State Food and Grain Corporation of Ukraine: Myths and Reality

There have lately been frequent publications in the media containing a very clear message — to compromise the State Food and Grain Corporation of Ukraine (SFGCU) and the work of its current management.

Given the status of the state corporation and its size in the grain market, the materials of this kind can be the evidence of the high interest of certain individuals to take over the position of the Head of the SFGCU rather than the desire to unravel the truth.

Without aiming to be a last resort, tried to give an objective assessment of the current activity of the state grain trader from the point of view of debunking the most widespread myths about the SGFCU.

Myth 1. Stopping export activities

Fact: Since the beginning of the current marketing year, the SFGCU has exported more than 1.5 million tonnes of grain.

Despite the problem with providing grain carriers, which remains at about 45% of the demand, as of mid-March, the corporation has shipped over 1.5 million tons of grain and oilseeds to foreign markets, remaining one of Ukrainian grain export leaders. At the same time, the plan for March has already been fulfilled by 105% — 210 thousand tons of grain have been contracted.

Dynamics of export deliveries of the SGFCU in 2016/2017 MY

It is also necessary to debunk the myth about reforming the trading activity of the corporation, which the so-called experts consider to be one of the mistakes of the current management. In fact, the reform of this direction was only to change its leader. The foreign manager Caesari Matsiborski, with more than 20 years of experience in grain trading in companies with a worldwide reputation, became its leader. He now implements the best practices of the world grain trading in his work, thus adjusting the company's trading strategy.

Myth 2. The formation of 104.6 million UAH of bogus VAT is attributed to the current management

Fact: VAT in the amount of 104.6 million UAH, which remains uncoordinated by the results of the State Fiscal Service of Ukraine (SFSU) inspections, was formed on the basis of purchases in the period of February-June 2016, that is, during the second half of the previous marketing season.

At the same time, whereas during the previous year the relations between SFGCU and SFSU regarding the return of VAT were very complicated, in October, after the change of the management, these issues finally moved from the dead end. It was in October that SFGCU received the first 60 million UAH of the reimbursed value-added tax. As of today, due to the cooperation with the SFSU of Ukraine, the state corporation has already been reimbursed the total of 607 million UAH from the budget. The VAT balance claimed for refund for 2016 makes 664 million UAH.

Myth 3. Alexander Grigorovich moves on to State Forest Agency

Fact: Alexander Grigorovich does not plan to take up the management position in State Forest Agency.

Alexander Grigorovich, Acting President of SFGCU

At the end of February, a number of media resources, including the central Ukrainian media, published the fake news about the appointment of Alexander Grigorovich the Head of the State Agency of Forest Resources of Ukraine. He was presented as an efficient top-manager, who already proved his ability to resolve crisis situations of national importance, and will accelerate the forest industry reform and overcome the shadow schemes in this area. Here is how the Head of state corporation himself commented on the situation:

"My main task for today is to ensure the effective operation of the state corporation and create the best conditions for its privatization. We have many ambitious plans for the development of the SFGCU for the next few years, including cooperation with our Chinese partners, and I do not plan to change the given vector of activity", explains Alexander Grigorovich.

Myth 4. The relations with the Chinese partners have reached a dead end

Fact: Since October 2016, the current managers of the corporation have established a dialogue with Chinese partners, resulting in the resuming of grain supplies to the Chinese corporation from the CCEC.

"Since last October, we have finally resumed our dialogue with our strategic partner CCEC. At that time the first grain volumes were contracted for the current marketing year in the amount of 30 thousand tons. Already in November we sold another 90 thousand tons, and in December the first shipments began. In total since last October, despite the absence of quotas, the SGFCU has sold 265,000 tons of grain to the Chinese company", Alexander Grigorovich comments.

Dynamics of trade with CCEC

The evidence of the Ukrainian-Chinese improved relationship is also the high appreciation of the work of the current management of the company by Chinese partners, as stated in the letter of EximBank of the People's Republic of China addressed to the corporation.

Click to download

Given such positive feedback on the intensification of cooperation with Chinese partners, there can be no talk of any aggravation of relations, quite on the contrary, according to the letter, the Chinese partner is extremely pleased with the positive cooperation development dynamics that was initiated by the current management of the corporation.

UkrLandFarming deputy general director Igor Petrashko noted, that China is interested in the long-term cooperation and in the continuation of work through SFGCU.

Igor Petrashko, Deputy general director of UkrLandFarming

Myth 5. The state corporation cannot be profitable

Fact: Considering the operating profit, which is the indicator used by the investors to assess the profitability of the core business of any company, then the year 2016 was quite successful for the grain corporation. Thus, the operating profit of the SGFCU last year amounted to 957 million UAH compared to 119 million UAH loss in 2015.

Last year, SFGCU also managed to reduce the number of unprofitable enterprises included in its structure by 1.5 times. Moreover, the financial result from the operating activities of the branches of the corporation in 2016 increased by more than 5 times and amounted to 159 million UAH.

At the same time, the corporation incurs a significant financial burden due to the Chinese loan of $1.5 billion. During the period of using the loan funds, SFGCU has already paid over $300 million of interests.

And in this situation the state grain traders can hardly be compared with private companies. Private companies invest the funds, received as a loan, in the development of the company, thereby increasing the efficiency of operations and increasing financial performance. In the SFGCU the situation is slightly different — the loan was taken under state guarantees, up to $100 million are in circulation, the rest of the funds are located in the state Ukreximbank. Accordingly, the state uses the money, and the interest rate is paid off by the SFGCU.

In this case, due to interest and exchange rate differences, a certain amount of the accumulated loss was formed by the corporation in 2014-2016, which SFGCU annually covers using a part of the operating profit. It is the indicator of the chosen strategy efficiency.

According to the Head of the analytical department of the AAA consulting company Maria Kolesnik, SFGCU now operates transparently and stably, as a result the company has become profitable and ready for sale.

Maria Kolesnik, Head of the analytical department of the AAA consulting company

"There will be a buyer under the conditions of transparent competition. And most likely it will be a foreign investor, as it is too big for Ukrainian companies. At the same time, the company is overloaded with illiquid assets, which need to be cleaned out", says Maria Kolesnik.

The year 2016 demonstrated that the state grain trader, due to properly placed priorities, can work with profit, demonstrating the positive dynamics of the main indicators, despite the significant financial burden and accumulated losses of previous years.

At the same time, President of the Ukrainian Grain Association (UGA) Nikolai Gorbachev believes that no state enterprise can be as effective as a private one.

Nikolai Gorbachev, President of the Ukrainian Grain Association (UGA)

‘’The defeat of the social economics (where everything was owned by the state) to capitalism (where each particular thing has a specific owner) can serve as an example. Corruption appears there, where the opportunity is provided. If we analyze the structure of the state-owned corporation, we can see that no structural changes occurred, and therefore the problems will remain the same ", said Nikolai Gorbachev.

Here is to remind that on March 22nd negotiations between the delegations of the Chinese CCEC corporation and SFGCU took place in Kiev. The Minister of Agrarian Policy and Food of Ukraine Taras Kutovoy informed that the results of the agreements were successful for Ukraine.

Taras Kutovoy, Minister of Agrarian Policy and Food of Ukraine

"The Chinese loan interest rate will be reduced for SFGCU. In this regard, the leaders of SFGCU together with the Ministry held fruitful negotiations with Vice President of the Export-Import Bank of the People's Republic of China, Yuan Xinyun. The volume of the reduction is still in the process of discussion and is a subject of approval by the Chinese party", Taras Kutovoy said.

Another positive aspect is that the representatives of  EximBank of the People's Republic of China agreed to use credit funds for the implementation of two mutually beneficial projects: the purchase of grain carriers from domestic car manufacturers through an open tender and the supply of plant protection products to Ukraine.

Despite the fact that the final loan interest rate is still a subject of approval by the Chinese party, the principle consent of the Chinese EximBank to reduce it can already be considered the second strategic victory of the current managers of the state corporation and the Ministry after resuming the negotiations with Chinese partners in October 2016.

Igor Vestin,

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