For VITAGRO, developing the country’s economy is of utmost importance.
The year 2022 was the most challenging in modern history for our country, primarily due to the war initiated by our eastern neighbor. Every Ukrainian and every business encountered difficulties of varying complexity. How well each of us succeeded in overcoming these challenges depended on our strength, ability to adapt quickly, and willingness to make extraordinary decisions. This approach enables VITAGRO not only to navigate through difficulties successfully but also to enhance production. Petro Labaziuk, CEO of VITAGRO, shared insights about the company's activities over the past year and its future development plans.
Mr. Labaziuk, how was the last year for VITAGRO Agro Holding? What challenges did you face?
When I am asked about the biggest challenges for the agricultural sector, both generally and specifically for our company, I recall an experience from my life. During a trip to America, we visited a pig farm with 1,000 pigs. I was amazed that only two people—the owner and one employee—managed such a large herd. I asked the owner, "How do you plan your work? How do you create a business plan?" He replied, "I don't; my father wrote my business plan 25 years ago, so I operate according to it."
As local farmers, we want to work in a stable environment. However, we find ourselves planning our work four times a month and constantly adjusting our plans. Instability is one of the biggest problems we face. For example, last year we intended to grow maize, but we were unable to sell it because the port of Odesa was closed, and the European market did not require our maize. Overall, logistics posed significant challenges last year. We were unprepared for such issues because we had been operating in a relatively comfortable environment, exporting grain through ports and, if necessary, by rail. Now, we have to build logistical routes from scratch, making this year particularly difficult.
Following the restrictions imposed by the coronavirus pandemic, we have encountered even greater challenges due to the war. This situation has created not only sales problems but also a direct threat to the safety of our employees, as rockets have landed near our fields. Many of our workers were called up to join the Ukrainian armed forces, raising concerns that others might leave the country. Our priority has been to keep the team together.
I have always said, and I will say it again: Ukrainians are a strong nation with resilient people. I pay tribute to all the farmers and our employees who did not give up their work during the most challenging period, when we needed to fertilize winter crops and prepare for the sowing season. Our team has faced all these trials with dignity and has proven to be the best. Additionally, the sharp increase in the cost of essential inputs—such as fertilizer, seeds, pesticides, and diesel—has posed another challenge for our business, especially as the price of our products has decreased by USD 40-80 per tonne.
Which sectors were most affected by the crisis? How did you manage to overcome the difficulties?
To a certain extent, the war and the subsequent economic crisis affected all our production sectors. In crop production, as I said, there was a sharp drop in prices. Dairy farming also suffered, as export-oriented dairies reduced the price of milk after the borders were closed. In the beginning, we were worried whether they would be able to accept all our milk - and we deliver 65 tonnes of milk a day. But now the dairy business is quite profitable. Pork consumption has also fallen dramatically, due to a reduction in people's purchasing power and migration abroad. We also lost a large market for apples in the Donetsk, Luhansk, and Kharkiv regions due to the temporary occupation of these areas. Overall, the war has changed our priorities. We began to think differently. Today, our main goal is to work for victory. We have helped and continue to help the military a lot - with equipment, food, etc., including financial support for our 380 employees who have been mobilized to the armed forces. This is our duty. I think the financial component is now on the shoulders not only of farmers but also of all domestic companies.
The crisis is also a search for effective management solutions and an impetus to modernize production. Are any of your decisions strategic for the company? Has the company's management model changed?
A crisis often compels us to take decisive and innovative actions. As production costs continue to rise, our motivation to enhance efficiency drives us to invest in modern equipment. Currently, logistical challenges have led Ukrainians to establish entire logistics centers and thoroughly analyze the market and logistics regulations in Europe.
Unfortunately, Ukrzaliznytsia has struggled to handle the large volume of products, with its capacity only sufficient for 100-150 wagons at certain checkpoints, despite the ability to accommodate up to 1,500 wagons simultaneously. Consequently, grain shipments have been notably slow, resulting in a substantial amount of product remaining in storage.
To address these challenges, we made a strategic decision before the war to construct a new grain elevator capable of storing approximately 50,000 tonnes of grain. We will soon put it into operation.
In 2023, we plan to reconstruct and build the second stages of two elevators, adding six silos with a capacity of up to 30,000 tonnes each. This expansion will allow us to meet our grain storage needs as well as those of our partners who provide storage services. Last year highlighted the significant challenges posed by a lack of storage capacity. In this regard, I would like to thank the government for allocating grain storage bins to farmers based on the of their farmland.
This year, your company exported sunflower seeds to Turkey for the first time. How will this experience influence your export strategy?
Indeed, this was a new challenge for us. We chartered a ship and loaded it with grain, something we had never done independently before—we had always collaborated with other exporters. The situation was further complicated by the fact that this occurred at the start of the war, just as the sowing season began. We faced financial constraints, as we were short on funds, but production couldn't halt, and we still needed to pay our employees. We recognized that we could make mistakes, but we learned from the experience. Ultimately, everything went smoothly; we shipped multiple vessels of grain through the port of Izmail to Constanta and successfully sold our products. Currently, we do not plan to continue selling through this route, as the logistics costs are high. It remains more profitable to export via Europe using rail and road transport.
Last season was particularly challenging for crop production, which is a crucial part of our operations, due to unfavorable weather and economic conditions. Are you satisfied with the harvest?
I believe I am voicing the general opinion of farmers when I say that the yields of winter crops—wheat, barley, and rapeseed—have not been very satisfactory, especially considering the current grain price policy. For instance, barley can be profitable if it yields more than 5 tons per hectare. While we cannot say that the yields are extremely low, they are certainly not as good as we would like them to be.
Last year, the challenges extended beyond just growing the crops; we also faced difficulties during the harvesting phase. I cannot recall such a rainy autumn in the last 20 years. The excessive rainfall hindered our ability to harvest sunflower and maize on time. As a result, we only began harvesting at the end of October, and by the end of the year, 50% of the maize was still in the fields. Therefore, it is crucial for us—farmers—that Ukraine's energy system remains functional, that the elevators operate, and that we can dry the grain to achieve the right quality.
The year was also tough for horticulture, where we are one of the largest companies in our region. The spring weather was cool, and we lost 30-35% of our apple crop to frost during the flowering period. Additionally, hail during the harvest further damaged our orchards, resulting in a total loss of up to 50% of our crop. Nevertheless, we are not giving up; we are planning new plantings of apple, pear, plum, cherry, and currant trees this year.
As for field crops, do you have any plans to change the structure of the areas you sow?
We reviewed our crop structure before last year's planting season. After analyzing the market situation, we decided to reduce our maize acreage by 6,000 hectares and increase the area dedicated to wheat. This adjustment was made to address the current needs of the domestic market, the population, and the military. Additionally, we have chosen to expand the area for sugar beet cultivation this year. This crop will be processed in Ukraine, ensuring that the tax revenue from processing and sales remains within the country, thus contributing to our budget and strengthening the national economy.
Overall, our company is committed to cultivating a variety of crops that can thrive in Ukraine. We consistently practice crop rotation, which allows us to grow wheat, barley, rapeseed, maize, soybeans, sunflowers, and sugar beets in our fields. We value our land and take care of it, using sufficient fertilizers to ensure high yields.
One of the most pressing challenges for farmers today is the significant rise in the prices of all inputs, particularly fertilizer. What measures are you considering to reduce the cost of crop production?
First and foremost, we are focused on protecting jobs, so we are not reducing staff or cutting salaries. However, in this situation, we must find ways to save money. We plan to diversify our fertilizer system by predominantly using our own organic fertilizers, as we have developed both cattle and pig farming. Additionally, we purchase organic fertilizer from fellow farmers, which is less expensive and even more effective than mineral fertilizer.
Furthermore, we have reduced the quantity of fertilizer used for various crops by 20-25%. The fertilizers we require are not produced in Ukraine, making it difficult and costly to import them from abroad. Thanks to the strong agricultural background we have built over the past few years, we are actively working to reduce crop production costs. We hope that this year, our careful management of the land will yield a good harvest. I am confident that the implementation of precision farming techniques, which we have been developing and refining year after year, will also help us decrease production costs.
Over the past three years, we have been working diligently to update our fleet of machines with GPS tracking, equipment for precise calculation and application of fertilizers and crop protection products, and precision seeding technology. We plan to complete this process between 2023 and 2024. Additionally, energy-saving grain drying technologies are helping us to reduce production costs. In September of last year, we purchased all the natural gas we needed from Naftogaz and stored it.
We also use cheaper liquefied natural gas in two of our elevators, making our operations more efficient. Furthermore, one of our dryers runs on pellets, and we plan to convert three more dryers from gas to pellets in 2023.
We believe the war will come to an end this year. How do you envision VITAGRO Agro Holding's agribusiness after the victory?
After the victory, our primary goal will be to bring back our employees who went to defend their homeland and support them in returning to a peaceful life. First and foremost, we need to provide them with jobs and decent working conditions. The country's economy is currently facing significant challenges, and it is the responsibility of every company to contribute to its recovery. We must develop every industry, so if you have the opportunity to create a job or start a private business, please do so, as it is crucial for us. Therefore, we will work on the development of all our sectors.
One of VITAGRO's long-term goals is to establish a closed production cycle. We aim to integrate the development of each sector of our company with our processing capabilities and plan to sell certain products under our brand, such as oil and apples. This year, we will be increasing our oil production capacity. We have recently installed a new, highly efficient automatic line for sorting apples by and color, and our team is now packaging the fruit into crates. We have signed agreements with major retail chains to sell our apples under our brand.
I believe it is crucial to develop processing within horticulture—not just exporting apples to be made into jam abroad, but establishing jam production locally. This initiative will create new jobs and boost revenue for the state budget.
We also plan to integrate the pig sector into a closed production cycle by building a slaughterhouse and meat processing facilities. Additionally, we are committed to increasing our pig population, as we do each year. To support this, we are expanding our facilities, and last year we launched a new pig farm in Bohdanivtsi, which accommodates 1,300 pigs.
Furthermore, we are considering venturing into milk processing to produce cheese and other dairy products. We intend to enhance our herd's genetics by acquiring 200-250 heifers from our European partners. Currently, we manage up to 5,000 cows across seven dairies—three of which are state-of-the-art, while four have been modernized from their original Soviet-era designs.
By 2023, we plan to build two new farms for the additional cows, install modern milking parlors in our existing facilities to improve milk quality and milking efficiency, and upgrade our feed tables and manure management systems. Ultimately, our goal is to further develop our dairy operations and increase milk production to 75 tonnes per day.
Mr. Petro, you lead a large company, which is a complex organism that relies on the coordinated work of every employee, including managers at all levels and their interactions. How involved are you in the details of the production process? Or do you delegate a significant portion of your authority to your colleagues, allowing them the opportunity to be creative and develop professionally?
I am a hereditary farmer, and I love my job. I strive to be involved in all aspects of the company, but there simply isn’t enough time to focus on every small detail. I believe that effective work requires a professional team with scientific expertise, and we are fortunate to have many such individuals. Each area is led by an expert in their field, and I am confident that each one will bring their projects to successful conclusions.
Delegating authority is extremely important; people should be given the opportunity to grow and develop. Only then will they be truly effective. One of the biggest lessons we’ve learned this year is that the country’s greatest resource is the people who work the land. We have learned to value people and each other even more. We’ve also learned to appreciate our long-standing partnerships with contractors.
Our staff have grown professionally, figuring out how to accomplish more with fewer resources. Despite the challenges posed by the war and the scarcity of certain materials, it is crucial that we care for our plants and animals properly. In return, our company continues to support the social sector by providing heating, window installations, internet services, and food. This assistance is particularly important now that the budgets of ATCs have been cut. We feel that if we do not help the village, there will be no village, no farmers. Above all, we love and respect our country and our army even more!