There is a trend towards simpler grain trading management systems

Many participants in the agricultural and trading markets still consider automated management systems to be an unnecessary “accessory” for their businesses. At the same time, they acknowledge that the era of paper records, at least in grain trading, is definitely over. Dmytro Mykhalchuk, the founder of GrainTrack, began developing the program of the same name for trading in 2015, without having much knowledge in programming. Today, GrainTrack sells its software product across Europe, Asia, and Africa. In an interview with Latifundist, Dmytro Mychalchuk shared how much it costs to develop a company management system, why Ukrainian systems are cheaper than foreign ones, and why Ukrainian companies are slow to adopt electronic trading platforms.

— Dmytro, how did you come up with the idea to create GrainTrack? You also worked in a grain trading company at the start of your career, didn’t you?

— I started working in the stock market while still in my second year at university. A few years after graduation, I got a job at a grain trading company. They hired me as a junior assistant and gave me the opportunity to learn. Almost immediately, I noticed that people came to meetings with the owner with notebooks. This seemed odd to me because, in the stock market, everything was automated, and trading platforms were used. It turned out that the company did not have its own electronic trading platform. I was asked to look into the matter. I researched the options and presented four solutions to the owner. One of them was to develop the system ourselves. He said the company didn’t really need it, but if I wanted to, I could work on it. They gave me $1,500 for it. At that time (2013-2014), that was a tiny amount to start such a project. I created a prototype, and with the help of freelancers, we refined the system. This is how the first version of GrainTrack was created, with a budget of $2,000-2,300. At the end of 2014, the grain trading company I was working for closed. From January 2015, I began offering my product to the market. It was a very raw system. After every meeting with potential clients, I returned with a huge list of remarks. Based on this feedback, my freelancer and I created a completely new product. And it grew from there…

— A few years ago, GrainTrack positioned itself as an agri-startup. What does your business look like today?

— We have grown from a startup into a fully-fledged company with a staff, business model, clients, products, and more. Around 2017-2018, we transitioned from being a company searching for its direction to one that knows where it’s headed and is trying to scale.

Our software continues to help optimize business processes, track the status of grain trading contracts, and so on. But now we do this much more professionally because we’ve gained incredible experience working with international companies. We’ve seen how things work in Europe, Africa, and Asia, and we’ve integrated that experience into our technical offerings.

Grain trading consists of many processes. If, as a software developer, you can optimize even one of those processes, like counterparty compliance, you’ve done well. But if your software optimizes several processes — document flow, trading positions, payment streams, and so on — that’s a whole new level, that’s top-tier performance.

— So, the business idea has remained the same as it was in the beginning?

— Yes. We’ve just been continuously refining the product. And with the experience we’ve gained, we now also provide consultancy to companies.

— In what areas?

— For instance, we help with managing a transaction process from A to Z. Also, we assist in evaluating trading positions, and in teaching how to correctly calculate P&L (profit and loss statement). Many companies treat P&L purely as an accounting tool, but very few know how to properly calculate operational P&L. But grain trading is a market that changes every minute. A deal can be signed today, fulfilled in three months, and payment might be received another three months later. Showing the client the time value of money is extremely important. We can also help calculate limits for counterparties.

Another point: some Ukrainian developers don’t understand how to represent fixed-price contracts and contracts with premiums in the system. When we entered the European market, we encountered this issue and quickly added this functionality. Without it, European companies wouldn’t be able to use the system.

— What does it mean to calculate limits?

— It’s a restriction on how much you can trade with a certain counterparty over a given period. The paradox is that trading companies have information that could be properly gathered and utilized, but they often don’t. For example, few assess contract payment delays, even though this data can make business more predictable. Before entering into a contract for the next season, a company can see that a certain counterparty typically pays 5-10 days late or doesn’t pay at all, and so on.

— How can you simply explain what GrainTrack is?

— First and foremost, it’s a product designed for trading companies or farmers who sell their grain and want to track their transactions. It’s a program for management and all company employees. It includes operational and management reporting and allows forecasting of what will happen in the company in the near future, such as trade flows, cash flows, etc. In other words, the program automates many processes that are currently done manually. With GrainTrack, employees can send notifications, process data, and avoid making errors.

In short, it’s a management system for grain trading companies: managing relationships with counterparties, handling all documentation, logistics, and the financial side, including IFRS reporting.

— But does your platform integrate with 1C?

— In principle, GrainTrack can be integrated into any system. But we have no intention of replacing 1C as an accounting tool. 1C simply cannot perform the same functions that our product does. With all due respect to the developers, if your solution is based on 1C, it’s much more difficult to expand internationally. When it comes to GrainTrack, there are companies for which this is the sole and primary work tool. There are also companies that operate in a “system zoo” with CRM, 1C, mailing services, etc.

— Some agricultural companies create such CRM systems for themselves. Is this the right approach?

— I don’t know of any successful cases. I can say that we’ve been working on and refining the system for six years. It’s a daily effort involving many people, including not just our staff but also clients who constantly provide feedback and help improve the product. Working within one company, it’s impossible to know how the entire market operates and how other players structure their accounting processes.

Every system has bugs; no one is immune from that. But if no one is there to tell you where you went wrong, you’ll never know. If a system is focused on one company and doesn’t reflect market practices, it is less effective. Since GrainTrack is used by many companies, we know where we make mistakes and can correct them. That’s why the system is viable and continuously improving.

As I mentioned earlier, developing a system is not only labor-intensive but also financially demanding. Not all agricultural producers are willing to invest that much. One company that uses GrainTrack once told us, “We’ll recoup the system’s cost in just two deals. We wouldn’t be able to create a product ourselves that would pay off this quickly.”

— How much does it cost for an agricultural company or trader to develop their own management system?

— Between $1-2 million. You’d need at least five programmers with a salary of $2,000 each. Taking into account business analysts, testers, and other staff, the company would need to spend $15,000-20,000 per month, or around $200,000 per year.

— If five years ago there were hardly any competitors in the software market for agricultural and trading companies, now there are plenty. Foreign companies are entering the Ukrainian market…

— Yes, but foreign companies face two key issues. First, they are not flexible: they want everything done their way and no other. Second, the cost of their services is high. They charge an integration fee of $70,000-100,000, plus a monthly user fee. Overall, the market is evolving. We’ve seen several products based on 1C that have copied many solutions from our system, even some of the section names. And that’s good—competition helps us get better.

— How do you calculate the cost of your system for a client? Is it based on the company’s turnover?

— No, it’s based on the number of employees. Sometimes a company with 50 employees has less turnover than a company with three employees. The pricing logic is simple: the more employees you have, the less you pay per person for the software. One user account can cover several users.

— How much does GrainTrack cost for companies?

— I’ll clarify that we don’t charge an “entry fee” for integration into the system. A company can pay for one month, six months, or 12 months. Rates can start from $100 to several thousand dollars per month.

— How many clients do you have?

— Up to 100. And they’re not just from the CIS, but also from Europe, Africa, Asia, and North America. At one point, we realized that our product was suitable for traders of all bulk goods (sugar, coffee, etc.), so we expanded our customer base beyond just grain traders.

— Do you work with any of the ABCD international traders?

— All multinational companies have their own systems. From what I’ve seen, they have good products that truly benefit those who use them. We’ve had many discussions about collaboration, but they often halted at the implementation stage because of reluctance to switch to a new system. For example, MHP made the transition, successfully switched, and has been using GrainTrack for two years now. Perhaps it’s the international players’ lack of agility.

— Do you believe in the model of “asset-light” traders, who operate without owning assets? There’s a notion that one of the challenges is that it’s hard to predict how they’ll operate. Is this a normal practice?

— Absolutely. Different types of traders are necessary, including those who don’t own assets. When it comes to the risks involved in trading, you just need to work in a way that minimizes those risks. Assets won’t protect you.

— Why haven’t electronic grain exchanges “taken off”?

— In addition to the conservative nature of trading in Ukraine, electronic platforms lack clearing (a form of non-cash settlement). Like on a stock exchange, where there are margin calls — if a company’s account is in the red, it can’t make payments. I believe that once this function is implemented, electronic exchanges will be used more.

— But many say clearing is expensive…

— It won’t “take off” without it. It’s a necessity. If we’re talking about an electronic exchange that only takes 5% of the market, fine. But if we’re talking about a platform that should dominate, then it’s worth it.

— After last year’s drought, many companies didn’t fulfill their forward contracts. Nevertheless, this didn’t stop players from signing contracts for even larger volumes of grain this year compared to last year. Does GrainTrack have options for risk hedging?

— Forward contracts were and will continue to be used by farmers. European clients generally don’t operate without hedging their risks, while Asian clients hedge partially. We have the necessary functionality. I’ve already mentioned premium contracts. We have integration with exchanges, reflecting quotes and their automatic evaluation. How does hedging work? When a contract for physical delivery is signed, a reverse contract is signed on the exchange, thus locking in the price. It’s a common practice.

— Can you describe the profile of your international clients?

— Most of them are companies with relatively small teams, typically around 20 employees, but with high volumes of turnover — up to 7 million tons of grain per year for a single company. Interestingly, when we entered the European market, we were surprised to find that traders there are content with fewer features. When we work with companies from the CIS, each one usually requests something new to be added to the program. For Europeans, though, this is often overkill. They listen to our presentation about all the different functions we offer and then say, “We don’t need that much, just this…” They prefer extremely simple solutions — basically three buttons and two tables. In the European market, we have a good number of competitors who know their specifics better, but our product is ten times cheaper than theirs, not just two times.

— How do European companies generally react to software developers from Ukraine?

— There’s definitely no disrespect. Maybe a little bit of skepticism, as some have had experience working with companies from post-Soviet countries, and not all of those experiences have been positive. So, their attitude is neutral — neither negative nor positive, similar to a superposition in quantum mechanics. But we work hard to dispel stereotypes. We build multilingual teams to ensure better communication.

Despite the fact that we haven’t yet fully penetrated the Ukrainian market, the European market is currently more of a priority for us. It’s larger, and clients there know exactly what they want. They understand what a system is and why they need it. In Ukraine, we often have to explain this.

— How do you see the sales of electronic systems evolving over the next 5-10 years?

— In Ukraine, customers will divide into those who lean toward 1C-based solutions and those who will opt for management systems that are not tied to 1C. So, there will be a more conservative group of consumers and a more progressive one.

By the way, I’d like to mention that we are also working on synchronizing data within the system. The market’s problem is the tight hold on information and its closed nature. For example, there might be a trading chain involving 10 counterparties and one product — 5,000-10,000 tons of grain. When it’s unloaded, the information should appear in the accounting systems of all the counterparties, whether they use Excel, 1C, or GrainTrack. To avoid having each trader upload and download registries manually, we decided to implement synchronization between clients, so they can exchange data in their GrainTrack systems. This way, invoices can be issued, logistics registries and contracts exchanged, etc. We plan to add this feature this year.

— Will there be an overwhelming influx of foreign competitors?

— No, foreign companies will enter the market, but not in large numbers. For them, the Ukrainian market is less of a priority. There is low purchasing power here, and few companies are willing to pay for electronic accounting systems. The problem is that in Ukraine, systems are not seen as essential tools for company operations. We can still manage without them.

— Among your clients, how many see GrainTrack as an essential tool, and how many view it as a “nice-to-have” feature?

— For most of our clients, it’s a must-have. For those we are just starting to work with, it’s more of a “nice-to-have” feature.

— Tell us about your team.

— We have a team of 15 people. The majority are developers working on GrainTrack. We also have a support team — account managers responsible for client relations.

— Have you invested your own money into GrainTrack, or do you have partners?

— Initially, I invested only my own money. When I decided to grow faster, I brought in minority partners. I plan to remain the majority shareholder and actively participate in the company’s operations. It’s crucial for me to make decisions personally.

— Do you believe in partnerships?

— It’s not that I don’t believe in them. It’s just that, at some point, partners tend to diverge in their views. You can’t agree on everything upfront. I’ve seen this happen many times.

— In a previous interview, you mentioned that someone wanted to buy the company…

— Yes, or to buy a stake. We’ve received offers several times, and not just from Ukrainian companies.

— Thank you for the interview. We hope more Ukrainian companies will recognize the need for electronic trading systems.