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Cultivating the seeds of modern business

Agriculture in Romania, with a major share in the local GDP, starts to look a lot like a professional business. In the equation defining the entire chain from seed to production and sales, towards an integrated business mindset, the Romanian farmers evolved as demanding business partners in their relationship with the large suppliers of products, services and solutions for agriculture. By Magda Purice

2015-04-03 21:33:15 - From the Print Edition

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The large players in this sector tell The Diplomat how engaging their partnership is for the common goal of modern market and profitable businesses and where there is room for improvement.

The Good Growth Plan


"This is a longer-term initiative as part of the company strategy and our commitment to sustainable agriculture that focuses on resource efficiency, the environment through rejuvenating ecosystems and leveraging growth and prosperity for rural communities. The Good Growth Plan addresses the global food security challenge," says Andrei Marutescu, head of Corporate Affairs Syngenta Romania, the local arm of global Swiss agribusiness group that markets seeds and agrochemicals. "If we look to the progress made on our commitments under the Good Growth Plan, in 2014 we've been able, for example, to engage globally 4.7 million people with our safety trainings programs and in Romania, only in 2014 we have reached 2300 farmers, training them directly or indirectly about the safe use of pesticides," Marutescu adds.

"Our mind-set is aligned to that of our farmers and customers and we deliver to the market agronomical solutions according to their needs. We have at our hands a strong platform of products and the most complex portfolio within the industry, offering integrated seeds and crop protection solutions. In recent years, we have consolidated out relationship with farmers by bringing them closer to us through continuous meetings and dialogues," says Marutescu. For example, in March, Syngenta organized the sixth edition of Syngenta Optitech Forum focusing on themes related to fruit production, where 150 farmers and owners of such businesses have attended, totalling 4,000 hectares of orchards in Romania. "We are permanently working together to better understand the needs of the growers and each year we come back with new information, technologies, products and recommendations from our experts," Andrei Marutescu tells The Diplomat – Bucharest.

Market expectations from the farmers and input services industry are reciprocity and partnership. "More and more service suppliers create and consolidate partnerships based on complementarity in business and better improved services offered to their customers, in order to develop sustainable and long-time business partnerships," states Marutescu. Also, farmers expect to have access to integrated technology solutions of products and complete services, so that an interface can be created with as less suppliers as possible. For instance, Syngenta developed a process that firstly analyses and evaluates the specific activities that take place on a farm during a timeline of several years, leading to a better understanding with advice and solutions made available for the customers on the best use of resources and ability to increase crop productivity.

The room for growth with focus on education


For Monika Puiu, managing director of NHR Agropartners, a company that supplies services and machines for agribusiness, the main activity is focusing on sales, maintenance and repair. "There is room for development in the Romanian agriculture, but, in the sector of crop fields, we note a very satisfying development," says Puiu. "Today, most farmers with operations in the grain field are doing very well and they can develop their own businesses. In other agriculture segments, the support is necessary, especially financial support," Puiu explains. According to the manager, the national development strategy in agriculture should contain a network of small integrated farms. "I am referring to farms of up to 100 hectares, with activities in vegetables, fruits, breeding field and which sell their products only in their area. Such a farming business network would develop a healthy rural environment in Romania."

The company delivers full service to farmers and, according to Puiu, the service team is one of the busiest in the company. "More than half of our employees are working in the repair department, either they are working in the company spaces or out in the field, where the farmer's equipment is located. Operating in a highly developing sector, the NHR Agropartners' managing director thinks that one of the main challenges of the sector is the lack of specialized young professionals. "Within the long list of challenges in the agriculture sector, the major focus should be on education and creating the necessary professional pool of employees in this sector. The large highly-competitive companies and farms can offer valuable workplaces for young people trained in this field," Puiu says. She also adds that she would expect the new European funds-based projects to focus on rural development, to invest in professional schools for mechanical engineers, drivers for tractors and combines or other agricultural occupations.

Focus: A balanced partnership


Agricover, a Romanian company with over 15 years on the market, operates three business lines, two dedicated to input sales and distribution and a separate division dedicated to financing agriculture operations and investment (Agricover Credit IFN). According to data provided by the company, Agricover runs operations with over 6,000 farmers. "Our vision supports a partnership with Romanian farmers backed up by trust and validated during our 15 years of activity on the market. Our mission is to identify, develop and diversify the markets for the Romanian agriculture production and to facilitate access to the newest technologies and financing in a competitive environment," says Stefan Bucataru, general manager of Agricover Romania since mid last year. The manager structures the company strategy in their relationship with Romanian farmers into several key leading concepts, also representing the company vision: trust, availability, diversity and sustainable development.

"The farmers need the certainty that at any time, we provide the proper support all through the production cycle, from sowing to harvest, also in the field of breeding animals, to capitalization of production. This support is meant to prevent and decrease risks and efficiently solving the problems," explains Bucataru. As the manager shows, the farmer, busy in the middle of his agriculture workings might need fast support and fast reaction feedback from his partners and, as farmers become more and more informed and sophisticated, the expectations are rising in this respect. Hence, his partner and solutions suppliers have to answer regarding a product, a logistic solution, a storage solution, production sale or access to a financing line. "As farmers are developing and their business and mindset become more sophisticated and performing, we are interested to invest in process automation solutions in order to address their needs as efficiently as possible. Plus, we have the capability to generate new solutions according to their needs, integrating our expertise in an innovative manner, as promoters of farmers' development," says Bucataru.

Implementing integrated services


For Agricover, the integrated strategy and expertise in various fields represents its added value, and a large share is held by the financing solutions arm of the group. Their financial solutions cover a large need pool, from flexible financing, correlated to the final sale price of the crop, to consultancy regarding the technology used, towards the optimal capitalization of the harvest and risk management. "The farmer is free to opt for one or more solutions. Our advice is that the maximum potential and the largest added value are delivered by an integrated solution platform, to ensure profit and safety," Bucataru says.

He explains that, in the case of vegetable producers, together with representatives of farmers, Agricover implemented a mechanism meant to enable their access to the large retail chains. By this, a new distribution market niche has been developed for such farmers. "We assumed the role of platform designers that secures the continuity and quality asked by the retail standards, built the mechanism and project management and delivered to farmers," Bucataru states. The project is known on the large market and it is called "Dor de Gust". According to Agricover's manager, it offers stability, risk management, access to inputs and financing and, most important, a secured capitalization solution defined by constant distribution and production efficiency in the main retail networks totalling over 360 retail units.

This is the most recent and well-known project of Agricover, but the company develops similar projects for all areas, including large culture harvests, zootechnics (milk cow farms, pig farms) and fruit production, in addition to the vegetable production. "For instance, we noticed that the breeders in Southern Romania need a larger capacity for their meat processing units. In February, we decided to invest in such a project," Bucataru says. At that time, the company announced it will run investments for a meat processing unit in Southern Romania, developed with five million Euro.

The company acquired a butchery and it will invest the money in refurbishment and new equipment, expansion of its butchery lines, a new logistics system and a performing IT system. The unit will process 120 swine per hour and is located in Dambovita county, at Niculesti, according to a company release. The financing has been secured by Black Sea Trade and Development Bank, as part of an agreement signed by Agricover to enhance the development and collaboration with producers and agriculture distributors in Romania. "Our strategy in the area targets the supply of a safe distribution market for Romanian pork, in order to ease the farmers' access to processing units in Romania and also opening the perspective towards international markets," Bucataru says.

The call to action for a national strategy


Operating within in a challenging context like everyone else, the manager of Agricover states that the company nevertheless posted a positive result and sustainable business growth. The main challenges come from the need to research solutions for an optimal crop capitalization, finding new distribution channels and finding the right financing solution. Also, specific to the field, the weather context is a permanent concern for agriculture, influencing the production level and the price. Also, the international trading markets represent a significant vector for such a dynamic sector. "The massive imports of products such as milk, meat, vegetables, fruits and processed items are also a problem," says Bucataru.

In order to find solutions right away, last year, Agricover introduced the mechanism of buying grain from farmers with variable pricing, correlated with the evolution of the post-transaction price established on the MATIF trading market. "Following this measure, some farmers increased the sales price for their crops by up to 20 per cent or they have been able to sell a forage production with a valuated price comparable to bakery production," Bucataru says.

The manager indentifies several main strategies for the development and streamline of Romanian agriculture. The operational "wish list" identifies:
- specialized operators all along the production chain
- the maximum yield all along the same chain
- correct partnership between operators (delivered by the demand-supply rapport)
- balance between the domestic production and exports
Regarding the strategy at the national level and macro-economy, Bucataru structures two main directions:
- Multi-sector strategy at the national extent, to involve the agriculture-trade-food industry
- Stable and coherent legal frame that encourages productivity at every level of the production chain and enables long-term investments.
Also in this direction, the manager mentions:
- the VAT cut
- faster VAT recovery time and faster investment in the new production chain
- abolition of the tax for special constructions
- abolition of tax imposed for agriculture construction and equipments.

The opening to information and know-how


For Violeta Niculae, strategy & innovation manager at KWS Seminte, the local branch of German-based seed producer KWS, the farmer should be perceived as a long-term partner. "We created strong links with distributors and we tried to fulfil the need for integrated packages. In this way, we built the business relationship on trust, constant dialogue and increase of the added value of product, through additional services," Niculae says. The manager also mentions that the Romanian farmer is perfectly connected to information and open to know-how, to innovation and to permanent upgrade of the market. "We understood this and we try to act as a real warranty for their business growth," Niculae says.

The company's vision for doing business permits the necessary flexibility for farmers and enables them to choose from a variety of products, with no stress on a certain product, Niculae adds. The hybrids comprised in the company's portfolio are made in Romania, adjusted for the local conditions. "In other words, we address with products specific to each region and condition. For instance, in 2014, we created a new hybrid for corn corps, called Kamparis, that proved its efficiency for all partners. Following the company's experience, the Romanian farmer is highly pragmatic, analyzing and anticipating the results of each investment. "We refer to a managerial mindset, based on clear thinking, even if they are operating within a system that lacks performing irrigation networks or a sustainable financial support schemes," the KWS Seminte's manager says.

In the last part of 2014, seed producer KWS, with 13 years on the Romanian market announced the availability of the new Kamparis corn hybrid, launched through an event at Brasov that joined distributors, specialists in agriculture and farmers. At that time, the company's managers stated that the new hybrids are adapted to the culture areas in Romania and SEE and offer a superior stability in production from year to year. As a strategy, the company plans to tighten the relationships with farmers through innovation and results of R&D. The newly-launched hybrid seed is recommended to be cultured in local areas such as Southern, Western and North-Western, South of Moldova and Transylvania.

With a global presence of over 150 years, KWS is now one of the world′s leading seed producers. In fiscal 2012-2013, the KWS Group and its approximately 60 subsidiaries and associated companies generated net sales of over one billion Euro. It has some 4,400 employees (1,500 of them in Germany) and a footprint touching more than 70 countries. The group core competence is crop breeding. Their annual expenses for R&D amount to around 15 per cent of net sales.

The importance of adjusting to setting


Cosmin Chioreanu, the general manager of Monsanto Romania, Bulgaria and Moldova, perceives an evolved relationship with local farmers in Romania, as a general trend in the industry. According to the manager, "in the last five years, the liaison of company-farmer progressed from simply supplying the seeds to a strategic partnership designed to increase the profitability of farms, especially when using the Dekalb-type input, either of corn or winter oil rapeseed (canola)."

Monsanto's approach is different, as it doesn't refer to a single production cycle, as the manager explains. "We try to increase the average profitability level of Romanian farmers with a time expectancy of three years and even more. For instance, if we refer to the corn yield, our goal is not to sell a hybrid that produces 14 tonnes per hectare but to increase the productivity to ten tonnes in the next three years. In 2014's season, our hybrids proved the genetic potential and managed to achieve the 12 to 14 tonnes per hectare, and even record production level of 16-17 tonnes per hectare," However, a fact to be considered is that 2014 was exceptionally proper for agriculture, due to the excellent weather. The fact is the average corn yield in Romania is about four to five tonnes per hectare, according to the National Statistics Institute.

"Our strategy is to develop and maintain a medium-term partnership with local farmers and to settle for an average yield of 10 tons per hectare, with a longer focus on a farmer's profitability and improved living standards," says Chioreanu.

Meeting the expectations


Following the local expertise of Monsanto, it is obvious that Romanian farmers have high expectations regarding their partners, as they demand integrated services in order to increase the profitability.

"For instance, due to the exceptional research in genetics, we aim at gaining profit by using specific agronomy features. The farmers learned to address the expertise of specific companies – suppliers on the market - and ask for the advice of Monsanto specialists when they have to choose a certain hybrid for their corn or rapeseed oil farms. There are specific technologies for each hybrid and as well there are different agronomic profiles considered by our specialists when they advise for a certain product," Chioreanu states. Perhaps wishfully thinking, every farmer searches for a corn hybrid that is resistant to drought, highly productive and with a low consumption of fertilizers. Unfortunately, this wonder-hybrid doesn't exist on any market. "However, we notice a more and more open mindset of farmers towards high-end and modern technologies, such as ′no till′ (sowing without tillage), or ′twin rows′. Therefore, the recommended hybrids should be in line with these new technologies and the other way around," Monsanto's manager explains.

It's all about genetics and the human approach


"At Monsanto, we believe the genetics used for developing the inputs is probably the most elevated in the industry. We own the largest corn gene bank in the world, which allow the enhancers limitless combinations of the most primary characters with useful characters, to the newest genetics architectures, practically delivering a inexhaustible potential for growth and productivity," Chioreanu says.

The second component in their approach is related to people. Every Monsanto professional working with farmers is perfectly trained and a specialist in his field, according to the manager. "Therefore, before our employees become sellers, managers in different departments, they first benefit of an agronomy background and specific courses. Both of these components stand for a similar share in our strategy and we believe that the future belongs to the services. The promotion of products cannot be successful if it finds no support in the quality of products and the opposite is also true," he states.

No fear of challenges


There are two major challenges facing Romanian farmers. Obviously, the first relates to weather conditions – the lack of rain - and the second is related to business - the selling price of productions.
But there is no challenge not to be addressed and prevailed over. Regarding the drought risk, Monsanto meets that expectation with genetics tolerant to stress and the newest technologies to allow water conservation, a hybrid's malleability to specific conditions, sowing density and different dosage of fertilizers, according to the risk of each wedge (Integrating Farming System).

Regarding the low level of selling price of harvests (yields), it is impossible to believe that the international trading markets can be influenced at any extent. The mindset should focus on optimizing the cost per hectare, by increasing the productivity per unit area. "From the experience of previous years, I believe that Romanian farmers should focus on increasing their productivity and then, either at a high or lower profit, the positive result of the business will be encouraging. The poor strategy of implementing the lowest investment to expect the highest profit in the lack of quality is not doable and is even really dangerous, leading eventually to bankruptcy," Chioreanu explains.

The financial approach


Regarding the relationship with the regulators and authorities, Chioreanu states that the expert authorities, such as the Ministry of Agriculture and the Ministry of Finances have to take into account that agriculture is the main industry sector of Romania, with a large share in the GDP.
It is obvious that every farmer looks for predictability and sustainability, that is why the measures agreed at European levels and within The Common Agricultural Policy (CAP) have to be clear, transparent and comprehensible. As Monsanto's manager shows, the reverse charge proved to be exceptionally fit for local farmers that own a company but, the individuals with operations in agriculture don't benefit from this measure and they have to pay the 24 per cent VAT for the input, which is totally prohibitive for them. "Hence, although Romania cultivates around 2.6 million corn hectares, we are the only country in Europe where a full third of this amount is cultivated with inputs from their own harvests, using uncertified or farm saved seeds, leading to a 40 per cent smaller yield expectancy," Chioreanu states.

Following the Kleffamann studies, only in 2014, around one million corn hectares of a total 2.6 million hectares have been grown in farms owning at most 15 hectares of arable land. This speaks for itself and asks for a more supportive financial strategy to be developed for small farmers, in order to allow them to afford modern agriculture technologies and equipment so they can reach the highly competitive European markets.



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