Flexibility of mid-sized companies during the recession is where Alisher puts his bet. This and more insights on grain market in Ukraine with Alisher Tyazhin, leader of Kusto Agro — in the latest episode of GrainLive.
Listen on Youtube or enjoy the text version here.
What happened on February 24, 2022?
D: How did that morning start for you, what do you remember?
A: I arrived from Kazakhstan on February 16-18, but I already had a feeling that something evil was about to begin. When I flew out of Kyiv, everything was in such a tense, depressed state. I decided to come back a bit early, I had to be in office just in case. To support people with whom I have been through both good and bad. On the night of February 23-24 I didn’t sleep well, at 5 in the morning the calls started. At first, I didn’t believe it, I thought it was a bad dream. Then I opened the news feed — Ukraine was being attacked, Kyiv, Zhytomyr, Lviv, Ternopil, Khmelnytskyi… I had to make a choice where to be, and I stayed here. It was a shock, I still can’t find the words to describe it. You simply do not understand how such barbarism can happen in the 21st century, in a globalized world.
A: The same day, I’m at the city center, there is a complete collapse, everyone is rushing somewhere, gas stations are overloaded. 10 days before the war, we created an operational team, 5-6 people, to have a quick action in case of the attack. I came to the office to meet them, and in 30-40 minutes we heard an explosion and realized that they had already reached Vinnytsia.
D: You see, some people were hiding in the back seat of the car to leave, but you stayed.
A: We will not bring judgment here. I have a friend whose yard was hit on the very first day. He left the county in a state of shock, and then repeatedly tried to convince me that it would not end soon and that I should leave. I realized when you are outside the state, the image of this shock stays with you, and when you are inside, you have a different vision, you observe, you analyze. You understand that you can live, you can do something and plan ahead. Vinnytsia was not under the worst attack, I feel like I made the right choice, it helped me to adapt.
D: There is such a thing as neuroplasticity, the brain can adapt to new reality. This explains why people stopped reacting to air alarms. People who went abroad later share how strange it is that people live without war, without worries, calmly drinking coffee at the street cafés.
A: God forbid anyone experiences it. I had a choice to leave or to stay, and I stayed. During these five months, I understood why I love Ukraine and Ukrainians so much. People accepting the fact that the enemy is much bigger still fight. You have to be inside it to really experience it. Well done Ukrainians.
D: But you are also Ukrainian. Do you remember how I introduced you as the most Ukrainian Kazakh?
A: But I also felt pride for the country, although I am not a citizen, but I have been living and working here for seven years. And what patriotism is, I understood not in Kazakhstan, but here in Ukraine — they want to break you, but you fight with pride.
Has Kusto-Agro’s team been prepared for war?
D: You mentioned your company had an anti-crisis plan. After all, you’ve had the premonition of war. On the contrary, I was that person who on Feb 22nd claimed that nothing would happen and that it was all just politics. Tell us what that plan looked like, how you gathered everyone together and continued to work.
A: It was a new experience for everyone. If we recall a year ago, in the spring of 2021, there were incidents in the Sea of Azov. Then we thought, what if the war is really coming, and we are left with half of the economy, without the Odessa’s ports, where we used to work. Our guys started working in Gdańsk, Poland, but stopped as that it is extremely expensive. Time by time, everything more or less calmed down. In February 2022, around February 10th, we created an operational team and two scenarios: severe and moderate. The severe one is when there are carpet bombings, the army comes in, and we think about how to evacuate our employees. The moderate scenario assumed that the southeastern part of Ukraine would be confined, and we had to provide employees with communication, pay salaries, maintain liquidity, etc.
But we placed our bets at a moderate scenario. But we were a bit more prepared as we adopted anti-crisis measures even before Covid-19. We removed unnecessary expenses, businesses, laid off about 300 people, realigned our vectors. Therefore, when Covid-19 came, we were ready for it. On top of that, we intended to purchase some company with a large land bank, about 30,000 hectares. And as of right now I think it’s a good thing that we didn’t make that investment — it would have been extremely difficult to sustain that business, taking into account the prices, logistics and so on.
Worries about corn, demand for buckwheat
D: And what now, what’s next, what’s your forecast?
A: As the first weeks went off, we wanted out off the crops season, but then we decided to leave it anyway.
D: When did you notice the demand for buckwheat?
A: Then we decided not to sow corn because of complications with ports and the price of gas. I have worries about those medium and large farmers who sowed corn, they may meet some obstacles along the way this year. Alright, seeds, soybeans, buckwheat was sown. Buckwheat came in handy completely by chance: I called a friend, he advised me to test something that would be in demand, such as buckwheat, on 300-500 hectares. I thought that not only would there be a demand for it, but that we would be able to secure Ukraine’s food issues. In the end, we covered 2,300 hectares with buckwheat.
D: Well, tell me when we’ll get it? I recently had the pleasure of buying 200 grams of buckwheat for 100 UAH ($2.5).
A: I think that we will harvest at the end of August or the beginning of September. There is a commercial side and a social side to this. I think the most important thing is to harvest first. As a company, at the beginning of the war, we helped with humanitarian aid, we sent $100,000 to the Armed Forces. This is a small amount, but we take our part. Everyone unites, everyone helps, and together we win.
Sunflower for the Armed Forces
D: And what that curious part about the sunflower we discussed previously?
A: So, we had a program with our partners LNZ and Corteva. We took the seed material and planted them in our fields. All the profit we’re going to receive will be sent to the Armed Forces. It is necessary to help in such times. To reload values.
D: How do you feel about the rest in times of war? The topic is so complicated, some might limit themselves in leisure.
A: I’d say, we should try to live the way it was before the enemy. It is uplifting and restorative. Obviously, I’m talking about civilians. As for my part, I have an option to set a vacation somewhere to the sea, but I don’t intend to. I won’t be this year. But to grab a coffee, to sip a glass of good wine with friends, colleagues, it is necessary. It helps. Additionally, we hold a series of charity football matches, all profits are going to the Armed Forces. We play at the stadium, which is located not far from the military unit, the guys also visit our events. The times are not easy, but people should not deprive themselves of simple joy.
D: I also opt for this conclusion when I thought: “But for how long will this last?”
How was team of 400 people living through the first days of the war?
24:50 D: How did you discuss this with employees, by the way, what is the size of your company?
A: Today, there are a bit more than 400 people.
D: Well, 400 people, different people, families, different views. Had you arranged general meetings, sent out emails — how did you communicate what you stand for?
A: There was somewhat silence for 2-3 weeks, we were trying to come to grips with what was happening. Everyone was located in different places. Then I got to the thought that I should go to the fields, talk to people there, gain an understanding who is thinking what. We visited our field companies, production sites, elevators… We were in constant contact with the office. A month passed by, and we slowly started going to work. I made a post on Facebook where I told how it all started and what the mood around was like. Everything was done driven by intuition, by emotion.
D: And they don’t write about that in the books.
A: It’s like an MBA, you can pass the theory, and according to the documents, you’re such a cool manager. And in practice, some issues arise, and you’re helpless.
D: And I said on the last podcast that there’s a theory going around: if an MBA costs, let’s say, $100,000, you invest these into business, experience a fail, and here you have real experience.
A: Yes, as they say that theory without practice is deaf, and practice without theory is blind. And they also say that fools learn from their mistakes, and smart people learn from others’ mistakes. But this does not happen in life, people live through their experience and become great managers.
D: Stop, we’ll take away the jobs of several business coaches.
D: Back to employees topic, I heard that some companies have an extra fund in case of emergency — something breaks, something happens, someone is located in dangerous areas. How do you deal with that?
A: Fortunately, we do not have such employees. Our staff is in Vinnytsia, Zhytomyr, and Khmelnytskyi region, so we might consider ourselves a bit more fortunate than other businesses, not only agricultural ones. Therefore, there was no such decision.
D: I know that there is such a thing as employee exemption, so that a person is not taken into the army. Tell me more about that.
A: This is definitely useful, we managed to book our employees who work in farming and elevators. We submit the documents and share the info about the occupation of a person. By the way, we have about 30 people who were drafted and are in the combat zone. We also booked them, but the exemption did not work for them, because a reserve was needed.
D: So even a reservation is not a guarantee?
A: Indeed, not a guarantee. This is war and anyone can be drafted.
D: We are in a reality where the notices of army call can be handed out everywhere, from roadblocks to beaches. Do you think this is a sign that a reserve is much needed, that the situation is getting worse? And in general, what is your forecast regarding military actions?
A: I think it will be difficult. I am not in the defense, I do not have additional information, but I think that it will continue for a very long time, a year and a half, two, three years, including the increase of missile strikes. We need to be realistic, the enemy is not insignificant, unfortunately. They have more resources than Ukraine. We need to get those offers from our Western partners as soon as possible. The West is also such a partner that it is difficult to rely on. My opinion has always been that Ukraine should be independent, nor in alliance with the West, neither with the East. If Ukraine could become like Israel, imagine what a strong state it can be. It is also a risk for Europe if we win this war. Thus, a strong army appears next to them that knows how to fight.
What is happening on the grain market and what’s next?
D: How do you see the restructuring of the grain market now? Basically, it’s the railway, of course. In general, what are the guidelines for the market nowadays, what are the main issues, where is everything headed?
A: I think that, first of all, in spite of all the complications with logistics, we are moving. Yeah, it could have been better. Our partners understand that we do everything we can. We can move through Poland, we can use cars, we can move through Moldova, we can build a route to Slovakia, we can go to Hungary. The logistics are complicated, but the most important thing is that we have our way. Corn now costs $280-$300 in Constanța, Romania. And you pay the full price for logistics. In addition, expensive fertilizers, expensive fuel. Therefore, we’re going to chase the balanced costs, but not the actual yield. Logistics in this regard is very pressing. We can go to Turkey by car, and we consider this option for the fall season. It is clear that all farmers are outraged, how can such prices be. The Ukrainian Grain Association contacted Ukrzaliznytsia, and their statement is they have losses of 100 billion UAH, which need to be covered somehow. In general, it’s a difficult question, but considering the falling of GDP by 40-50%, a lot will depend on us. We’ll look for the newest ways. We had 40,000 tons of corn, and as of July 1st we exported 10,000 tons. It’s a small but steady victory for us. Compared to last season 5-6 million tons exported through the ports in Odesa, now we can do 800-900 thousand tons at most. Of course, we’d like more support from state structures.
D: About crops season, all of us saw photos in the media with people working in the fields, and somewhere nearby there is smoke occurred from the shelling. Such a strong characteristic of the nation, as not everyone would be able to work in such conditions, just be there because it is necessary.
A: Yes, it makes me proud and sad at the same time.
D: Do you think a new type of company will rise, or the others will undergo some transformation? How might the rules of the market game change?
A: I think this year has shown that mid-sized companies like us, they hold the most of transformational power. When you own 25-30K ha, you can quickly decide what to change, what to sow, what not to sow. Of course, the owned and not rented equipment, quality management are also in the equation. Big companies like Kernel will have a hard time. They have 1.5mln tons of grain. Therefore, it will be easier for medium-sized companies that also have their own autopark. And of course, cost analysis, looking for a balance between profits and costs.
A: Fertilizers are becoming more expensive, carbamide has already reached 30-35К UAH. Energy prices will support corn and oil, they are not expected to fall down to the lowest point. But the major factor remains logistics and domestic supplies in Ukraine. Europe also receives import from other countries. If you have a look at the Dow Jones, it has been in decline for the past 6-12 months, which may indicate a recession in the fall. Additionally, the FRS raised the rate by 0.75 at once, which shows they understand the inflation needs to be tackled. These two factors suggest that something might happen. In that case, there will be no point in talking about the price, because everything will crumble. It is clear that grain and corn may fall a little later. But you have to be ready for it. In general, I do not see a strong positive outcome for the prices. If the corn falls no more than $180 — that’s good. Seeds, soybeans on the domestic market may reach $400-450, for the export market $600-650, that’s again the positive outcome. And about buckwheat, if we get a price of 40-45K UAH on the domestic market, that’s superb. Compared to previous season with 18-20K UAH, you can make good money on it. Perhaps next year we will also choose this culture.
D: A question from the audience from those who are not very deep in the market: why is everyone saying that there will be some kind of food crisis in the world? Explain this issue and risks coming along.
A: I think that the risk is overestimated, it is a tool of political manipulation. Before the war, Ukraine had 38 million tons of corn. There is a bit more than a billion globally in the world. If you look at it this way, it’s not such a big percentage. Certain regions, such as North Africa, the Middle East, and Southeast Asia may be affected. But on the other hand, Brazil, the USA, China, and India also have corn. We are not waiting for a global food crisis. The only thing is that these regions may have food issues, due to that local conflicts may arise.
D: We have competitors who will gladly satisfy this demand.