Contact us
Search
Exact matches only
Search in title
Search in content
Search in excerpt
Search in comments
Filter by Custom Post Type

/ Registration

Nikolay Gorbachov: “This year’s challenge is to export 70 million tons of agricultural products”

Back to all news

Cereals give Ukraine more than half of its export earnings. Many leading grain producers and exporters are members of the Ukrainian Grain Association (UGA). They provide not only foreign exchange earnings, but also taxes, salaries for tens of thousands of their workers, and create infrastructure. On the eve of the VI International Conference “Grain Terminals: New Projects, Equipment and Technologies”, “Ports of Ukraine” talked with the President of the Ukrainian Grain Association Nikolay Gorbachov about how the industry lives today, what are the prospects for the country’s farmers, as well as how it works and why the logistics component of their business is important.

– Which of the main results of the 2020-2021 marketing year do you consider important for the Ukrainian grain market?

– If we talk about quantitative characteristics, then the year was not very good. Grains were grown less, and about 50 million tons of grains and oilseeds were exported against 62 million tons in the previous season.

That is, they transported 12 million tons less, which facilitated logistics. But the main result is not this “logistic surprise”, but cases of default, which, unfortunately, affected the reputation of Ukraine. In the past year, there have been quite a few cases of default on forward contracts. About 30% of forward contracts for corn (in total, about 6-7 million tons of corn were contracted for forwards) ended in producer defaults due to higher prices in the market.

By the way, taking into account the experience of these defaults, we in the Ukrainian Grain Association have come up with a tool that can completely unify the rules of work and reduce the risk of default on forward contracts to almost zero.

We proposed this project to Ukrainian banks, and in November in Geneva, at the largest annual Global Grain conference in Europe, we will present it to international traders and international business. This product will allow Ukrainian manufacturers to get a better price by increasing their reliability as partners.

Ukraine as a whole will earn a reputation as a reliable country and as a premium market will be able to work with prices that will be higher compared to competing countries in the Black Sea basin.

 What trends clearly distinguished the 2020-2021 marketing year from the previous one?

– If we talk about logistics, for the first time in four years there was a surplus of wagons. For the first time in many years, we learned how cheap a railway car can cost, how Ukrzaliznytsia can not be overloaded and it is possible to plan the logistics of shipments – as it was 8-10 years ago. The funds invested by private business in the wagons had an effect and showed the new capabilities of Ukrzaliznytsia in the rhythmic transportation of grain to ports.

 Have there been any new markets for Ukrainian grain to enter?

– A relatively new global buyer for Ukraine, China, is growing in volume. We sent there almost 12 million tons of grain, oilseeds and products of their processing. Almost a quarter of our grain export fell on one direction.

 Were there any significant changes in logistics within Ukraine and in the directions of grain shipment by sea?

– In general, there have been no significant changes. Except for the growth in the share of river transport.

 Can the increase in river traffic observed this season become a sustainable trend?

– I think that river traffic will grow. Please note that all companies involved in this process are expanding their own fleets: Nibulon, Grain-Transhipment, and Asket. Grain production will grow – this trend will continue.

With an increase in their own fleet, they can increase the volume of transshipment – therefore, exporters are building new barges, modernizing old ones. One barge, say for 4,000 tons, is equivalent to 200 heavy trucks or 57 wagons. Of course, it is much more profitable for the exporter to transport it, from the point of view of its own logistics.

The problem is that the Dnieper does not flow, for example, through Lviv – such transportation is convenient for those regions where there are river elevators. We at UGA calculated that although the Dnieper flows only through eight regions, in some years it is in these eight regions that up to 50 million tons of grain are grown. That is, almost half of what Ukraine grows as a whole. So, even if we use only these areas in multimodal transportation (so that the cargo traffic from them goes to the river, and from the river to ports), we will remove a huge amount of grain from the railway and highways.

 Then the problem of the river infrastructure will immediately become in full growth …

– Certainly. Gateways. This is the biggest problem, and it will have to be addressed in some way. Either this government, or the next … While it is in a postponed mode. A very large investment is required. We inherited this infrastructure from the Soviet Union, so far practically nothing has been invested in it. The locks are old, the hydraulic equipment is old. Nobody wants to expand the old ones or build new ones. Sometimes they even forget to include funds for their protection in the budget …

I would very much like to be paid attention to this, and in various plans for the development of logistics, river transport would be a priority. In the meantime, even the newly adopted law on inland waterway transport is so imperfect that it requires significant improvement in order for the river infrastructure to work for the benefit of the agricultural sector.

 What is the share of grain exported through the ports of Ukraine?

– What are we going to measure?

 In tons?

– I think that in terms of tonnage it is not correct to compare grain that costs $ 250-300, for example, with ore that costs $ 70-80. And if we talk about money, then in the total export basket in the 2020-2021 marketing year, grain and oilseeds occupied almost 50%. There will be more this year.

In absolute terms, last year agricultural exports amounted to more than $ 22 billion, in the 2021-2022 marketing year we expect about $ 25-27 billion. This is due to both higher prices for cereals and a higher harvest.

 This crop will need to be delivered to ports. Let’s get back to Ukrzaliznytsia – how do you assess its work in 2021?

– It’s hard to evaluate it somehow. Certain criteria are used for the assessment. For example, “if the needs are met, they are not satisfied.” According to this criterion, no, they did not satisfy. Evaluate the effectiveness? So we have nothing to compare with – they are monopolists. How can you be content with a monopolist? We, as an industry association, have talked about this and continue to talk about it.

Finally, some shifts have appeared in the position of “Ukrzaliznytsia”, it has moved towards equalizing the cost of transportation for all categories of goods. It turns out that in the volume of railroad traffic, grain takes 10-12%, and in monetary terms – more than 20%. That is, transportation of grain costs almost twice as much as crushed stone, metal and other goods.

 How should the work of Ukrzaliznytsia be structured so that it suits you?

– Probably, the time has come to open the methodology for the formation of tariffs and their validity. We have been asking for this for the last five or seven years, but we have not been shown the open cost. And there, like in a jar of muddy water, everything is mixed: passenger and cargo transportation. And we are told that the grain is “impossible to isolate.” But we understand that if it were a private company, they would have identified everything long ago and precisely … And if this is not done, then it is definitely beneficial for someone.

No one can be gladdened by the constant turbulence in the leadership of Ukrzaliznytsia. While you start to explain and find understanding with the new leadership, it is already becoming the former … The constant redistribution of vectors of influence on the policy of Ukrzaliznytsia destabilizes its work and scares away investors.

I am deeply convinced that any state-owned company is an absolute evil. This is the place where corruption is born, which kills and demotivates all business.

Exit? Make a public-private partnership in the form of a joint venture, in which management would be more motivated by private shareholders, and the state would have a say in accessing or influencing a critical infrastructure facility.

If the state begins to move towards reforming a state-owned enterprise of such a scale as Ukrzaliznytsya, I think that in this case there will be hope for solving logistical issues of the railway itself and river transport.

 According to your information, is the idle time of cars at the terminals decreasing or are trucks still being warehouses on wheels near the port terminals?

– Each of the market participants finds some terms to emphasize the overall inefficiency of the structure. And, as a rule, they are found for the adjacent segment. I would not call vehicles “warehouses on wheels”, because their downtime is quite expensive today – it is cheaper to store them in a warehouse. Queues are the result of seasonal supply increases and logistics disruptions.

 Did the opening of the land market give only a political effect, or are some other results already noticeable?

– There are no economic consequences and will not be in the next two years – until the market is open for legal entities. Purchase of land up to 100 hectares by individuals will not give any economic effect. For its appearance, it is necessary to move towards the capitalization of the land, and for this it is necessary to improve the quality of the land itself: reclamation, irrigation, the use of fertilizers and new technologies for its processing. This requires investment in land. But how will you invest in 100 hectares? Are you going to pull the irrigation canal for 100 kilometers for these 100 hectares? For such a project to become economically profitable, you need not 100, but several tens of thousands of hectares.

 How is the information on the simultaneous growth of exports and imports of grain in Ukraine combined? What is the structure of exports and imports – and is this not the movement of the same consignments?

– I like the messages that say that Ukraine is importing grain (laughs). Of course it does. For example, corn seed is in most cases imported. How much do we import? Five thousand tons? And we export 50-70 million tons. These are absolutely incomparable values.

There are also small imports of high-quality wheat: when a separate mill finds several thousand tons of high-protein wheat, it buys and processes it for specific products. But on a national scale, this is not measured even in tenths of a percent.

Ukraine is a net exporter of all agricultural products. Millers and processors will always tell you that all the grain has been taken out. This is the informational component of the competitive struggle. They would like to have a surplus of grain in the domestic market, so that they can go to this market and choose from a huge number of offers at a low price. And at the same time be able to export flour at high prices. Fortunately for grain producers, they are failing.

 If we are already talking about millers – is the share of grain processing products in exports growing?

– No, there are no stable tendencies for this. There are situational outbursts. This year, flour exports are 30 percent lower than last year’s figure. To talk about a trend, it is necessary that our millers import several types of different wheat from different countries of the world, know in which countries which flour is in demand. For export, it is necessary to satisfy the needs of those buyers who produce local types of bread. Agree, pita bread, Neapolitan pizza, French baguette or pasta require completely different flours.

I have been to various enterprises of this kind. For example, in Italy, at the family mill of the Caputto family, which has been operating for the second century, wheat from 17 countries of the world is used! It is used to make mixes for completely different segments of the bakery market – from a 500 gram bag to 25 kg bags.

If our millers reach this level, they will compete. In the meantime, Turkey holds the palm in this segment, and the United Arab Emirates has been developing strongly lately. They invest a lot in the industry, buy the best equipment and at the same time build good ports and modern warehouses. I think this will allow us to be leaders for decades and compete with all traditional processing countries.

– Is the market of manufacturers and exporters stable or new players have appeared that have influenced the redistribution of shares? Who, in your opinion, are among the market leaders now?

– Top-10 Ukrainian exporters account for 70% of exports. I am glad that in recent years the top 10 is headed by companies with Ukrainian roots and members of the Ukrainian Grain Association – Kernel and Nibulon. Two companies account for almost a quarter of Ukrainian grain exports. Then, of course, the Ukrainian subsidiaries of the largest international companies with a hundred-year history – Louis Dreyfus Ukraine LTD and Cargill, the Chinese COFCO Agri Resources Ukraine, the dynamically growing group of companies with American investments Agroprosperis.

– Are there newcomers who would have attracted attention?

– This is a capital-intensive business, newcomers to it do not appear out of nowhere every year. One can consider a newcomer, for example, Sierentz Global Merchants Ukraine, which was formed several years ago. These are the former managers of Louis Dreyfus who founded the Sierentz Global Merchants grain trading company in Switzerland. But, on the other hand, can you call them newcomers if they worked at Louis Dreyfus for 10-15 years, and their Swiss management for 30?

 What is the threshold for entering this market?

– Let’s count. If you want to become an exporter today, if the price of wheat is $ 300 per ton, one vessel of wheat will cost $ 18 million to load a vessel of 60 thousand tons. If you are a market participant, you must have grain for at least four vessels – this is $ 72 million. And this is only in Ukraine.

And in order to engage in full-fledged international trade, you need to be present in many countries and control cargo flows there. That is, investments in each of the countries – the same amount. And this is only working capital, without infrastructure. Infrastructure – elevators, cars, wagons – is a completely different kind of money.

Therefore, the threshold for entering this business is very high, therefore, newcomers are rare here.

 In 2021, plans were announced to build two new large grain terminals in the Pivdenny seaport with a total throughput of more than 10 million tons per year. How many sea grain terminals do you think Ukraine needs – is there an excess of transshipment capacities?

– Proceeding from the fact that the average cost of transshipment in Ukrainian ports is one and a half times higher than in Europe, it can be stated that we have a capacity deficit. And if we consider that Ukraine annually increases grain exports, then the current deficit will continue in the future.

Therefore, I predict the emergence of new terminals with greater efficiency than the old ones. State-owned, such as, for example, GPZKU in Odessa and Nikolaev, are already outliving theirs – without investment, they cannot compete with new terminals. Terminals of this kind will be closed, and terminals such as the Neptune at Pivdenny port will be built and expanded. I think that in the next 10 years we will see more than one project for the construction of new terminals.

 Are there any terminal projects, the implementation of which may begin in the near future?

– I would paraphrase the old saying about a soldier who does not dream of becoming a general: what grain trading company does not dream of its own terminal? The question is the availability of this dream.

Declared availability is far from being an implementation fact. Systemic difficulties remain – it is getting a place for construction, a permit for it. This is still a problem, and this can be confirmed by the situation with the concession in the Kherson port, where the initiators of the concession project, who moved it, fought for the right to develop the port, announced their withdrawal, because they were not allowed to do anything. The system does not change.

Or, for example, discussion of the development of the port “Olvia”. Only I prepared three different construction projects for him …

 Your forecasts for the 2021-2022 marketing year: what trends are currently being traced?

– On the positive side: we have harvested a record harvest of grains and oilseeds. According to our estimates, the total harvest will be about 108 million tons. The previous record was 98 million tons. Accordingly, exports will increase, which we forecast at 70 million tons. Which, too, can be a matter of pride if we can implement it logistically. The country does not yet have experience in processing such a volume of exports. The question still remains: can Ukrzaliznytsia transport the increased volumes to the ports, so that we rhythmically ship such a volume that has never been before. This is the biggest challenge.

I would like the river not to freeze in winter and the navigation continued – this would significantly improve the state of affairs. If the locks are closed, it will seriously complicate the situation, and a significant part of the cargo will go to vehicles.

The railway is already working like a stretched string, and it remains to be hoped that it will work. Grain prices allow us to say that grain producers have made good profits, and I very much hope that they will invest in their own infrastructure, which will allow them to cope with these challenges by growing ever higher yields.

 Does the government object to the export of 70 million tons?

– It would be foolish for the government to object. The point is that every dollar earned by a manufacturer, as a rule, remains in Ukraine. These are investments in irrigation (which is extremely necessary), in soil fertility, in technology, in equipment.

I am very pleased that for 11 years in a row we have been signing a memorandum with the Ministry of Agrarian Policy, in which we negotiate export volumes in advance. This creates predictability in the market. Of course, this is not an ideal tool, it is not Adam Smith with his “invisible hand of the market” that will regulate all processes.

But to date, the memorandum has proven its effectiveness, shaping the forecasted expectations of the grain market.

 Have you already signed a memorandum for this marketing year?

– Yes. In this situation, the memorandum is a real tool, in the presence of which both the government can forecast its activities, and exporters can plan work.

If we take the volume of domestic consumption, we consume on average a third of the crop, and export two thirds. If you add oils and meal here, the proportion will increase even more in favor of exports. Therefore, with the growth of yields, the export market becomes more and more important.

We do not consume everything we produce. Ukrainians will not eat five loaves a day, but it is always possible to sell grain where there is a shortage of it. Of course, you need to increase the added value of the product by processing it. But this is not a one-day job. Developed economies, for example the USA or Australia, also export grain and do not have any complexities about it.

It is good that the government has enough understanding of the processes so as not to introduce either quotas or duties. Any restrictions of this kind could break the growing trend of an annual increase in grain production in Ukraine and an increase in the income of agricultural producers. Against the background of the opening of the land market, this opens up the opportunity for them to invest in the purchase of land for its further use and create the prospect of social stability in the countryside, where one third of the population of Ukraine lives. Political and social stability in our country largely depends on the development of the agricultural sector.

https://ports.ua

More news

CHARITY FUND Contact us

© Всеукраинская общественная организация производителей, переработчиков и экспортеров зерна, 1997-2024.
При цитировании и использовании любых
материалов ссылка на Украинскую зерновую
ассоциацию обязательна.При использовании в
интернет обязательна так же гиперссылка
на http://uga-port.org.ua Site development