The World Is Trending Towards
the Simplest Possible
Grain Trading Management Systems
Dmitry Mikhalchuk

— I started working on the stock market in my second year at university. A few years after graduation from the university I got a job in a grain trading company. I was taken on as a junior assistant and was given the opportunity to learn. Almost immediately I saw people coming into a meeting with the owner with notepads. Even at the time, this was strange for me, because on the stock market the situation is technically quite different, everything is automated there, robots are used, trading platforms. It turned out that the company did not have its own electronic trading platform. It was suggested that I look into the matter. I studied it and came to the owner with four options. One was to make the system myself. He said that the company did not really need it in principle, but if I wanted to do it, I could do it. I was given US$1,500 for this. At that time (2013-2014), this was peanuts for starting such a project. I made a picture — a prototype. Together with the freelance guys, we fine-tuned the system. In such a way we made a primitive GrainTrack with a budget of US$2-2,3 thousand. At the end of 2014, the grain trading company where I was working closed down. And from January 2015, I started offering my product on the market. It was a very crude system. Each time I came back from potential clients with a huge list of comments. And based on this feedback, a freelancer and I made a completely new product. And so it went...

— We have grown from a start-up to a real company with a staff, a business model, clients, products, etc. Somewhere in 2017-2018, we moved from a firm that is just looking for something to do to the company which already knows where it is going and is trying to scale.

Our software still helps to optimize business processes, track the status of grain traders' contracts, etc. But now we do it in a much more professional way. Because we have gained incredible experience working with international companies, we have seen how it works in Europe, Africa, Asia. And we implemented this experience technically.

Grain trading consists of a large number of processes. If you, as a software developer, can optimize at least one of the processes, for example, counterparty compliance, then well done. But if the software can optimize several processes (document flow, sales position, payment flow, etc.), this is a completely different level — this is top-notch.

— Yes. We are just constantly improving the product. And with the experience we have gained, we are also consulting companies.

— For example, it may be the agreement of the transaction process from A to Z. Also, assessing the trading position, how to properly count the P&L [statement of financial performance – ed.]. Many companies consider P&L to be solely an accounting tool. And very few companies know how to calculate operating P&L correctly. But grain trading is a market that changes every minute. A deal can be concluded today, executed in 3 months, and payment can be received in another 3 months. And showing the client the value of money over time is very important. We can also calculate counterparty limits.

Another point. Some Ukrainian developers do not understand how to reflect fixed-price and premium contracts in the system. When we entered the European market, we were confronted with this issue and quickly added this functionality. If there is no such position in the software, European companies will not be able to use it.

— This is a limit on how much you can trade with a certain counterparty over a certain period. In general, the paradox is that trading companies have information that can be properly collected and used, but they do not do it. For example, rarely do they estimate delays in the payment of contracts. Although such information can make business more predictable. For example, for the next season before contracting someone, the company sees that this counterparty usually pays 5-10 days late or does not pay at all, etc.

— First of all, it is a product for trading companies or farmers who sell their grain and want to track the transaction. It is a program for management and all employees of the company. It contains operational and management reports, makes it possible to forecast what will happen in the company in the near future: trade, cash flows, etc. In other words, the software enables the automation of many processes which are still done manually today. Through GrainTrack, employees can send out newsletters, process data, and at the same time avoid making mistakes.

In short, it is a management system for a grain trading company: relations with contractors, the entire document flow, logistics, and the financial part, including IFRS reporting.

— I am not aware of any successful cases. I can say that we have been developing and improving the system for 6 years. This is the daily work of a large number of people. And it's not just about our employees but also about our clients who constantly give us feedback and help us to improve the product. Working in one company, it is impossible to know how the whole market functions and how the accounting processes of other players are built.

There are errors in any system; no one is immune to this. But if there is no one to tell you that you have made a mistake, you will never know it. And if the system is fixated on one company and does not reflect market practice, it is less than perfect. Since GrainTrack is used by different companies, we know exactly where we are wrong, and we can correct inaccuracies. That is why the system is viable; it is being improved.

As I have said before, developing a system is not only time-consuming but also financially expensive. Not all farmers are willing to invest that much. A company that uses GrainTrack once told us: "We will pay this system back in two transactions. It is unlikely that we will create a product that can be paid back so quickly.

— US$1-2 mln. A minimum of 5 programmers with a US$2,000 salary is needed. Taking into account business analysts, testers and other employees, a company has to spend US$15-20K per month or US$200,000 per year on salaries.

— Yes, but foreigners have two problems. Firstly, they are not flexible: you have to do it only this way and not that way. Secondly, the cost of their services. They have an integration fee of US$70-100 thousand, plus the monthly fee for the user. On the whole, of course, the market is evolving. We have seen several 1C-based products where many solutions from our system have been copied, even the names of some sections. And this is a good thing because competition helps us to become better.

— No, it is based on the number of employees. It can be that a company with 50 employees has a lower turnover than a company with 3 employees. If you calculate the cost of the system, you simply follow a certain pattern: the more employees you have, the less you pay for the software on a per-person basis. This is why there can be several users under one account.

— Let me say straight away that we do not have an "admission ticket", a fee for integration into the system. A company can pay for 1 month, 6 months, or 12 months. Fees can start at US$100 up to several thousand dollars per month.

— Up to 100. These are not only clients from the CIS, but also from Europe, Africa, Asia, and North America. At some point, we understood that the product is suitable for traders of any bulk cargo (sugar, coffee, etc.). So we expanded the number of customers not only with grain traders.

— All multinationals have their own systems. From what I have seen, pretty good products designed to bring real value to those who use them. We've had many communications about collaboration, but they all stopped at the implementation stage because of fear of switching to a new system. MHP, for example, decided to take this step, successfully switched, and has been using GrainTrack for 2 years. Maybe the problem is the sluggishness of international players.

— Absolutely normal. You need all kinds of traders, including those who work without their own assets. If we talk about the risks that exist in trading, we simply have to work to minimize these risks. Assets grant no protection.

— In addition to what I have already said about the conservatism of trading in Ukraine, electronic platforms lack clearing [a form of non-cash payment – ed.]. Like on the exchange, where there are margin calls — when a company's account is in deficit, it cannot pay out. It seems to me that once this function is in place, electronic exchanges will be used more.

— And it won't make it any other way. It is a necessity. If we are talking about an electronic exchange that will cover 5% of the market, then fine. If we are talking about a platform that is supposed to dominate, it is worth it.

— Forward contracts have been and will continue to be used by agriproducers. European clients do not operate at all without hedging their risks. Asian clients partly do. We have the corresponding functionality. I have already mentioned premium contracts. We have a link to the stock exchange, there is a reflection of quotes, their automatic evaluation. How does hedging work? When you enter into any contract for the physical delivery of a commodity, there is a contract on the exchange in reverse. This is how the price is fixed. This is a common practice.

— Generally, they are small in number (about 20 people). But they have large turnovers — up to 7 million tonnes of grain per year per company. Interestingly, when we entered the European market, we were surprised that traders there were willing to make it with less functionality. It is just that when we work with CIS companies, each one offers something to add to the program. And for the Europeans this is excessive. They listen to our presentation that there is such a function, and such and such. Then they say: "We don't need that much, just this..." They want the simplest solution possible, roughly speaking, three buttons and two tables. We have enough competitors in the European market who know their specifics better. But the cost of our product is not even 2, but 10 times less.

— Certainly not with neglect. Maybe a little with distrust. Some have experience in working with companies from the former Soviet Union, not always a positive one. That is, the attitude is neither good nor bad, like the superposition principle in quantum mechanics. But we are trying to debunk possible stereotypes. We are recruiting a multilingual team in order to communicate better.

Despite the fact that we have not mastered the entire Ukrainian market, the European market is now a greater priority for us. It is a large market because clients know what they want to get there. They know what the system is and what it is for. In Ukraine, many still have to be explained it.

— In Ukraine, customers will be divided into those who will gravitate to 1C-based solutions, and those who will buy management software not tied to 1C. That is, there will be a more conservative part of consumers and progressive ones.

By the way, I wanted to mention that we are also working on the synchronization of information in the system. The problem with the market is that the information is restricted. For example, there is a trade chain of 10 counterparties and one product — 5-10 thousand tonnes of grain. When it is unloaded, the information should appear in the accounting system of all the counterparties, be it Excel, 1C or GrainTrack. So that each trader does not have to upload/download the register, we decided to do synchronization between clients, when they can exchange data in their GrainTrack. This way you can invoice, exchange logistics registers, contracts, etc. We plan to add this option this year.

— No. Foreign companies will come, but not en masse. The Ukrainian market is a lower priority for them. There is low purchasing power here and few people are willing to pay for electronic accounting systems. The problem is that in Ukraine the system is not considered a vital element for company work. We can work without it.

— For most, it is a must-have, and for those with whom we are starting to work, it is still a "candy".

— There are 15 people in the team. The main part of them are programmers, who work on GrainTrack. There is a support team — account managers, who are responsible for clients.

— At first, I invested solely my own money. When I decided to grow faster, I brought in minority partners. I plan to remain a majority shareholder who is actively involved in the company. For me, the principle is to make decisions myself.

— It's not that. It's just so that sometimes partners disagree. It is not possible to get things straight at once. I have seen plenty of examples.

— Yes. Or buy out a share. Offers were made more than once. And not only by Ukrainian companies.