A Day in the Life of an Agroholding: Kernel

We got to know Mikhail Petrov through Antarctica, i.e. through his talk on his exciting traveling to the ice continent last year. One day we are listening to his stories in total awe; a couple of days later we break into the heavy schedule of the Director of the Prydniprovskyi cluster of the Kernel agriholding and spend a whole working day with him. Here is a detailed account of the experience.

We leave Kyiv. Mikhail spent a day there, so his morning begins in the capital, not in Zolotonosha where he currently lives. He tries to go to Kyiv at least once a week to have a change of scenery, talk to the white-collar workers and see his friends.

Curiously, Mikhail was not involved in agribusiness right from the start. He graduated from Physical and Technical Faculty in Dnipro and began his career as a statutory auditor at Ernst & Young. Having worked in Investment banking till 2013, he joined Industrial Milk Company (IMC) where he was later appointed the head of Burat-Agro (IMC).

An hour flies by as we get from Kyiv to Boryspil talking all the while. It is only now that we start paying attention to the surroundings. We are passing by the fields bustling with combiners harvesting corn. The fields belong to Kernel. The company bought the land assets from Agro Invest Ukraine, a subsidiary of the Serbian holding MK Group, last year. It was added to the land bank of the Prydniprovskyi cluster in 2017 and increased its total area to 10 thou. ha.
Misha, were there any difficulties with the new team fitting in into Kernel

The process wasn't easy. The previous owner of Agro Invest Ukraine was far away and couldn't quite control all the operations, which is particularly detrimental to agribusiness. Besides, the enterprise had been on sale for two years which shifted the behavior and priorities of its employees. The staff had to live in uncertainty. Some of them went to work for other companies, others remained in waiting, there were also some who tried to cash in on the situation. We had to have the latter go.

Andrey Verevskiy is often away from Ukraine himself, isn't he

That's different. Kernel has a very professional top management team and a very efficient motivation system which is directly linked to performance. Directors of clusters are free to make independent decisions. It would be impossible to run such a huge company without giving people autonomy. To a large extent, we have achieved breakthrough yields and profitability per hectare (increased by 25%) this season owing to autonomy. Of course, this year has also been better in terms of precipitation, significantly improved machinery and efficient teamwork. All of it added to the better performance.
According to Mikhail, the system of mechanical units has been another ingredient to this year's success. This unit, consisting of about 40 people. It is solely focused on production and technology, leaving other units to deal with land, social and other issues.

The principle of mechanical units' work was first tested at the Zahidnyi cluster, earlier headed by Igor Chykin, the new director for Agribusiness at Kernel. Each unit is responsible for 10 thou. ha. This area can be used for various crops, but the company is estimating the feasibility of using the land for a monocrop all year round.
Related story: AgroPoligon Kernel
The unit is headed by a chief agronomist. 40 people is the optimal number for the unit: large enough to perform tasks, small enough to manage the team, analyze its strength and weaknesses, set the pace and action. Apart from the chief agronomist, other agronomists are also involved. An agronomist of each cluster manages 3 thou. ha of land — it is the market standard of an average workload of such a specialist. There are also 2-3 mechanical engineers who go into the field if the machinery gets broken there. The main players, however, are the mechanics who are in charge of all the machinery.

In Mr. Petrov's experience, it is a very efficient way of managing machinery in a large holding.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"Let's say, Kernel will own 1 mln ha tomorrow. How shall we manage the land? By increasing the number of mechanical units and machinery under the current administrative structure. That's what we did when our land bank tripled last year. The administrative structure of the cluster, including financial officers, lawyers, land managers, HR and IT specialists remained unchanged, but the number of mechanical units increased.

At the same time, we do not burden the field teams with unrelated tasks. At the beginning of the season, we trust the chief of the unit with the budget of about USD 10 mln which we expect him to increase by the end of the year. To achieve that, he needs to be focused on his tasks and his team. Social issues, land management, etc. should not distract him from his job."
We arrive at a material-technical base (MTB) in one of the villages in the Yagotyn district.

Mikhail tells us that the cluster's territory used to belong to about 60 Soviet collective farms with different types of infrastructure including threshing floors, sawmills, storages, and tractor brigades. To enhance efficiency, some of them had to be closed down, the rest were united into three large MTBs. Each MTB is responsible for field technical operations over 20-25 thou. ha.

MTBs repair the machinery when it's impossible to fix it in the fields and do routine maintenance every winter. Besides, seeds, spare parts, plant protection products (PPP) and fertilizers are stored at the MTBs.
Recently, Mikhail has posted a picture of a mural on his Facebook page. The mural depicts an astronaut playing the guitar in space surrounded by corncobs stylized like rockets and a satellite named Kernel. The mural was painted on one of the storage walls of the MTB.
We are joined by Aleksandr Nelin, lead engineer of one of the mechanical units. At the height of corn and sunflower harvesting, the first logical question to ask is when Mr. Nelin's working hours ended yesterday.

"Fairly early. About 10 p.m.," he says smiling.

Aleksandr tells us that before the MTB, the principle of operation was quite different. Engineers were supposed to provide services to scattered farms.
"Now we are in charge of the farms over 10 thou. ha. We can make our own decisions since the involvement of the top management is minimal. It wasn't difficult to switch to the new mode of operation. After the farms were unified, the number of machinery increased proportionally. I was given a free hand at buying spare parts. It has made engineering easier. Earlier I had to do with what we'd been given."
Aleksandr Nelin, lead engineer of one of the mechanical units
What is the working day of a mechanical unit like? A day begins at 7:30 with a staff meeting. During the meeting, the unit discusses the workload for the week, agrarians inform what machinery they need for the day's operations. When all is planned, people go to the fields. "We control the machinery. A chief agronomist makes most of the decisions, but we can stop the operation of the machinery if it is misused," he says.

While we talk to Mr. Nelin, Mikhail Petrov has a meeting with Mikhail Milyukov, the director of the MTB. He later takes us to show the employees' accommodation. It is provided to temporary workers or workers who live far away from the farm. They are lodged in small houses for 8 people with basic home comforts.

Back in his office, the director shows us a picture of one of the tractor drivers placed on the wall of fame.
"Do you know how much he's made this month? Around UAH 40 thou."

"But the work tractor drivers do is seasonal, isn't it?"

"That depends. There's always something to do. The season is short, but during winters the drivers take part in repairs and machinery preparation for the new season. Of course, they make more money in the field, but quality repairs are well rewarded too."

Moving on. In the car, Mikhail tells us that when he was appointed Director, the cluster consisted of 15 offices.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"Each office was headed, as a rule, by an ex-director of a collective farm or a local mini-farmer whose interests didn't necessarily coincide with our corporate rules. We had to fire some of them. In the end, we introduced 8 mechanical units and employed young people. We also reviewed the crop rotation scheme and decided to focus more on corn and sunflower instead of wheat which is a risk crop in this dry region."
I couldn't but ask about my favorite issue — decentralized workforce. I was curious to know whether my host experienced any difference in the decision making policies of IMC and Kernel. He said that in general, the Kernel policy opened more avenues for efficient development.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"A true decentralization at Kernel offers more opportunities. It's important for me to see the goal and to have the tools for achieving it. I don't need weekly check-ups. As the director of the cluster, I can assume responsibility and make timely decisions Things change fast and if we linger over decisions, we miss out on opportunities. It's just like in the Alice in the Wonderland book: we must run as fast as we can, just to stay in place.

And we need to move forward. Our goal is to build the best agricompany in Ukraine and to become a model one in the market. Naturally, there are company policies and procedures we need to observe, and there are requirements of investors and creditors that we've got to meet, but the rules are clear and the goal is set. We know how to get where we want to be."

According to Mikhail Petrov, a distinguishing feature of the Kernel approach to management is that directors of the clusters are to draft the budget for their clusters for the next year at the end of the current year and get it approved by the top executives. The debates over budgets may last for weeks, but once your budget is approved, it is yours to distribute the way you see fit. You manage the funds because you assume responsibility for the results.

By the way, yield planning in the company is based on historical data. In the Prydniprovskyi cluster, they take the data for the last 5 years and add 10% to it.

My next question concerns competition between the clusters.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"Certainly, clusters compete, but we acknowledge the differences in climate, fertility, etc. Despite the competition, we are always ready to help one another and have developed an excellent partnership."
Social responsibility is another important budget line. The cluster spends around UAH 7 mln on helping local communities. It's not just the money. Mikhail believes the company needs to provide material resources as well so that people could improve their living conditions. As we discuss the issue, we drive past the village of Bogdanovka in the Yagotyn district. Mikhail greets a driver of the car that's passing by. The driver stops to talk to Mikhail.

As we move on, Mikhail tells us that the man is a local activist who rents one of the company's buildings. It hasn't been in use for a while, but the new renter will turn it into a youth center and a gym. Mikhail asked him to reserve the second floor for the dormitory. "During the threshing, our contractors may comfortably live in the dormitory instead of the small houses. We'll save on logistics; the renter will be able to make some extra money. I try to encourage the community to make their own money and not to wait till it will be given to them."
One of the director's initiatives is utility companies (UC). The holding provides UCs with tractors, plows, and cars to cater to the needs of the Kernel lessors. The machinery is also used to improve the living conditions in their villages, clean snow, etc.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"For instance, we gave this village a lot of machinery. We could have sold it, but we decided to fix it and give to people. As a result, a new company has created 13 jobs to replace the old tractor brigade and now the UC, whom we pay, provides services to our lessors. Such a win-win model helps the local community to make around UAH 1 mln annually and saves us the trouble to keep track of such minor issues as assisting in garden cultivation, garbage removal or cleaning streets from the snow. It's up to the community what they want to spend the earned money on schools, infrastructure, or repairs. My goal is to teach people to solve their problems by themselves and empower them to do so."
As we discuss the UC, we are passing by the village council and stop to talk to the headman Yurii Borysenko. He admits that people were a little cautious about implementing the UC, despite the appeal of the idea, but the result surpassed all expectations.
Bidding good-bye to the headman, we go to the fields. There's a long route ahead of us, so we waste no time. We soon arrive at the field near the Chernyakhovka village. The field is alive with activity. The mechanical unit (MU) is threshing sunflower. It willbe followed by chopping the residue and tillage. We will learn about the system of registering field activities at Kernel.
At the field, Leonid Pylypchuk, the leader of the MU, shows us a van — the center for registering activities at the field. Here is how the registration works: when a truck arrives at the field for loading, it is verified by a smartphone with an NFC-tag programmed for this kind of operations. The truck is registered and when it leaves the field, the driver receives a sort of a receipt. At the elevator, the driver presents the receipt. It is similarly read and identified. As a result, the company gets information about the driver, the truck and the trailer.
Here in the field we also see the "technical" vehicle which provides repairs if machinery gets broken. It is equipped with a welding machine, a compressor and repair kits.
Solving production issues on the go, Mikhail shows us the trucks loaded with sunflower seed. Each truck is equipped with a GPS tracker to prevent thefts. The truck movements are tracked by the Wialon application. At first, truck drivers tried to cheat and threw the trackers into the cars driving parallel to the trucks. The company had to solder the trackers into the wiring.

"20 trucks broke the contract with the company immediately after that. You can bargain with a person, but you cannot bargain with a tracker," laughs Mikhail.
We are now going to the Zolotonosha district. Mikhail tells us about the roles he performs in the cluster.

One of his duties is to expand and keep the land bank. He also tries to make his cluster a good neighbor.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"If you play unfair and try to bite off pieces of your neighbor's land, the market soon plunges into chaos. It overheats and prices sky-rocket. I try to maintain the status quo with my neighbors. In my opinion, the best way to go about in this business is to buy a leasehold and try to merge later."
Mr. Petrov also comments on the unfair treatment of the large lessee by the local government. We talk about taxes paid to the village budget by the so-called individual farmers who do not register the agreements and lease their land to farmers. Their taxes amount to around 100 UAH/ha. Neither the village council nor the tax officials dare to demand more of them. An example at hand: Mikhail signed a rental agreement with the village council of "A". It is signed for 10 years with a tax rate of 5% of the normative monetary evaluation of the plot. By the law, none can increase the rate, but they regularly try to review the rate.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"The village council asks us to increase the rate. At the same time, we rent only 33% of the land, the rest of the land belongs to local individual farmers who have no legal contracts. How much taxes do they pay? Less than 2%. Why should some pay taxes at a higher rate and bear social responsibility, while others pay next to nothing? We are players of the same market, but we play by different rules."
The interesting talk gets us to the village of Voznesenskoe of the Zolotonosha districts in over an hour. It's a place of another MTB. We make a short stop and take a brief tour of the MTB. Our guide is Viktor Polyakov, the leader of the MTB. He is an old hand at the job having started 15 years ago when the enterprise belonged to the Ukrros company.
Viktor Polyakov shows us the modern machinery park which includes 5 John Deer combines and 11 heavy tractors: 6 vehicles of John Deere 8 Series and Case IH 310 and 345, and 3 three John Deer 9 Series tractors. American vehicles have been dominating the park for years.

Viktor Polyakov
Leader of the MTB
"The vehicles are easy to handle and maintain. They are very tough. We own a tractor of the 9 Series which still works after 17 thou. hours of exploitation."
According to Mr. Polyakov, they've also managed to combat large-scale thefts. However, about 3% of theft risk is still there.

Viktor Polyakov
Leader of the MTB
"There's still a risk of theft, but it will cost us more to try and find that 3% of the stolen goods and identify the culprit. At a certain point, it becomes a question of bringing in more controlling bodies; it costs more but changes little."
Apart from workshops and hangars for vehicles, the MTB also includes seed and fertilizer storages with the capacity of 20 thou. ha. Repairs and reconstructions are happening all over the place.
"Mikhail, how much does this base cost the company?"

"I'd better tell you the cost of a day of the company operation. It's USD 200 thou. Our goal is to distribute the money so that by the end of the year it gave us USD 20 mln of income."
Near the MTB there is an old oil depot. Mikhail Petrov says he considers buying it and turning into a site for ammonium-nitrate fertilizer (ANF) production. ANF can be stored in the tanks of the farm at the preliminary volumes of 3 thou. tons. This will provide half of the cluster with ANF and save 10 USD/ha.
We leave for the central office in Zolotonosha. Upon arrival, Mikhail gives us a short tour and introduces us to Anatoly Ishchenko, Production Director of the Prydniprovskyi cluster. Last year, Anatoliy headed Privat-Agrocenter, the most mysterious holding of Ukraine. An interview with Anatoliy will soon be published on Latifundist.com. The building is being renovated, so we don't linger here for too long and go to the monitoring and control center.

A dispatcher at the center monitors the condition the machinery. The center is operated by three dispatchers who work in 12-hour shifts.
One of their key tasks is to observe that process-specific limitations are not violated and report deviations in speed, temperature, and track of the vehicles. Their second priority is to monitor application rates by accessing a remote Trimble or John Deere servers.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"We conduct a systematic biochemical analysis of the soil at each field. Based on this analysis, we calculate the application rate of basic fertilizers. When a machine operator starts the tractor, he selects a field and its number on the monitor and the application automatically loads the task for him. The task of the agro-dispatcher is to track whether the operator and the machine performed the task correctly. Similarly, we can monitor the seeding process, the seeding rate, and gaps in seeding and adjust everything in time. The dispatcher needs to inform the agronomist about the problem via Viber, the agronomist needs to locate the problem and report back to the dispatcher that it's being looked into. Then, the agronomist solves the problem together with precision agriculture engineers."
After the tour, we go to Mikhail's office. It has a distinct style — a loft with artistic elements. Once again, I recall the space theme and the Kernel satellite on the mural.

We talk about the "cosmic" prospects for agriculture in Ukraine, Kernel and the Prydniprovskyi cluster, in particular.

Mikhail Petrov
Director of the Prydniprovskyi cluster
"Our goal is not the size, but efficiency. We focus primarily on the yield per hectare and tons of production. When you consistently receive a yield 20-30% above the average for the region, further development lies in reducing the cost of production. We continue to expand the territory of the fields under irrigation. After several years of experimentation, we've learned to grow our own corn seeds and soybeans. We now try to produce our own sunflower hybrids. Our R&D project focuses on technology intensification and transition from original products to similar inexpensive generics. We are constantly working on improving the skills of our team. It is not that important who stands in front of you, it's more important who stands next to you."
The sun goes down stretching its fading beams through the blinds. We are looking forward to dinner and amazing stories of a seasoned traveler. Mikhail has traveled around the world and has many adventures to share, but that's a story for another time.

Konstantin Tkachenko, Latifundist.com
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