2019
Using LNZ Group as an example, Investory News examined how and why Ukrainian agricultural holdings diversify their business
Today, almost all Ukrainian agricultural holdings are about more than just crop farming, livestock, meat or dairy production, oil and fat production and so on. They are about serious diversification and specialization of business, which in many cases involves a closed production cycle, or so-called zero-waste production.
One such example is LNZ Group, a Ukrainian vertically integrated agro-industrial holding specializing in trading seeds and crop protection products, growing grain and industrial crops, livestock farming and grain trading. Recently, the company also started trading natural gas in the agricultural sector and plans to obtain a similar license to sell electricity.
Using LNZ Group as an example, Investory News decided to look at how agribusiness diversifies and what the advantages of such diversification are.
A history spanning two centuries
The first “seeds” of LNZ Group's history were sown long before Ukrainian farmers heard the word “diversification”. More than 170 years ago, the first seed production facility in Ukraine began operating — the Lebedyn Seed Plant, which over many years became the foundation of today's vertically integrated agro-industrial holding.
Over the years, the land bank of the group, which today cultivates 80 thousand ha, grew, as did the number of production areas. LNZ Group currently comprises 33 agricultural companies, as well as a specialized corn seed plant, a multifunctional plant producing seeds of wheat, barley, peas, soybeans, sunflower, flax and spelt, 2 elevators in the Cherkasy and Sumy regions, 5 logistics centers and its own customs warehouse. During the season, up to 3 thousand employees work at the holding.
“We are the first seed plant in Ukraine. It all started with beet, and now we can process and produce corn and sunflower in a full cycle. 170 years is vast experience in seed production, passed down through generations. On our own farmland we test all the technologies and products that we sell and recommend to clients as part of our distribution business. This experience is hard to overestimate, because we literally feel all of our clients' problems ourselves. How do you remember LNZ Group 10 or 5 years ago? Today we are the No. 2 distributor on the Ukrainian market by sales volume. We are among the TOP-25 most efficient and largest landholders in Ukraine. Our plant is among the TOP-10 Ukrainian corn seed plants and a leader in the quality of seeds produced,” said Yuliia Kamenieva, Marketing Director of LNZ Group.
Not by distribution alone
The LNZ agricultural holding is a long-standing partner providing seed production services for various crops to the world's leading breeding companies, including Bayer (DEKALB), CORTEVA (Dow, DuPontPioneer), Syngenta, Limagrain and others, as well as the official distributor of the German company Bayer in Ukraine.
But, as the saying goes, distribution is not the be-all and end-all. In November 2018, LNZ brought to the Ukrainian market a new brand of generic crop protection products, DEFENDA, whose line includes 46 products. According to the company, in 2016 it became the owner of a whole range of modern, highly effective products, uniting them under the “UkrAgroProtect” brand. Initially, the chemical company served only the needs of the LNZ Group agricultural holding. Over time, however, its products came into demand among its partners: other holdings and large, medium and small farmers.
“Accordingly, we decided to bring this business fully to the market while improving the product line. In 2018 we launched the new DEFENDA brand, expanding our presence on the generic crop protection market. The DEFENDA brand is designed to provide Ukrainian farmers with high-quality and affordable crop protection products, as well as the necessary technological and financial support. Its main advantages are an optimal price-quality ratio and a wide product line that allows farmers to plan a complete and reliable protection scheme for a particular crop and develop a comprehensive approach. We work with the best plants, which have withstood tough competition amid heightened environmental protection requirements. And we offer cooperation with full confidence in the quality and stability of the results, since we test everything in our own fields,” LNZ Group said.
•••
According to expert estimates, the market share of crop protection products under the DEFENDA brand at the end of 2018 was 5% (in monetary terms)
•••
The agricultural holding did not stop there either. In early June, Investory News already reported on the launch of the new seed brand UNIVERSEED, launched in partnership with the Canadian company NAPG. “We created the seed brand primarily for the needs of Ukrainian companies. A small, test volume is already growing in Ukrainian fields. We are the exclusive distributors of UNIVERSEED in Ukraine, which implies additional responsibility: brand support, technological support and accompanying activities. Accordingly, this year will be full of field events to demonstrate its advantages,” said Yuliia Kamenieva.
From grain to gas is just one step
As the Ukrainian natural gas market is developing very dynamically, LNZ Group decided to try its hand at a new business — natural gas trading.
At the end of April, the “Lebedyn Seed Plant”, part of LNZ Group, received a license to supply natural gas and plans to obtain the same license to sell electricity. And the agricultural holding gained a new line of business — LNZ Energo.
“LNZ's main client is the agricultural producer, who in most cases uses natural gas for grain drying. At the same time, we plan to go beyond the agricultural sector and offer the product to other categories of consumers,” said Roman Kravets, head of LNZ's energy business. According to him, since March 2019 Ukraine has switched to daily balancing of natural gas consumption, which provides for penalties if planned and actual consumption differ. “Penalties can reach 20% of monthly consumption. Our competitive advantage is that LNZ takes these risks on itself. Our consumer will not be fined,” Mr. Kravets noted.
LNZ Group's prices for natural gas supply will be below market prices. The company's goal is 50% of the market of natural gas consumers in the agricultural sector.
•••
The company's goal is 50% of the market of natural gas consumers in the agricultural sector
•••
And much more …
Another new line of business for the agricultural holding is an online platform, whose launch LNZ announced in early June. “We started developing the LNZ Web online platform last autumn,” says Yuliia Kamenieva. “By the new season — at the end of summer — the online platform will be fully operational.” The platform will feature LNZ Group's entire product portfolio and distribution. In this way, the agricultural holding wants to make it convenient to sell its products to small farms of 10 to 700 ha.
“Every user can open a personal account on the new resource. And not only track their purchases and shipments, but also use a specialized weather forecast option. The forecast is clearly targeted at farmers and contains advice on herbicide application, optimal sowing dates and so on,” Yuliia Kamenieva specified.
Its own agricultural machinery repair service is another new line of business for LNZ Group. It will service and repair the holding's machinery within short time frames. “For now we do not plan to service all brands; say, first we will take New Holland, Vermande, Fendt and others, and over time we will expand and recruit specialists who will service the entire range of machinery,” the company said.
As we can see, this year has been quite “generous” for LNZ Group in terms of new business lines. But the agricultural holding promises not to stop there and to announce many more projects in the near future.
Source: Investory.news
