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IT and agriculture need to come together and jointly they can deliver amazing results for Ukraine – Gilles Mettetal
Astarta - Kyiv, Ukraine, Kyiv,
Dec 21, Mon, 2021
In the interview to the “Ekonomichna Pravda”, Gilles Mettetal, an experienced expert in agriculture and food, talks about the current and future of Ukrainian agrarian business. He also explains the importance of sustainable development, the introduction of new technologies, cooperation within ecosystems and dialogue between the public and private sectors.
Gilles Mettetal worked in the mission of the Investment Centre of the Food and Agriculture Organization of the United Nations. He has over 30 years of international experience in financing agriculture, agribusiness and real estate corporate sectors. He headed the agribusiness department of the European Bank for Reconstruction and Development over 10 years. In 2018, Gilles Mettetal became the Non-Executive Director of Astarta's Board of Directors.
- How would you describe agriculture in Ukraine?
- Ukrainian agriculture is the biggest success story, because in a short period of time Ukraine has become one of the largest grain exporters in the world from a country engaged in grain production for its own needs. In my public speeches, I always say that this is amazing also because Ukrainian agriculture is probably one of the less subsidized in the world. For example, direct subsidies to agricultural producers in the EU are circa 30-40%, in Russia - circa 30% and continue to grow. And in Ukraine - the amount of subsidies is very small, and often with a minus. It's like in New Zealand and Australia. Despite this, the Ukrainian agricultural sector manages to develop.
I am really worried about the European agricultural sector, because if the government cancels subsidies to European farmers, it will be very difficult to stay in the market and their presence in the world will decrease. Talking to French farmers, I constantly say that Ukrainian farmers are much more efficient than farmers in France, because in Ukraine they can produce products without any subsidies.
There is another important factor. Previously, it was impossible to buy land in Ukraine and, for example, to pledge it to banks to attract money for investment. At the same time, the European corporate system allowed farmers to set up agricultural credit unions, which later became one of the largest banks in the world, to transfer these lands to banks as collateral and to receive good money. Despite the lack of such mechanisms for Ukrainian companies, they invested in land improvement.
To make the success story of Ukraine's agricultural sector happen, Ukrainian companies, without relying on government support, worked as vertically integrated companies throughout the supply chain, raised their standards, became transparent, introduced modern technologies, attracted international capital, and entered public markets via IPOs.
- The largest agricultural companies in Ukraine have the public status. Could you say that for a Ukrainian agricultural company public status is an advantage or a disadvantage? Why?
- Both, although more on the positive side. Among the advantages - the ability to attract long-term financial resources, increase the company's equity, attract investments on more favorable terms, for example, at lower interest rates, increase the value of the company. This has a positive impact on the company's reputation and an effective protection mechanism, as all processes take place publicly and transparently. This is very important for companies in the Ukrainian reality. This, by the way, is an incentive for continuous improvement. And Ukrainian companies with public status are the most successful ones also because to join the public peer group, they had to introduce the best international quality standards in their processes.
Disadvantages include very high expectations from all stakeholders and numerous bureaucratic procedures and requirements that stock exchanges place on public companies. Sometimes this can affect a company's ability to make quick decisions, as it must go through a series of mandatory public procedures. So some companies have decided to change their status from public to private to have more freedom and do what they want.
- In Ukraine, there is increasing talk about the need to introduce corporate governance. Do Ukrainian agricultural companies need this?
- It depends on the situation. For example, in small companies, corporate governance is almost non-existent, and decisions are made directly by the entrepreneurs themselves.
On the other hand, in Ukraine there are such companies as ours (Astarta - editor), which already have a history of transparency, have introduced corporate governance, also because they have been listed on European stock exchanges and have public status.
Our company has managed to implement a full-fledged corporate governance system with a board of directors and committees. This ensures transparency of procedures and the ability to make rational decisions.
- What other benefits can such a management system provide?
- In fact, it offers many benefits. First, such a company works more efficiently because decisions are made collectively. The fact is that board members are experienced professionals in different business areas and can provide valuable and objective advice to executive management. Secondly, it is a question of protection of the rights and interests of shareholders. After all, very often, in the absence of a corporate governance system, misunderstandings arise between owners and management and, as a result, sometimes wrong decisions are made.
Another aspect is that many banks, especially international and investment institutions, such as the EBRD, where I worked, provide financing subject to the introduction of corporate governance principles. Because it is a guarantee of transparency of processes, high standards and making the right decisions. Thus, corporate governance is also a good way to attract funding.
- Now large companies involve small and medium-sized businesses, in fact, create business environments and ecosystems to strengthen the competitiveness of all stakeholders. Is it really beneficial for all participants of the process?
- Once I worked in Asia in one of the Asian banks. So there most companies work on the basis of contract farming. Larger companies give smaller ones access to new technologies, necessary resources, new markets, and sometimes even provide financing. Then these companies buy from farmers their products. Both farmers and companies grow very quickly and become successful. Therefore, this model is extremely successful in many countries.
By the way, Astarta also creates an agro-industrial ecosystem in the regions where its operations are located, so I am very positive about this approach. And here not only farmers but also local communities have benefits. In addition to providing access to new technologies, experience and resources/outputs, this company advocates among its partners and local communities the principles of sustainable business development, careful use of natural resources and now it is very important, relevant and, most importantly, far-sighted. I think that such a model of the agrarian ecosystem can become a good example for Ukraine in the future.
- You mentioned sustainable development. Now this topic is a trend in the world. Where is Ukraine and our agrarian business heading in this context?
Extensive agriculture predominates in Ukraine. This means that less fertilizer is used per hectare. So from an environmental point of view, it's better. Even if the yield in Ukraine is not so high, resources are used much more efficiently and economically. While in Europe, intensive farming methods are actively used because they have a lot of financial resources. So we in Europe have problems with pollution due to excessive use of fertilizers. Recall the recent history of marine pollution in Spain. Environmentalists then said the cause was pollution from intensive agriculture in the area. Similar problems in Britain.
As for the observance of ESG principles, for example, Astarta has always adhered to high standards in this area. Here are some explanations. First, this approach is embedded in the company's values and mission. The second is its cooperation with international banks. When I worked for the EBRD, even then we required the companies that work with us to adhere to high European standards, including in the field of environmental protection. But Astarta went further and began to invest in organic farming, in 2020 received the first harvest of organic products and even began to export it. And I fully support that.
- It so happened that Ukraine is primarily an exporter of raw materials. Do you think we need to change the focus on the export of deep processing products?
- I have already said that in a relatively short period of time Ukraine has managed to become one of the world leaders in terms of grain exports. And this is definitely a success.
But, of course, you do not need to stop there and start producing value-added products, because that way you will earn more money.
And I urge Ukraine and other countries, such as Africa, which exports coffee beans and processes them in Europe, to invest in plants and factories to add more value to their products.
There are already well-known producers of chicken and edible oil in Ukraine.
Astarta also processes soybeans and sugar beets. In summer of this year, it produced the first batch of invert sugar syrup used by beekeepers and confectioners. And in autumn the company began the implementation of a project for deep processing of soybeans. In two years’ time it will build a modern technological line in the Poltava region for the production of soy protein concentrate from non-granulated soybean meal. It is added to the feed for fish and poultry.
Another important point is that it will not be a GMO product and will be produced from European soybeans with guaranteed traceability. This is very important and responsible in the context of following the ESG principles.
Remember how in 2020 the world's food giants demanded from Brazil to stop trading in soybeans because they were grown on the site of deforestation in the Cerrado region, because it is a savannah that is crucial for biodiversity and one of the largest carbon sinks in the country.
- What else is needed for the development of agriculture in Ukraine?
- Definitely new technologies and innovations to be more efficient and produce high quality and safe products without harming the environment.
It is worth paying attention to maintaining soil quality, because soil degradation is a very big problem globally. Conservation of biodiversity, decarbonization of the main elements of the food system, etc. By the way, we talked about it when I was a banker.
What's interesting. Today you have two very strong industries with great export potential. One is agriculture, as I mentioned, and the other is technology. After all, many Ukrainian technology startups are becoming world leaders. And in my opinion, these two industries should get as close as possible and combine their capabilities.
As an example, a few years ago Astarta created in-house IT software AgriChain, which is a platform for a single digital agribusiness management system. This system automates all business processes, allows to manage the company more efficiently and makes the company even more transparent. By the way, now this platform is used by other agricultural companies.
- What innovations will play a key role in the near future in the agricultural sector of Ukraine?
- I name several of them. Widespread use of satellite monitoring and data analysis systems in agriculture. It is about the precise application of fertilizers, seeds in the field and control throughout the growing period, avoiding human error and miscalculation. On responsible consumption of natural resources and economic benefits. Investments in the seed industry - the production of seeds resistant to adverse weather and geographic conditions. The transition to the production of vegetable products in Ukraine and there are already such producers.
- What should the state do to promote the development of agriculture in Ukraine?
- I have already said that the Ukrainian agricultural sector is not developing thanks to, but rather contrary to the support of the state. What the government needs to do now is not to raise taxes. After all, agriculture already has a high level of tax burden compared to other branches of economy. Agribusiness brings currency, creates jobs. This sector of the economy is already bringing great benefits to the country. I'm not saying that this should be subsidized, but taxation should not be increased.
Another important issue is the maintenance of an ongoing dialogue between government and business. During my time at the EBRD, we initiated working groups between private companies and the government. Our goal was to organize a dialogue before the government made any important decisions. Such a dialogue would help to avoid mistakes, because business knows better than anyone else what is really happening in the private sector.
Recall the situation when in 2010 the government practically banned the export of grain from Ukraine manually, arguing that the volumes were allegedly not sufficient for domestic consumption needs. The business said that there was enough grain to feed the population and earn income from exports, but there was no dialogue and as a result, the grain simply rotted in storage. If the government had consulted with business, this would not have happened.
Dialogue with the private sector must be continuous. It is important to understand that business is not just about making money or getting rich. Many Ukrainian businessmen are focused on investing in the economy to benefit the country and what they have done is just incredibly successful.
Some international organizations, in my opinion, are more focused on the public sector than on the private sector, and it is a pity. I would like to see more focus on the private sector.
- Why should agribusiness be socially responsible?
- This is one of my favorite topics. The food is special. Why? Because thanks to food we live. Because it's about society. After all, all decisions in the world are somehow related to food and are made taking into account this factor. It's about communication. People often gather around the table. It's about emotions, family, travel, memories. Food also governs the landscape, as good food is usually grown and prepared in beautiful landscapes and farmers have to take care of the environment to maintain this natural beauty. Food connects the village and the city. Therefore, it is still mainly produced in rural areas. At the same time, food has the greatest impact on the future of the planet. All this makes it special. You cannot consider food as a commodity, for example, as a metal, because there are many emotional components. The world's revolutions began with food. In North Africa, all the problems and revolutions began because people were short of food. The evolution of the planet will be determined by the quality and evaluation of food in the future. Therefore, socially responsible agricultural companies, such as Astarta, play and will play a very important role in the future. Business, in fact, is not just about the economy or financial resources, it is first and foremost about values and their creation for society. Therefore, social responsibility should be an integral part of any business.
- What advice would you give to Ukrainian companies to be successful and competitive in the global market?
- The most successful will be those agricultural companies that already have long-term development prospects/strategies. Some people want to make money fast. And they can do that, but in that case they can lose them even faster. You can be too ambitious and start developing the company at a very fast pace by taking too many loans but not calculating your strengths.
Agrarian business is not about linear progression. It is, by its nature, highly dependent on food prices. One year is better for some crops, next year other crops will work better. Therefore, it is good when a company produces different crops to diversify risks and balance profits.
- What, in your opinion, will be the role of Ukrainian agribusiness on the world market in 5-10 years?
By increasing production efficiency, Ukraine will be able to become an even greater supplier of food. Therefore, in my opinion, companies such as Astarta and others will move in the direction of deep processing and sell such products both in the domestic market and potentially export it. After all, the trend towards the production of vegetable products will only gain momentum and Ukraine, as one of the world's largest exporters and producers of cereals and oilseeds, will be able to produce such products and play a very important role in the global food market.
Astarta is the first agricultural company in Ukraine to conduct a successful initial public offering on the Warsaw Stock Exchange in 2006. In 2008, the agricultural holding was one of the first Ukrainian companies to join the UN Global Compact network and began to put the principles of sustainable development into practice.
Author: Oleksandr Babenko