Rafael Goroyan, the owner and Chairman of the Supervisory Board of Prometheus Group, talks about the risks and prospects of the Ukrainian agricultural sector, exporters’ adaptation to war conditions and the support that the industry needs from the state.
Prometheus Group has more than 20 years of experience on the grain market of Ukraine and is rapidly developing. The year 2022 was a huge challenge for the export-oriented agribusiness, but the company is overcoming the challenges.
How has the full-scale Russian invasion affected agricultural exports and your company in particular?
The war practically wiped out exports. But we adapted and, while the ports were closed, we used road and rail. Thanks to these channels we exported almost 50,000 tons a month. After the opening of the grain corridor we resumed export through the Bosphorus, increased our monthly exports to 80,000-100,000 tons and plan to reach 150,000 tons.
Before the war we had an annual turnover of 1.5 million tons and this year we aimed to export 2 million tons. It is clear that we will not reach those figures, but we believe it is possible to export 1 million tons.
Did your business incur losses because of the war?
We had eight grain elevators under occupation. As of January four of them remained in the occupied part of Zaporizhzhya region. And the four that were liberated from the enemy, were significantly damaged by shelling, robbery and require significant repairs. One of them will have to be rebuilt from scratch.
Do agro-exporters feel any support from the state in such a difficult situation?
The agrarian sector remains one of the few industries that work and we feel great but multidirectional attention from the government. On the one hand, modern patriotically-minded government representatives are working to provide subsidies, cheap loans, etc.
On the other hand, there is the interest of corrupt officials because of whom VAT refunds are very difficult in Ukraine. In particular, the Prometheus Company has accumulated hundreds of millions of unrecovered VAT. We are struggling and publicly report this fact. Because if this practice continues, the export potential of the agricultural sector will be destroyed.
In other words, the forecasts for the harvest and agricultural export in the current conditions are disappointing?
This year our country harvested about 60mln tonnes of crops against 120mln tonnes last season. Next year we will probably gather 40 million tons and export will fall to 20 million tons. This is a consequence of the fact that now it is not profitable for the agro-producers to sow because of the traders’ work stoppage. The latter suffer from corruptive discount on the price and long downtime (up to a month or more) of ships in the Bosphorus, because every day of downtime costs $15,000.
Then the infrastructure business, which has been built up for 30 years (elevators, ports, logistics facilities), will suffer huge losses and these assets will fall in value.
Let me remind you that the export-oriented agro-sector in Ukraine was not built in a day. In 1990s, after the collapse of the USSR, the potential of the Ukrainian agriculture amounted to 15-20 million tons of grains, and export was almost non-existent. By investing into new technologies, seeds, agricultural machinery, construction of elevators, logistics capacities, we reached 120 million tons, and the country was ready for 140-160 million tons. It is important not to miss these 30 years of progress.
What can the government do to prevent the development of a negative scenario?
The participation of the state is super important. One of the directions of support should be the establishment of fast VAT refunds. In addition, farmers need to be provided with subsidies and affordable loans. Financial assistance should be available to small, medium and large agricultural producers.
It is also necessary to remove bureaucratic obstacles as much as possible. We must realize that not only our military potential is important for the future of Ukraine, but also its agricultural sector which has become a global brand in 30 years. If we leave the market, other countries will take our share. Winning the world market again will be harder and more expensive than holding on to our position now.
What can be the positive scenario of development with the support of the agricultural sector by the state?
To do this, the transnational companies which used to export grains from our country but had to leave because of corruption during VAT refunds should be returned to the market. Support for small and medium-sized farmers is necessary. If our partners see the fields planted and the government involved, we will not lose the international market.
But the impression is that the government doesn’t care about business. The country closes up to 10,000 companies a month, and the outflow of 10 million people is acutely felt. Because of personnel problems, in order to find and keep specialists, we already offer European salaries. Therefore, we should remind ourselves that business is a necessary rear. Without a capable economy and provision, the country will not be able to fight effectively.
How should this agricultural season be for your company?
This year will be a period of opportunity for us. If the state does not support small farmers, Prometheus will have to expand its land bank. In other words, we will increase our production in order to preserve our export potential.
The war is an unfavorable period for investments. However, despite this, how can we assess the prospect of capital investment in the Ukrainian agricultural sector?
In the midst of the coronavirus pandemic, huge amounts of money were injected into the global economy. As a consequence, the multiplier for some US companies has reached 100, while Ukrainian companies do not have more than 3. That means that our country, with a low multiplier, has a chance to reach high profits after victory.
For those who believe in Ukraine’s victory investments into Ukrainian business should already be very attractive. Because $30-50 billion a year or even more will be coming into Ukraine for post-war recovery, thanks to which Ukraine can become a leader in terms of profitability after victory.
