Ukraine's status as a raw material provider has been ubiquitously used and abused by various experts in their speeches. They claim that pure exploitation of the natural resources and reluctance to develop the processing industry will leave us well behind the developed countries. While they talk, others work building real processing plants. A young corporate group NOVAAGRO started out as a horticulture company; transited to feed production and today it has joined the poultry market. Latifundist.com took a field trip to learn the secret of the company's success.

NOVAAGRO was created in September 2009 to unite the companies of Kharkiv region involved in grain and oilseed production with the joint land bank of 18 thou.ha. In 2010, the land assets were sold to an investment fund SigmaBleyzer and became part of the agroholding AgroGeneration. From 2010 to 2015, NOVAAGRO was investing in agricultural complexes. In 2011, it facilitated the creation of the company Agrosvit Ltd and got 50% of the company's shares. After four years of successful company development, NOVAAGRO decided to sell their stock due to a different vision of the company's future unshared by other stockholders. This happened in December 2014. In summer 2015, NOVAARGO became a corporate group (CG) conducting operational activities in agricultural complex.

Today the CG NOVAAGRO has several main branches. The first one includes grain and oilseed sales and processing, sales of the processed products, and delivery of mineral fertilizers. These operations are carried out by the trading house NOVAAGRO headed by Maksym Pylypenko.

The second branch is represented by the agricultural complex NOVAAGRO which controls elevators and logistics. The complex provides acceptance, storage, shipment and logistics of grain both by road and railroad. It is headed by Dmitriy Dobroshtan.

The third branch of feed production and sales is realized by the company Novakorm headed by Vitaliy Kostyrko.

CEO of the CG NOVAAGRO Sergei Polumysnyi explained:

The company operates along the whole marketing channel from producer to customer which means that the company provides all sorts of services and gets added value wherever it is possible.

According to the Chief Financial Officer of the group Olga Demidchuk, the past marketing year was better than the previous one. The total income from the sales amounted to USD 47 mln while in 2015-2016 it approximated USD 40 mln.

For several years, the audits of the CG were conducted according to world standards by the company Baker Tilly Ukraine. In 2015/16, the CG's profit was USD 1.8 mln. In 2017/18, the profit is expected to be even higher and rise by 20-25%. All the financial transactions of the company are carried out in the national currency. Exports allow additional hedging of the devalvation risk of the national currency. Foreign exchange earnings help to close loan commitments on time. In total, the company has UAH 225 mln of borrowed funds.

One of the main branches of the CG NOVAAGRO is feed production by NOVAKORM. The current facilities are located at the Novopokrovsk bread and bakery plant. The feed mill granulates the bran, which comes from grain to flour processing. Besides, the mill granulates the feed and sunflower grist for subsequent export of mixed feed (25-30 thou. tons), grist (12-15 thou. tons), and bran (36-40 thou. tons). NOVAKORM produces feed for chickens, ducks, geese, pigs, cows, sheep and fish.

The company has its own trading networks. These are small firm stores for the sale of mixed feed in the Kharkiv and Kyiv regions. The main customers are poultry farms, large pig farms and private farms.

The company is completing the preparatory work to launch production at the Grakovsky mixed fodder plant in Kharkiv region. Its reconstruction began in December 2017. Due to the years of neglect, the plant is now being modernized to be reopened at the end of April 2018. The company has modernized the dosing line, the boiler room, and the warehouse, purchased screw blowers, re-designed and installed the line for feed packaging.

The quality of raw materials is checked in the factory laboratory. The company implemented the quality management system ISO 9001:2015 and conducted an audit of the feed safety assurance GMP+. The company buys raw materials from 20-30 farms located in the eastern regions of Ukraine. Its exports primarily consist of protein-vitamin-mineral supplements and micro supplements. The raw materials, except for vegetable oils, are supplied to the plant in the form of powder. Before mixing, grain and grist are grinded at the factory. All the feed, except for poultry feed, is granulated.

NOVAKORM is a member of the Interregional Union of Poultry Breeders and Fodder Producers of Ukraine. The majority of mixed fodder is sold in Ukraine, but there were also trial deliveries for export.

The company conducts sails all over Ukraine, selling to livestock farms and average customers. The latter buy products seasonally, while factories purchase the goods all the year round. The company employs a zootechnitician and a veterinarian to advise home and foreign clients. NOVAKORM successfully competes with other manufacturers.

Dmitriy Dobroshtan heads the elevator and logistics branch of the company. The company owns 4 elevators in different districts of Kharkiv region and a production site Volchansk grains plant. Not counting that of a plant, the total one-time storage capacity of all the elevators is 270 thou. tons. NOVAAGRO employs about 200 people.

In the business strategy of NOVAAGRO, the elevator is not only a place of grain storage. It is a hub for additional profit from advantageous offers. It is not enough to merely accept and dry the grain. NOVAAGRO applies a complex use of financial and trading tools to satisfy each customer. The grain logistics primarily relies on the field-to-port scheme.

The company can provide an individual approach to the storage of different cultures. Precast reinforced concrete constructions of elevator tanks are used to store niche crops. Brewing barley, for instance, is stored in ferro-concrete cases. Wheat is divided into classes. Corn and sunflower are stored in the usual metal silos which allow quick acceptance and shipping of the grain during the harvest season.

NOVAAGRO even transships rapeseed, although only few enterprises in Kharkiv region do that due to peculiarities in its storage, transportation, and drying, NOVAAGRO's elevators have modern equipment and trained personnel to work with any kind of crops.

In April 2018, NOVAAGRO plans to launch Volchanskyi cereal production plant. At the moment, the company works on the official documentation. The plant has a universal production line for buckwheat, wheat and barley cereals, as well as peas. The plant will focus on buckwheat production, but the assortment will depend on the market demand. The buckwheat capacity of the plant is 65 tons per day.

The trading house (TH) NOVAAGRO is headed by Maksym Pylypenko. The company produces flour and bran, trades cereals, oilseeds, and mineral fertilizers. The trading house was established and became part of the CG NOVAAGRO in June 2015.

The company cooperates with farmers and agro-enterprises of Kharkiv, Sumy, Poltava, Dnepropetrovsk, and partly Donetsk and Lugansk regions and employs 45 people.

The trading house closely cooperates with Ukrainian producers of fertilizers. It partially cooperates with Belarus and arranges product supplies from Poland, Lithuania, Kazakhstan, and Uzbekistan. The buyers are very well informed about brands and producers, so they usually have a very clear idea of what they want the company to import. For instance, the import of sowing material is guided by the buyer's wishes.

Given the increasing demand for corn, wheat, and rapeseed, the TH can develop trading of those cultures. Besides, the market for plant protection products and fertilizers looks promising too.

The company produces highest and first grade wheat flour, wheat bran food and forage, granulated bran, wheat germ, semolina and other products. About 40-45% of the produced wheat flour is sold domestically; the remaining 60% is exported. Semolina is sold 50/50, the wheat germ is sold locally and used as a dietary supplement for pharmaceuticals. Almost 100% of the remaining products are sold in the world markets. The main consumers of wheat bran are Turkey, Egypt and Morocco.

In Ukraine, Kharkiv, Sumy, Poltava, Lugansk, Dnepropetrovsk, Zaporozhye are the main marketing regions; Kyiv region has been added to the list only this season. Limited deliveries are made to Western Ukraine.

Securing positions in the export markets takes time and diligence. Raw materials are easier to sell than products with added value. It becomes clear when exporting to Israel, and Egypt.

At the end of 2017, NOVAAGRO became the owner of the Morozovka Agro poultry complex. Before opening a new branch, the company studied the poultry market, reports, and financial results to evaluate its profitability. In November 2017, the company acquired a farm in the village of Morozovka in Balakley district of Kharkiv region. It plans to reconstruct it and organize its own poultry complex engaged in broiler meat production.

There are few such factories in Eastern Ukraine. Besides, chicken exports are increasing, and consumer prices in the domestic market have grown significantly, which means that it is a profitable investment. Compared to 2016-2017, the prices increased by 50%. The consumption of chicken meat in Ukraine also exceeds that of beef or pork. Since the company produces its own mixed fodder, the poultry farm completely closes the cycle. It is common knowledge that fodder makes up for 60% or more in the cost of poultry meat production.

The buildings, which can be quickly reconstructed, can accommodate about 500 thou. of poultry stock. The total number of livestock gives an idea of the amount of meat that the company will subsequently produce. The farm will begin operation as early as the second half of 2018.

Pragmatic business, mathematic precision, risk hedging, forward thinking — all these descriptions are applicable to the CG NOVAAGRO. This young Ukrainian company from Kharkiv demonstrates vertical integration in action by dividing the business into several complementary areas, creating full-cycle enterprises, and realizing a value-added product.

The company has ambitious plans for the future. In 2018/19, the trading house NOVAAGRO plans to increase sales by 15-20%. Processing figures have already reached the maximum. In five years, the company sees itself as a leader in all its areas of regional if not national scale.