Cluster system of Agricom Group gives an opportunity to conduct business effectively even during the crisis
Management system of clusters of Agricom Group proved to be an example for conduct of agricultural business during the difficult time of crisis. For the time being, the company operates two clusters in Chernihiv and Bilokurakyno districts, but its plans are ambitious: to increase the number of clusters to 4 or 5. Petro Melnyk, the CEO of Agricom Group, described to “Agromarket” the way to create an effective land bank, choose high marginal crops and organize the management system online.
– Cluster is an association of enterprises and agricultural lands located nearby (within 50-70 km) – explains Petro Melnyk. –We did not choose our first cluster; it was created even before it was decided to consolidate Agricom Group. This pilot project should have shown whether it was reasonable to develop agribusiness, or to sell it immediately. Somewhere about a year we practiced at this test location, deciding what to change and how to introduce new technologies. First of all, we tended to change the approach, the philosophy of perception. The technology itself is a driver, which ensures success.
So the first cluster can be considered as our historical property and well-directed investment. After that we decided to go to Chernihiv region. We have niche products, which we plan to grow on those fields; we also plan to organize processing enterprises and we have already laid a foundation for this.
– What crops do You grow?
– Each our cluster is constructed in a way that we choose 4 or 5 crops to work with. Of course, there are also 30-40% of winter grains and a part of spring crops – 1 or 2 plants should be hyper cost efficient and niche. The individual crops are chosen for each cluster. We choose them focusing on soil characteristics, climate patterns and availability of sales markets. In Chernihiv we still study what will be the most efficient.
In Bilokurakyno we had 11 crops, from which we could choose. This year there are just 5 of them: 2-3 traditional crops (winter wheat and sunflower; corn was not chosen) and several niche crops. For today it is the structure of efficiency. We grew sorghum, chickpea and flax. We succeeded in growing flax, although this plant is hard to be grown and even harder to be kept (one should know how to thresh and process it). We have already known what to do with flax, and it covers about 15% of the cluster cropping structure. Another complex plant is a chickpea. It can be grown, but it is very difficult to be sold (it is not in a great demand). So we sowed chickpeas, harvested 600 tons, but we won’t grow it any more.
– Does anything depend on the sales market?
– The entire chain is analyzed before any decision is made. Our finding in company management is the collective decision-making. I am the chief executive officer with the large authority. However, each member of the board of directors takes a great personal responsibility. We collectively decide what sort of new crops to choose, what new areas of business and development to set up.
– What kind of crops will be interesting for You to grow? Will You focus on niche crops?
– What does classic marketing show us? One should find its niche and work in it. The mainstream is the mainstream. It is more appropriate for large companies. Our idea is the creation of 4-5 clusters. We are developing ourselves. Today we invest in the development. Our companies focus on growing niche crops, which we process and send to the final customers under our own trademark “Dobrodiya.” We tend to close the chain of formation of product value. We try to provide our consumers with service selling our own TM and taking responsibility for quality of products. We will also grow crops oriented to B2B. For example, final customer is not interested in flax. However, this crop is marginal in agriculture, and in addition, it is impossible to work with only one or two crops. The third factor is very important: availability of technology and its rational use.
– What crops will You develop under Your own Trademark?
– At the moment we intend to develop the existing product groups: flour, flakes, cereal mixes and a line of healthy food (healthy food is the important part of our vision of trademark); in the very near future: cereals, breakfast, extrusion products. We have already had investment projects in these areas. We do not talk about oils; perhaps, this project will be interesting for us in several years.
– Do you have productive capacity?
– No, we don’t, we use classical European approaches. We have trademark, and we choose where to manufacture our products, using the fact that many factories are open for private label in Ukraine. However, we know there is a certain margin; we would like to close the entire chain by ourselves. For this purpose we started the process of construction of plant in Chernihiv cluster.
– Investors are careful with the projects now. Do You attract Your own money or obtain credits?
– Do You remember the point of the character “crisis”: opportunity and difficulties? We just yesterday received the confirmation of credit line. We cooperate with the Ukrainian banks as well as with financial institutions with foreign investments. We do that only on condition that we use our own capital either. The company is on mixed financing.
– Where are You going to open new clusters?
– We still think about it. However, we exactly understand that each cluster should process at least 30-40% of its production. In Chernihiv and Bilokurakyno we chose this way. If we talk about new clusters, it is necessary to understand what to do with processing; in this case we go just by initiating long investment projects. It means that we will work with crops, which are the most cost efficient. Or it will be the crops, which are not profitable over growing, but will be marginal as the final product.
At the moment TM “Dobrodiya” is popular at the market, although agricultural producers are not able to earn a lot of money selling oat. It’s a difficult crop, one must know how to work with it, and field is not always good, flax increases soil pH. We clearly understand our own interest and put in it a lot of time and large investment. The most important thing for us is to work consistently and provide, for the time being, small but “plus”, no matter what our competitors do.
– Will You focus on the domestic market or have plans to export Your production?
– Our purpose is to build a plant, which has no analogues in Ukraine. Some parts of its capacities will be considered for export, our production will be certified directly against European and other markets. We will produce a variety of products. Particularly, we will produce specific types of flour and cereals. This project will be quite difficult, but interesting.
– You said that cluster is a territory of about 50-70 km. Where are these calculations from?
– We took into account the effectiveness of management, the possibility to transfer vehicles in 3-4 hours, the ability to control the process and react immediately. These territories are identical in soil structure and rainfall. The areas with other characteristics, at least from a point of view of management, shall be measured out. Cluster management helps to optimize field works and distribute labour and equipment.
In the agricultural sector it is impossible to take everything into account. Sometimes, it rains just on one field, that is why, in any case, it is easier to operate within 70 km, than within 100 km. Competence of management appears due to absence of idle equipment and optimization of agronomists’ work. Our own experience proved that it was difficult to manage the cluster successfully with agricultural land over 20 thousand ha.
There are just subjective calculations (I was persuaded few years ago), that one agronomist can effectively manage 3 thousand ha. In our case there are 4 thousand ha per each agronomist. There are two strategies to deal during the crisis: to extend and differentiate or to improve internal business processes. We chose the second option, and also extended ourselves a little bit. The best and win-win strategy is to use both options at the same time. We automated many processes to increase efficiency. There are 7 information systems in Agricom Group: internal communication and document flow, monitoring of equipment, land bank management, and management of agricultural vehicles, competitive biddings, business management system and corporate analytical system. Whole year we worked on introduction of these systems.
– How do these systems coexist?
– Some of the systems are assigned to specific functions and departments, and some are mutually integrated. Working with them gives an opportunity to analyze online. It is possible to understand the dynamics of sales and harvesting in each field, vehicle operation, soil cultivation, grain reserves, etc. Only thing you need is an access to the Internet. We spent lot of time to receive information from our employees online. It is possible to monitor the operation of elevators and the delivery of grain. We see how much time each vehicle is on route, amount of fuel it requires, amount of grain it transports, time it takes to wait in line to the elevator. On the ground of these data we are able to estimate the efficiency of work of each subdivision.
– Who developed the software?
– External programmers developed it; however, our professionals are responsible for application mythology, adaptation, implementation and performance of this software. I used to be a financial director, and such senior management often automates processes. My colleagues had a similar experience. This idea appeared during the discussion. The most difficult was to implement the 7 basic systems.
It is interesting that agricultural production in Argentina or Brazil still has to develop towards the implementation of innovative technology, improving processes efficiency of conduct of agribusiness, that is why it is not entirely right to focus only on an international experience. It is always better to get own experience. We use Ukrainian and foreign programs, but all of them were modified in accordance with our needs. By the way, we have very strict control of personnel and equipment. At first, we decide what to do, and then provide our employees with gadgets. Our agronomists have received a lot of new skills for the past 6 months.
– Do You train Your employees or do You prefer to employ trained staff?
– We left everyone on the rigid condition that they learn how to deal with equipment and how to work with the system. We have agronomist, who is in his middle fifties, however, he has excellent results in management of new technology. People have already got used to this process. At the moment we are looking for new employees, and we really need skilled agronomists. There are plans for clusters; good staff is in a great demand. We come to the conclusion that it is better to raise our own professionals.
– How did the management efficiency increase with the use of automated systems?
– I do not want to predict anything, because the season has just begun. However, I can say that fuel consumption reduced by 30%. We raised salaries by 20%. Limit of financing due to leasing package has been also increased. Return of investment of our company is high enough. I know where the money invested in our business by our business sponsors is at a specific time. The first cluster was a pilot one, we tested our developments on the second cluster. Now we are about to increase, the point is that investors are ready to entrust their money.
The extension of land bank has been observed ever since the segment of agricultural holdings along with the differentiation of production activity began to develop in Ukraine. However, according to the crisis of recent years, not all management decisions are effective.
Following the Agricultural Business Internet resource Agrotimes: http://www.agrotimes.net/opinions/opinion/cistema-klasteriv-kompaniyi-agricom-group-dozvolyae-efektivno-vesti-biznes