fragmentation of one plot between several heirs after the death of a person who got initial land plots. To maintain a land bank in good standing, the company spends approximately 7 to 9 dollars for each cultivated hectare. The lack of a land market and the impossibility of selling a land plot have led to a complex relationship between landowners and leaser. Without the market it is difficult to determine rental price. Today, the rental price is formed on the basis of the “average rent of neighbors”, while high-quality soil, compact field distributions and other quality indicators are not taken into account. Very often, the leaser must pay a rent much higher than fixed in the contract as the shareholders “consider themselves offended” and raise a riot if their rent is less than that of the neighbor, regardless of the terms and conditions of the contract. In reality, large land plots of more than 10 million hectares are in the ownership of the state and regional communities. They buy the rental conditions of these lands, which are extremely unclear, and are serious sources of corruption. The existence of all of the above features of land bank management is a reaction to the moratorium, which has disrupted the land relations market for many years and scared off many investors in the agricultural sector.
What do you expect from the abolition of the land sale moratorium?
The first and most important expectation for the rural producer is the formation of long-term land lease relations on the basis of a lease agreement on market conditions, as well as the market-based formation of rents, extensions and terms of contracts. From the point of view of the Agrotrade Group, we see for ourselves as a model for the development of a holding service company that specializes in growing grain and oilseeds in Ukraine. We are able to receive more than the average yield in our region because of our business model. However, a service company here does not have to be the owner of land. At the moment, it is more logical to consider buying land as an investment separate of business. Such models look the most logical in the current conditions of cultivating land in Ukraine. It is a fact that not one entrepreneur, neither a small farm nor a large holding company, is able to single-handedly acquire the entire land bank that they will be processing. In the future, loan programs promised by the state may be able to increase the purchasing power of agricultural producers, however it certainly won’t be enough to fully satisfy the supply of land for sale. Therefore, there will remain a large place for private investment that will not be engaged in cultivation.
What should prospective private investors consider before investing in rural land?
An investor who is not familiar with the rural market will not easily be able to enter it and buy even a small plot of land of 1,000 hectares because for this size it will be necessary to negotiate with 50 to 150 landowners. Other concerns for such an investor is to be sure that the land is cultivated properly and that rent is paid annually according to the lease agreement, crop rotation is observed, and that there is no decreasing in soil quality, regardless of the fact that it is in different plots are located in some fields. Exactly such a dialogue between the investor and the agricultural producer is interesting to many farm producers.
Are you open to possible joint ventures with foreign private investors?
The Agrotrade Group is ready for dialogue with investors and is ready to create a platform for an effective partnership between investors and agricultural producers, as well as to organize land purchasing for an investor. We are sure that the investor who will keep the lease agreement with an existing farmer, holding company or agricultural producer will be accepted as a partner not only by local business, but also by the community, as such investments keep jobs and local businesses alive. This model should forever remove the fears mistakenly formed in society that investors will buy up land and transfer it to someone else.
What’s the best way for investors to benefit from this agricultural reform?
Honestly, taking into account the small areas of land offered, which range from 1 to 20 hectares, as well as the separation of these land plots across different fields, investment in land is the most logical model for investors to enter this market. It will take at least another seven to 10 years until the purchased land plots are aggregated into one large plot that belongs to one owner who would then be able to sell it to another company.