You can supply the world with all your riches at a denent price - Morgan Williams

Interview By Natalia BILOUSOVA, The Day, Kyiv, Ukraine, Morgan Williams, Director, Government Relations, Washington office, SigmaBleyzer and President of the U.S.-Ukraine Business Council (USUBC):

The US government has almost finished the certification of Ukrainian grain. What volume of grain will Ukraine be able to export to the US market after this procedure is finished? When, according to your estimations, might it happen?

“It seems that the certification will be finished this year. The volume of possible exports to the US is still very unclear. But I do not think grain exports to the US will be significant, since Ukraine’s main markets are Russia, the EU, and the Mediterranean and Black Sea regions. Besides, disturbances in Egypt and other countries will most likely cause a deficit of grain there.   Export sales to the US would be on a commercial basis do not think any real volume of commercial sales to the USA will develop anytime soon. 

What about export prospects for the years to come?

“America is a powerful provider of grain and its market is extensive, highly developed, and it was formed a long time ago. It will always remain a difficult grain and other goods market for Ukraine. Not because the US does not want to import goods from Ukraine, but because it is expensive (there is the extra shipping and then a company must have an office, staff, and spend time and money on advertisement). Some Ukrainian enterprises could expand, upgrade, and could find a niche in the United States, but there are very few of them.”

What spheres of mutually beneficial partnership do you see between our countries?

“There are several potentially profitable spheres of cooperation. The first is the energy sector: Ukraine is planning on signing production sharing agreements with two large American energy companies, Chevron and ExxonMobil, and this will be a big step forward. The second sphere is information technology. There are many companies in Ukraine, which dedicate 70 to 80 percent of their work for outsourcing to American companies.  Six to eight thousand Ukrainians work for these companies. In the future, these companies could export more of their product to the US. The third important sphere is the development of infrastructure for travel and tourism. The fourth one listed here is probably the most important for Ukraine, it is agribusiness.  And finally, the development of an extensive range of store selling consumer goods.”

You have been working on the American agricultural sector development program for a long time. Besides, you have vast expertise in agricultural sector development in other leading agrarian countries. What kind of subsidiy system is the most effective for the agricultural sector in the new economies?

“I do not like the very idea of providing substantial financial aid or subsidies to agriculture/agribusiness in any country, because in the end production decreases and consumer prices grow. The best thing that Ukraine can do for agriculture is to provide an open, level-playing-field market. Secondly, the level of unnecessary bureaucracy and corruption must be lowered. And thirdly, Ukraine must create conditions for long-term land leases and competitive market for land, based on principles of private free enterprise.

In this way, farmers will have the opportunity to make real earnings in a real market rather then be subsidized through financial aid and other Government programs. Ukraine must become a competitive participant of the international market. It does not need government financing, but a fair and free approach to private sources of funds and markets.  For every 100 dollars that Ukrainian government invests in financial aid, 20 to 40% or more is eaten up by corruption, bureauacracy and mismanaged government programs.

This does not facilitate production and long run growth and investment.  Also no real land privatization which hurts private investment in needed infrostructures.  There are hundreds of limitations imposed by the Ukrainian government that raise the cost of farming and cause the agricultural sector to lose earnings. What is the way out of this situation? Agriculture will take a major plunge forward if the government creates a free competitive market environment, gets out of the way and substanially reduces its intervention into agribusiness.”

When do you think these positive changes will take place?

“The progress in the agricultural sector occurred thanks to private activities, the government has nothing to do with it. When everything collapsed in 2000, the idea of leasing land emerged in the private sector, and big and small leaseholders started working together. That is why the credit goes to private entrepreneurs, but not the state. It gave a considerable push to the agricultural sector. New agricultural entities emerged, and it became possible to obtain credits in Warsaw, London, the EBRD, and IFC. It was the private sector that led to these changes. The government has done only one truly good, praiseworthy thing: it cancelled embargo on grain, so people could sell and earn money.”

Would creating a state land bank promote market development?

“No, this is generally a bad idea when it involves state owned land.   However, if the right to long-term land leases was realized through a tender process tied to an agreement on production sharing (PSA), then such a program could work and it would be reasonable to expet large-scale investments into grain elevators and infrastructure. Only then politicians will not be able to corrupt the program.

If the government will set up the proper laws for long-term leasing of private land and the long-term leasing of public lands then business can take care of purchasing agricultural machinery, seed grain, entering the international market, because the demand for grain and grain projects is rising every year.  The main condition needed for the successful work of agricultural companies is the government’s non-interference. And affordable credits will appear when land becomes a real commodity. Until that happens, not a single bank will issue a mortgage loan, because if a default hits, they will not be able to claim that land.”

What is your evaluation of the private sector’s success in promoting Ukraine’s agrarian brand in the world?

“It is very positive. You have a hundred of companies, each leasing and cultivating more than 20 thousand hectares of land. These companies make purchases worth hundreds of millions dollars in Europe, Canada, the USA an elsewhere.  This was impossible before the land leasing program was implemented.  Modern precision farming is being actively implemented on Ukraine’s land. Your agrarian production has increased, and all kinds of crops are grown, from basic grains to high-value corn, soybeans, sunflowers and rape seed. 

Thanks to the agrarian sector, an ‘economic miracle’ has started happening in Ukraine already. And all this is thanks to private businesses, not government. Of course, developing and consolidating this success still requires a lot of time.  For example, SigmaBleyzer, through Harmelia which is now Agro-Generation, has invested in the last three years over 100 million dollars in building a large agricultural production unit in Ukraine and plans to invest more.

What are Ukraine’s chances to preserve small enterprises in the general structure of agricultural production under the existing system?

“Today, large-scale agriculture dominates in Ukraine. Over the last 20 years, Ukraine’s government has not done hardly anything to help small farms. But in fact, they still have a chance. Small businesses can grow high-grade fruit, vegetables, potatoes, and work with specialized companies. If there is specific demand, such small farms are the most effective. At the same time, Ukraine is a big producer of grain. That is why large-scale enterprises in Ukraine like ones in Brazil or Argentina are inevitable.”

What should Ukraine concentrate on in order to reveal its potential?

“It should be kept in mind that Ukraine is one of only a few countries capable of rapidly expanding the production of foodstuff in a rather short time, and  providing quality food at reasonable prices. You can meet all of these requirements. Ukraine’s future is the production of sunflower, rape, corn, soybeans, meat, dairy products, fruit, and vegetables. Ukraine has already been a ‘foodbasket’ of the Soviet Union, which drained much of its resources, but now it can supply the world with all these riches at a decent price. Ukraine can now be a market basket – a food basket – for itself and many other countires around the world.   There is only one large obstacle – the Ukrainian government.”

How much can Ukraine increase the supply of agricultural products?

“If acceptable investment environment is provided, grain production can be easily doubled (brought up to 100 million tons or more). This allow for huge exports.  Our researchers say that 50 billion dollars are need to be invested to reach that point. Agriculture is a goose that can lay golden eggs in Ukraine, that is why it must not be slaughtered. In general, agriculture and agricultural business can become leading branches if they are handled by Ukrainian companies from field to fork, from producer to consumer. This is the economic miracle of Ukraine.”

Are there many American companies operating on Ukraine’s market? What impedes the full realization of trade potential between the two countries?

“According to the official statistics, the US has already invested several billion dollars, but in reality this number is much higher. A lot of companies are acting through their branch offices or subsidiaries in Europe. That is why their ‘daughter companies’ from other countries are praised for investments. Will the investments increase? If business climate improves significantly, American companies will double investments over the next three or four years and triple them over the next five years. But this is only possible if the business climate is improved. What should be done for that? Firstly, agreements on production sharing must be completed with energy companies Shell, (already completed) and then Chevron, and ExxonMobil.

If this happens, the world will know that these three large companies have really started working in Ukraine. This is a great advantage. Secondly, the Association Agreement with the European Union and FTA must be signed. This will enhance international investors’ trust, and money will flow. Then third, Ukraine needs to sign a new agreement with the IMF.  Investors are ready to invest but they need stability, a new IMF agreement, an open energy market, and Ukraine’s orientation towards Europe through the signing of the Association Agreement and the FTA.