Agriculture
grow market share by doing the opposite of competitors who cut back on credit, staff, and advertising (at the same time as advertising prices were cut). For the future, potential growth is measured by comparing per capita consumption levels. Ukraine still is at about 2/3 that of Russia, half that in Poland, and less than 1/10 that of Switzerland. There are also regional differences to be satisfied: local preference for dark chocolate and use of pure cocoa butter. However, having become market leader in Korona dark chocolate, Kraft was the first to introduce milk chocolate into the market. The company was successful in lobbying for imposition of duty on milk chocolate (to match the existing duty on dark chocolate) to allow local industry to produce milk chocolate for the local market. “This was accomplished with support from Socialist and Communist deputies who supported protection for local industry,” noted Dr Logush with a smile. “It demonstrates how you can lobby successfully in this country if you have the drive and push, and logic and fairness are on your side,” he added. There are still relatively few international competitors to Kraft in Ukraine; exceptions are Nescafe coffee, which arrived in 1991, and Nestle in 1998. Most others in this sector are local producers and importerdistributors. Dr Logush noted that when international companies set up operations in Ukraine, local companies were very quick to copy successfully and to develop and protect their own market share. These local businesses are now huge corporations and represent a large part of the market. Dr Logush emphasises that they are strong competitors, and should not be underestimated. As a result international companies are still under-represented in Ukraine compared to neighbouring countries. But this tough competition has not prevented Kraft from succeeding in Ukraine, and in neighbouring countries, managed from Kyiv, in which Kraft also reports business to be booming. Kraft’s sales growth during the 2009 crisis was +24%, the best in Ukraine, though even this was down from +42% growth achieved in 2008. It is easy to understand why Dr Logush was once again ranked by his peers as the № 1 Businessman Executive in Ukraine (Top 100 by Ekonomika publishing house 2010). UBi
Government leadership sought Both local and foreign experts concur that the main obstacles faced by Ukraine’s agriculture sector are land tenure and access to resources Farmers, large ag r i-businesses and even multinational corporations are unable to acquire the land and equipment necessary for largescale production. As a result, the country’s entire agriculture industry remains disconnected and is not as productive as it could be, given that it should be the breadbasket of Europe. Frustration is running high among foreign investors who believe that their multi million-dollar investments over the past several decades show their commitment to the future of Ukraine. According to a long-term, high level executive working in Ukraine for a multinational corporation, who asked to remain anonymous, one of the main obstacles to development is the fact that agricultural land cannot be bought and sold easily and cannot be used by farmers to secure credit. To get around this, some multinational companies are financing their Ukrainian operations by accessing credit outside Ukraine. However, unable to own land, they are limited in the amount of risk they are willing to take investing in an uncertain business environment in which they consider there is too much bureaucracy and rampant corruption. Government intervention is critical when it comes to making decisions about land ownership and property rights. Business leaders are anticipating clear government regulations that will make it possible to move forward. “We just need to know what the rules are, so we can make decisions about our business operations.” That’s the unanimous view of both local and foreign business leaders in Ukrainian agriculture.
Efficiency is another area that’s a top priority for those actively involved in the industry. Unsuitable storage conditions are reported to result in a loss of nearly 30% of the grain harvested in Ukraine. Lawrence Korchinski, president of Agrosource International, is working to reduce losses during storage and transportation of post-harvest grain in Ukraine. “We focus on direct seeding, conservation tillage, harvesting, grain handling and distribution,” he explained. “It’s important to manage every step in the production process.” Agrosource International is a Canadianbased company that provides technical expertise to agricultural businesses in an effort to reduce grain loss due to frost, decay, spoilage and other damage. A shortage of qualified specialists is a serious concern for Igor M. Buchatskiy, CEO of Sagro Holding. “This is a problem of the entire postsoviet region,” he explained. “We recruit and motivate candidates by offering specialised training and opportunities for personal and professional growth,” he continued. Sagro is a Ukrainianbased holding company with a focus on increased productivity through modern technology. The holding company includes five separate business entities with over 1550 employees involved in harvesting grain, fruit and vegetables as well as meat production and processing. “We urge the government to support the business sector by simplifying the tax code and other bureaucratic processes that impede economic progress. The investment interest is there, and once the land question is resolved, agriculture in Ukraine has a very bright future,” said Buchatskiy. UBi Mila Borden
October/November October 2010 UkraineBusiness insight
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