Misak Khidiryan
on A.G.R. Group Land Bank Expansion, Irrigation Implement, Conducting IPO

What prevented A.G.R. Group from expanding its land bank to 50,000 hectares last year? Why did the holding acquire enterprises in the area of risky agriculture and how does it plan to develop irrigation in the production clusters? How has the grain elevator development strategy changed? All this, as well as plans to expand the land bank to 100,000 hectares in the regions of operation, steps in the IPO process, and his approach to holding management is revealed by the President and Head of the Supervisory Board of A.G.R. Group Misak Khidiryan in an interview for Latifundist.com.
Last year, in an interview with Latifundist.com, David Ananyan stated that the company had plans to grow its landbank to 50,000 ha by the end of 2020. What got in the company's way?

— I have no doubt that by the end of 2020 we would have been able to increase the land bank to 50,000 ha, if it had not been for circumstances beyond our control. It was counterparties and potential sellers. Hence, the answer is quite prosaic — the sellers' inflexibility prevented us from enlarging the landbank.

Speaking of the market for buying and selling corporate rights to companies with land lease agreements, one must admit that this is a wildly volatile market, where a certain number of sellers are just speculating on the arrangements. Several times the scenario for the A.G.R. Group developed in the following way: we have an active dialogue, we enter into a deal, we even make an advance payment, and the seller, taking advantage of our offer, takes the package of documents with our agreements to the closest competitor.

The rationale behind this is obvious — the agricultural sector is highly competitive. There is not much room for manoeuvre in this market: all land today is leased; accordingly, someone's decision to sell an enterprise with land lease rights is an exit from this business by one of our colleagues.

The acquisition of another property is a matter of intense competition: who is more profitable to be offered land lease rights at this point. Besides that, many sellers are erratic in their decisions regarding the sale of agribusiness. This stems from the fact that the price situation in the market is quite unpredictable for all of us. For example, in the first half of 2020, the price per ton of corn was fluctuating between USD 157 and 174. The current price is about USD 270. Consequently, many producers realized that inefficient farming is not worth continuing, and they came out with an offer to sell.

However, most companies today can see that even the most inefficient production is covered by prices on the international market, which is now at its peak. This leads to a desire to try their hand once again. And those who have entered the negotiation process recently are looking at the cost of agricultural products with the idea: "Perhaps, we should try again."

This is an attempt to make money from speculative price increases on the one hand and land speculation on the other. So, there are not many people willing to complete these deals. But we are working in this direction and we are getting closer to the planned 50,000 hectares. I will not reveal too much at this point, but the process is underway.
Мисак Хидирян, президент холдинга, глава наблюдательного совета A.G.R. Group на открытии элеватора A.G.R. в г. Середина-Буда
(in the center) Misak Khidiryan, President and Head of the Supervisory Board of A.G.R. Group, at the opening of the Group's grain storage in Sumy region
This April, the company bought two agricultural enterprises in Kherson region. Why did you decide to buy agricultural enterprises in the area of risky agriculture?

We find prospects in the development of irrigation. Moreover, we intend to seek access to water in all regions of Ukraine and are now considering installing irrigation systems in existing clusters. This is one of the company's priorities at the moment — to implement a reclamation program on the Group's cropland together with our business and financial partners. This is a high-potential segment where we can get support from reliable financial partners.

As for agribusinesses in Kherson region, the decision to acquire them was also driven by climate change. We understand and accept the risks associated with these changes, and we want to diversify them. That is why our land bank was enlarged with farmland in Kherson region. This is our response to the challenge: we are looking for a way to achieve more sustainable development of the holding's enterprises and are preparing to adapt to the current climate conditions.

For instance, moisture levels in the ground were critically low in 2019, followed by dry autumn, dry winter, and a similarly unfavourable start to the spring of 2020. Had it not been for the rainy weather in early May, there is no telling how 2020 would have ended. We realized that we could not take that much risk. Irrigated farmland is risk insurance for our holding.
We realized that we could not take that much risk. Irrigated farmland is risk insurance for our holding.
It is true that conventional farming is less costly than irrigated. But irrigated farming allows for more predictable yields in times of drought. And this is the balance we are looking for in the business. We see that high dependence on weather conditions deprives us of income. On irrigated land, we feel more secure. So a ratio of irrigated land to non-irrigated land of 30% to 70% or even 50/50 is the model we strive for.
Who do you consult with in the area of irrigation?

— Today, irrigated farming for A.G.R. Group is a new area in which we do not yet have much experience. So, to get the most out of this segment in the shortest possible time, we are hiring qualified specialists.

For guidance and support in the region, a contract was concluded with the Institute of Irrigated Agriculture of the National Academy of Sciences. Co-operation with the Institute minimizes mistakes in crop production in irrigated areas. The Institute's specialists not only provide advisory support, but also help in the fields: they take soil samples, analyze moisture levels, provide recommendations on the frequency and quantity of irrigation for different crops, and control certain indicators. Their recommendations are extremely important, as our holding needs time to master the technology. And it is great that our ambitions are backed up over time by competence thanks to our collaboration with the Institute of Irrigated Agriculture.
Was this the last acquisition this year or perhaps there are further plans for the purchase of corporate rights of agricultural enterprises? In which regions?

— For now, we are focused not on 50,000 hectares but on 100,000 hectares. We plan to expand in the regions of our presence, and with the introduction of the irrigation program, we are set to intensify our efforts in this direction. We are also considering Sumy region as our grain elevator is located there. We would like to expand our land bank in close proximity to it.
How did the specifics of the assets the company acquired influence the choice of agribusiness areas?

— The choice of agribusiness directions was dictated by market conditions. The focus is on simple crop rotation and stable demand for the main crops: corn, soybeans, sunflowers — these are the top three in terms of international traded volumes. Hence, the priority here is stable demand and the volume of crops that are profitable to grow and sell.
If dairy farming were not part of the assets acquired, would the company even start it?

— As far as dairy farming is concerned, we became involved in this sector accidentally. The dairy farm was acquired by the company as part of an acquired business together with a legal entity. At first, it seemed that developing such an infrastructure with a long payback period was not the best idea. But the director of a farm Vladimir Andreevich Zolotar come to me and convinced me not to refuse dairy farming since the farm can bring profit if it is managed properly. By the way, Vladimir Andreevich has kept his promise, the production is quite profitable at the moment.

Dairy farming in A.G.R. Group today is a fairly autonomous branch. Herd growth comes naturally, but we try to improve the genetics and performance of animals as much as possible. It's part of the business, but it's not a priority at the moment in terms of investment. If the state were to fully subsidize at least the construction of the herd housing areas, it would otherwise be a perfectly profitable and very interesting business worth paying more attention to.
What is the company's grain storage capacity today, and what is the strategy for developing the elevator segment?

— The current capacity is 76,300 t: 41,300 t of floor storage and 35,000 t of silo.

First, we plan to boost the volume of transshipment at our new grain elevator in Seredyna-Buda town of Sumy region. This strategy will involve multinational traders. Secondly, we are actively looking for farms in Sumy region in close proximity to the elevator to acquire them. Expanding the land bank will increase the number of turnovers the elevator does during the marketing year.

I must admit that after the construction of the elevator, we reshaped our storage facilities development strategy: now we are ready to buy elevators with existing infrastructure, as it is more economical to buy an old elevator and invest in upgrading and building additional storage facilities rather than to start building from scratch. We are currently looking for suitable options, and we are keeping them open.

For the entire period of the company's development, from the acquisition of the first company until today, all the funds earned by the holding's companies were invested in its further advancement. The construction of the elevator is by far the most expensive investment project, and it was financed through bank loans and the holding's own funds in 2019-2020.
A.G.R. Group combine harvesters in a soybean field
A.G.R. Group combine harvesters in a soybean field
Do you plan to develop other areas in agribusiness or processing, trading?

— A.G.R. Group has no other areas in its plans for the coming years. We want to concentrate on our existing businesses, especially in crop production, transshipment and storage of products.

Firstly, in farming, we already have an established team of professionals, experience and technologies that yield good results. We aim to be ready for any changes and to implement and test new technologies. Every year our specialists practise new technologies on small plots, and then do a comprehensive analysis of the effectiveness of their use and the need for further implementation. Our primary objective is to increase yields and maintain fertile and healthy soils. In addition, we see multiple opportunities in this area and now with the emergence of the new cluster, we are opening up to irrigation technologies. With the climate change that has been particularly tangible in recent years, we see them as a future prospect.

Secondly, the transshipment and storage of crops is something harvest handling is impossible without. With in-house elevator capacity, we can reduce the cost of treatment and storage of crops, and we are sure to take in all of our crops on short notice and get them ready to be shipped. This guarantees our partners that the contract will be fulfilled in due time.

With regard to trading, I am developing this business separately, not as part of the holding. I believe that specialization is the main thing: A.G.R. Group should be focused on cultivation and storage, while trading should be focused on maximizing sales and hedging risks. I deliberately separate these two areas so that the trading risks do not affect the development of the holding and the risks of the holding (weather or exchange rate fluctuations) do not affect the trading.
I deliberately separate these two areas so that the trading risks do not affect the development of the holding and the risks of the holding (weather or exchange rate fluctuations) do not affect the trading.
Why not try processing?

— I am a former banker and I am good at calculating profits. I see that I can get the maximum, 100% predictable income from the sale of raw materials in the most transparent pricing. The crops grown by the holding's farms are traded on the exchange and their price can easily be determined at any time of sale. In addition, raw materials are a highly liquid commodity, which I cannot say about finished products. But this is just my view and maybe in the future, we will try our hand at processing as well.

You have not given up on the idea of raising USD 40-50 mln in an IPO to scale up the business, have you? The company's top managers said there were plans to raise funds for expansion through programs of international financial institutions (EBRD and others). Are there any selected projects yet?

We have not given up on the idea of conducting an IPO, no matter how big it sounds. Every year we are getting closer to our goal. Of course, we cannot yet give an exact date, so as not to be unsubstantiated, time will tell. At the moment, we are ready to work with private investment funds and international financial institutions, and we have started negotiations with them to raise funds for the implementation of this year's investment plan. We will be able to talk about our cooperation in more detail once we have signed agreements and received investments. Now we are in the early negotiations and we do not want to talk about the process, but to confirm the fact of cooperation.

One thing is for sure, we have a clear growth plan and we understand how to meet it in a way that attracting financial resources will accelerate our development.

This year, the core tasks the holding's management faces include increasing the land bank, constructing the irrigation system in the fields in Kherson region, purchasing new machinery and introducing new technologies, acquisition and constructing new elevator storage facilities. Investment projects are elaborated for each of these tasks.
This year, the core tasks the holding's management faces include increasing the land bank, constructing the irrigation system in the fields in Kherson region, purchasing new machinery and introducing new technologies, acquisition and constructing new elevator storage facilities. Investment projects are elaborated for each of these tasks.
A self-propelled sprayer treating soybean field of A.G.R. Group
A self-propelled sprayer treating soybean field of A.G.R. Group
Where do you plan to attract investment from?

— Of course, we are ready to cooperate with domestic financial partners in the first place. I think that over the years we have been able to establish ourselves as a reliable partner with a good credit score. We value our relationship of trust and comply with all terms and conditions of our contracts/agreements. During our cooperation with the banks, we have never had a single day of default on interest or loan repayment. We currently have good relations with banks such as Pivdenny, FUIB, OTP Bank and Polish KredoBank.

Besides, we are ready to use agrarian (crop) receipts and forward contracts to attract financial resources, but we plan to raise the main amount of investment from private investment funds or international financial institutions.
In respect to the owner's approach to running the holding company, how does the mechanism for interaction within the board work?

— I appointed a board with the aim of demonstrating absolute transparency in the company. In A.G.R. Group, decisions are not made by one person, as I strongly believe that collegial decision-making is more appropriate and objective. We strive for international standards of business processes: in most large international companies it is rare for one person to be authorized to make all decisions. Therefore, as the owner, I decided that in order to create effective management of all processes and sustainable development of the holding, there should be a collegial body comprised of professionals in the industry. All of our decisions are weighted, they are made by competent people, so investors can have peace of mind and be confident about their investment.

For all its professionalism, our board is a living organism where each member is, first and foremost, a person with his or her own vision, personality and temper. And it was my aim to bring such professionals together. I want this body to live its own life and scale up: new board members will be added, contracts will be signed with young people, changes will occur within this mechanism, and the board members themselves will later move to the supervisory board.

The holding is our child. Our job is to pass on the knowledge we have accumulated and to monitor its performance, getting the claimed results from authorized specialists. My ambition in general is for our company to have less of an 'I' and more of a 'we'. Yes, I control the processes, but if we approach business philosophically, none of us is forever and our task is to build a company that will not need us specifically.

It should be a mechanism capable of operating centuries from now, with or without our descendants through accumulated experience and financial resources. Like the corporations of 19th century America, which still function and are well-known globally. It is a smart global practice. And now we are building this model, creating a structure that has proven itself in the international arena. And I am sure that it will work whether in the agricultural sector or the nuclear industry — the main thing is to put this mechanism on track.

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