John Shmorhun: We Have Done Everything We Promised

Photo by: Latifundist.com

The decentralization system in Ukraine will lead to a number of changes in the agricultural sector, and will play a crucial role in the country's economy. According to the President of the AgroGeneration company John Shmorgun, individual farmers know about their needs better than government officials. The American with Ukrainian roots expressed this opinion at the international conference Grain Ukraine in Odessa, where he was one of the speakers. In the exclusive interview with Latifundist.com the expert spoke about the results of the agricultural holding, the tax problems of the industry and the willingness to face economic challenges.

Latifundist.com: Share your impressions of Grain Ukraine 2016. In your opinion, how useful for business is the format of the international grain conference?

John Shmorhun: The speakers are excellent! All were impressed by the representatives from China, Brazil, Argentina, they give us a perspective, because we live in a global economy. I think such conferences should be held every year. There were few agricultural companies, but quite a lot of traders. It was interesting for me to participate in this event in the capacity of the President of agricultural company. And holding Grain Ukraine in Odessa, has a special significance, because Odessa is one of the largest ports in Europe.

Latifundist.com: What were the AgroGeneration's results in 2015 and what are the tasks for 2016?

John Shmorhun: If we talk about 2015, we achieved our objectives. For the second consecutive year EBITDA makes €20 million. It means we did what we had promised to do. As far as this year is concerned, I can not make any promises. We are the public company, but I have no right to disclose the plans or to speak about  investment projects.

Latifundist.com: What are the challenges faced in the past year? How did you solve them?

John Shmorhun: The first and main problem is low price. The second one is macroeconomic problems of Ukraine, namely in fiscal and banking sector,  the state of uncertainty regarding taxation of agricultural holdings and agricultural companies. Starting from January 1, 2016 APC enters the general taxation system. The Ministry of Agrarian Policy insists that only the smallest participants of the agricultural sector should get the state aid — farmers can receive state financial support in the form of VAT special regime, all the rest should comply with the general system. In essence, these will be different state rules for us and for the farmers. I'm against it. I believe that everyone should play by the same rules.

Latifundist.com: How do you evaluate the transformation of VAT special regime for farmers?

John Shmorhun: How should I evaluate it? This immediately decreased the company's EBITDA by 10-15%. This is very bad for us and has a negative influence on those investors who are thinking about investment in Ukraine. Authorities explain that this had to be done because the tax revenues to the state treasury are insufficient, and there are IMF requirements. But it is absolutely not clear to me. If 30-40% of agricultural industry does not pay taxes, then where are the sources? Obviously, they exist. That's unclear why the transparent companies are deprived of the tax break.

Latifundist.com: The increase of the company's land bank to 120 thousand ha was a positive moment after the merger of AgroGeneration and Harmelia. Will you continue to increase the land bank, or, on the contrary, partly decrease it?

John Shmorhun: There are long-term plans to increase the land bank. We watch and develop. The AgroGeneration company strategy is aimed at the business value increase and high profits generation. We achieve this by operating synergies of  activity scale growth and land consolidation in an effective management structure. Optimization of the supply chain, storage and sales with a gradual vertical and horizontal integration of the company contribute to the company success.

Latifundist.com: How often do you spend time in the fields?

John Shmorhun:  I would like to spend more time in the fields but, unfortunately, I do not always have such an opportunity. I will definitely go for harvest time (laughs).

Latifundist.com: Many companies today use a variety of innovations. What can you say about your company? What are the innovations introduced and used in your company?

John Shmorhun: We certainly keep up with innovations. For instance, this is minimum land handling. We seed different crops to choose the best and to see what crops are best adapted to the specific climatic conditions of the company land locations. We also implement the latest agricultural technologies, optimize costs etc.

Latifundist.com: Many agro holdings experiment with mini-till and no-till technologies. Do you practice such technologies?

John Shmorhun: We do not experiment; this is part of our long-time practice.

Latifundist.com: And what are the results?

John Shmorhun: In terms of direct costs we have  positive results, because there are no additional field entries.

Latifundist.com: How is the company provided with new machinery? Will you upgrade the machinery park?

John Shmorhun: We always carry out the plan. The priority is to update the tractors, purchase new drills, disc harrows, scarifiers, etc.

Latifundist.com: How much larger were this year's costs compared to 2015?

John Shmorhun: I cannot say for sure, because this year is not over yet. But each year we try to minimize the costs. It should be understood that the EBITDA growth depends on many factors. The prices are low for the second consecutive year. We need to work on the cost, reduce administrative, technological, direct costs and that is exactly what we are doing.... And not only in Ukraine. This also applies to the central offices and  the head office in Paris. We work on it every year. I think the optimization paid off last year. But this year we continue our work on this issue.

Latifundist.com: According to some analysts, in 2017-2018 a new global economic crisis can happen. Is your company ready for this?

John Shmorhun: You know, we have already gone through everything and we are always ready. But I do not share this opinion; I actually think everything will be vice versa. At the conference we listened to the Chinese company representatives and I am still inclined to think that the price dynamics will continue to grow. That is, there will be positive dynamics starting from next year. We may suppose that the European crisis will happen because of the exit of Great Britain from the EU, but for now it is too early to say anything specific.

Latifundist.com: Thank you for your sincere opinions!

Anna Ombodi, Illya Esin, Latifundist.com