Due to the poor harvest of rapeseed in the season-2015/16, the fat-and-oil market of Russia formed the bullish trend and intense competition rates between companies-processors. Also, fluctuations of the national currency rates affected the domestic and export sales companies. At the same time, the new season may be the most favorable one at the expense of the increased planted area and yield indices.
One of owners of the agricultural holding Dolgov Group, Alexander Dolgov agreed to tell us about how the company operates under current conditions, what difficulties were last season, as well as what are expected in 2016/17 MY.
About the company
The agricultural holding Dolgov Group is one of the largest ones in Kaliningrad oblast. The holding includes agricultural enterprises with the general land bank at nearly 80 thsd ha which grow wheat, corn, barley, pulses, perennial grasses, and rapeseed. Also, Dolgov Group owns feed mills, several elevators, a plant for rapeseed processing, dairy plant in Gusev – Gusevmoloko, dairy factory Nezhinskaya, and poultry farm Guryev.
- The agricultural holding Dolgov Group is one of the largest enterprises in Kaliningrad oblast. Alexander Alexandrovich, how did You manage to achieve such results?
There is always a lot of work behind any good result, and as well as the interest in that business, which I has decided to deal with. And if one uses his experience, team of professionals and business sense, then sooner or later the products of labour will come.
- According to forecasts, in the current season Russia will receive the record volumes of corn production. How do You estimate the current condition of the grain areas at Your enterprises?
We should estimate the grain qualitative results after ending of the harvesting campaign. To date, all external characteristics indicate that the forecast will be justified. Also, we export our products to the EU countries, and then the selection parameters for raw materials are high enough. We prefer planting seeds of domestic selection. However, if there are necessary goods on the market, we import seeds from Switzerland and Germany. We observe all crop planting rates. According to the last year figures, we completely met the requirements. If the weather is favorable and the drought is absent, then in the current year the quality of our corn crops will at high ebb.
- In the nearest days the rapeseed harvesting campaign will begin. What harvest volumes and quality do You expect in the current year? How did the planted areas under the oilseed change during 5 recent years?
As for the dynamics of rapeseed planted areas, then during 5 years we usually planted rapeseed throughout 6-7 thsd ha. But during two recent years we started increasing the areas to 15 thsd ha. First of all, the growth was caused by high demand for rapeseed raw materials on both domestic and foreign markets.
- How did the profitability of grains and oilseeds production change during several recent years? What factors do contribute to such changes?
During several recent years, there is observed a growing demand for grains and rapeseed as raw materials among customers of the agricultural holding. Also, many customers are interested in purchasing of rapeseed by-products. We managed to improve profitability of the production in the whole holding at the expense of launching of the plant for rapeseed processing. Therefore, we can adapt to the needs of our own enterprises (farms, poultry farms) in the holding structure.
- The agricultural holdings owns elevators used for internal requirements. Do You plan to offer services for grains and oilseeds storage on the market in the future?
To date, we produce rather large volumes of grains and oilseeds. During the harvesting campaign period, we need to dry nearly 150 thsd tonnes of crops (barley, wheat, rapeseed, pulses, and corn). Therefore, treatment and drying of the harvested crops is our primary task. In addition, we usually purchase raw materials from other companies-producers for production of rapeseed oil. Also, we need to store and treat the oilseed raw materials. In the future, after construction of additional storing capacities, we will provide some services for crops treatment and storage.
- In 2015, Your company opened a plant for rapeseed deep processing. What factors did cause such decision?
Rapeseed is a very cost-based crop, but profitable. We have always exported all grown volumes of rapeseed. In 2014, Russia joined the WTO, and imposition of the customs duties on rapeseed exports was one of the conditions. So, it was not profitable to export rapeseed, but to process at oil and cake. In addition, rapeseed cake is very valuable product as forages for farm animals. The agricultural holding owns a poultry farm and cattle livestock. After launching of the rapeseed plant, it became easier to provide high-quality forages to our enterprises.
- Do You have sufficient volumes of rapeseed for processing, and what do You expect from such business activity in 2016/17 MY?
Due to bad winter conditions for winter rapeseed in the season-2015/16, we were forced to replant rapeseed throughout 7 thsd ha. As a result, we purchased nearly 20 thsd tonnes of rapeseed to load the plant with raw materials. According to our forecasts, in the summer 2016 our harvest of rapeseed will total less than 20 thsd tonnes. The maximum capacity of the plant totals 66 thsd tonnes of oil per year, but due to the large-scale crop failure in the holding, we will not load the plant with our own seeds at 100%.
- Did the buying activity and sale volumes of rapeseed oil and meal change on the domestic market in 2015/16 MY? If so, what are the reasons? What are Your expectations for 2016/17 MY concerning the dynamics of consumption?
It is not always possible to forecast the purchasing capacity, it mainly depends on price proposals. The domestic market is quite small, so the customers do not change at all. However, rapeseed or soybean meal, provided by Sodrugestvo Group of Companies, is a single alternative to our rapeseed cake and oil. Due to the fact that Kaliningrad oblast is quite small, then the demand for rapeseed oil and cake is not so high on both domestic and foreign markets. We export rapeseed oil and cake to the EU countries. As for expectations for the new year, we always have optimistic forecasts.
- Would You tell what is the ratio of products selling on the domestic and foreign markets? What countries are the main importers of the products on the foreign market? Do You plan to expand the geography of supplies?
We use 40% of the whole produced volumes rapeseed cake on the domestic market and for own needs, and export nearly 60% of the volumes. As for rapeseed oil, then we use 7% only on the domestic market. Of course, we received some proposals from buyers from "big Russia". But due to the rent of rail cars, transit through Lithuania and Belarus, our price becomes less competitive in comparison with local producers. However, despite some difficulties, to date we are preparing several large-scale contracts.
- Would You share You opinion of the situation on rapeseed market in the season-2016/17? What are the main factors influencing at prices?
The costs for material and technical resources is the main factor in formation of prices for raw materials. It is the most significant cost item, but there are many minor items. We have to purchase some products from Russia, and deliver through two borders - Belarus and Lithuania, which increases the prices for raw materials. In addition, the impact of weather conditions has its role. During formation of the harvest-2016, most winter rapeseed areas were frozen, and we had to replant the oilseed. As a result, the costs will be very high, and therefore the cost of raw materials will increase.
- Last season, the situation on the foreign currency market was quite difficult. How did the business strategy change, in terms of high volatility on the market?
Yes, during several recent years the Russian foreign exchange market is characterized with high volatility and unpredictability. But we were quite prepared and resistant for such development, due to our business strategy. As for our foreign exchange risks, the exports of grains, rapeseed oil and cake form nearly 38% of the Dolgov Group revenue. In addition, the share of foreign currency loans in the general loan portfolio of the Group of companies is not more than 6%. So, there are two major factors which allow feeling confident during the "storms" on foreign currency markets. Also, one should not forget about the existing instruments of currency risks hedging during export and import operations. Thus, the strategy of foreign exchange risk management did not significantly change. We continue following our rules, which were well established in 2014 and 2015, put new land areas into circulation, increase the planted areas under wheat and rapeseed, as well as estimate possible dates for realization of new investment projects.
- You have said that the agricultural holding Dolgov Group made rather good contribution to development of the agriculture industry in Russia, and will continue working in the sphere. Would You tell us the company's plans for the future?
We plan put into operation one of the largest elevators in Kaliningrad oblast (Gusev) with the possibility of simultaneous storage at over 130 thsd tonnes of grains. We already launched the first line. The raion in Kaliningrad oblast is already supplied with natural gas, and we will be able to get away from diesel fuel, reducing the costs for grain drying in almost 5 times. Launching of the elevator is very important for us, because we have high hopes for the grain harvest in the season-2016/17, and the new storing capacities will allow improving the condition of grains (drying and storage).
To date, we continue modernizing and expanding Guryev poultry farm, which is a part of the agricultural holding, and one of the leading agricultural enterprises in Kaliningrad oblast.
Next year we will put into operation two more poultry farms with 124 thsd places for productive livestock, and even breeding room at 65 thsd heads. The final daily egg gathering will reach 800 thsd pcs.
In the autumn of 2016, we plan to put into operation a new feed mill at the territory of the poultry farm, which will cover 100% of the enterprise's needs. And in 2018, we plan to construct a new elevator with simultaneous storing capacities at 40 thsd tonnes.
Interviewed by Anna Bulatova, APK-Inform Agency
