After 9 years of operations in the grain market of Ukraine Alebor Group has grown from a small trading company into strong and powerful group of companies with private silos, truck fleet, trading division and logistics infrastructure. The Company offers full range of services for grain producers: from harvesting of grain crops in the field, its handling and storage at silos to the delivery to sea ports and selling. Thought the prices of Alebor Group are not the lowest ones at the market, the company manages to grow its capacities and expand the partners’ pool ranging from small farmers to large agriholdings. We discussed the company’s strategy development with Oleksiy Kustov, Founder of Alebor Group of Companies and asked him what is the secret of remaining quite mobile at each stage of operation.
WHEN YOU ESTABLISHED THE COMPANY IN 2009 WHAT BUSINESS-MODEL DID YOU PROJECT? WHAT YOU HAD TO ADJUST WITHIN THE PROCESS OF DEVEPOLMENT? DID YOU MAKE ANY CHANGES INTO THE BUSINESS STRATEGY DURING THE PERIOD OF THE GROUP OF COMPANIES’ PERFORMANCE? WHAT EXACTLY CHANGES THEY WERE AND WHAT DRIVERS CAUSED THEM?
In 2009 we were a small trading company and the main objective we pursued was growth of profits. It was possible by increasing trading volumes or margins rising, that is, prices increase. We combined both these parameters in our strategy. Due to investments into infrastructure and logistics we managed to increase the volumes and improve profitability. We became closer to farmers, producers – not only physically, as far as our facilities are located in the very center of grain production belt of Ukraine, but we also became more like-minded to them – we started to gain profit not only from trading operations, but also from services delivery. We also enlarge the range of products and improve the quality of services rendered.
Within 9 years we set up logistics companies with truck fleet consisting of 70 KAMAZ and 150 heavy grain MAN trucks to provide logistics chain “field – silo”, “farm – silo” or “farm – port”. We also developed railway shipping, launched combine harvesters division and created a network of transshipment facilities to reload grain from trucks to railcars, which further transformed into powerful grain-collecting stations. This way our concept of full range of services provision was formed – from harvesting operations, transportation and processing to the delivery to the board of ship. It allowed us to get additional value at each stage, leverage the risks and increase volumes. Also we tended to get leadership at each of the stages listed above. Nowadays our Company transships 1.2 million tons of grain annually; our combines harvest 3000 ha of grain acreages; our elevators dry 120,000 ton-% of grain per 24 hours and ship 160 railcars.
THREE GRAIN-COLLECTING STATIONS ARE INCLUDED INTO THE GROUP OF COMPANIES. THEY ARE LOCATED IN ODESA, VINNYTSYA AND CHERKASY REGIONS. WHAT DROVE YOU IN CHOOSING SUCH LOCATIONS FOR SILO FACILITIES CONSTRUCTION AND WHAT ARE THE ADVANTAGES OF YOUR PRESENT LOCATIONS?
We were in gran trading business; we purchased grain from farmers and delivered it to seaports by our trucks. That’s why we had a clear vision of the most favorable locations from the point of view of logistics and we determined the points with the most beneficial delivery costs to the port by railway. While choosing locations for our silo facilities we intended to be in the high production zone – so called grain belt of Ukraine. We also considered the distance from sea ports and European borders, as we export not only by trucks but also by railway. Having analyzed competitors’ performance and having not seen any powerful and modern silo services providers among them, we located our grain elevators there.
LAST YEAR THE GROUP OF COMPANIES SIGNIFICANTLY INCREASED ITS SILO CAPACITIES. WHAT IS THIS DECISION CONNECTED WITH AND WHY IT WAS DECIDED TO GRASP ALL THE FACILITIES AT ONCE?
Our technical transshipment capacities allowed loading our enterprises at 300-400%. For example, last year we had 200,000 tons of grain in stock and transshipped 800,000 at our grain elevators. The bottleneck was railway which was unable to provide the rolling stock sufficient enough to cover our volumes, and we found ourselves at crossroads: either to increase storage capacity or purchase grain railcars. After weighing up pros and cons we have taken a decision to increase storage capacities by 60% – to 315,000 tons. We planned to complete the project within three years but railway’s performance policy stimulated us to speed up.
WHAT OPPORTUNITIES WILL OPEN UP FOR ALEBOR GROUP AFTER SILO STORAGE CAPACITIES INCREASE? WILL IT CHANGE RANGE OF SERVICES PROVIDED TO FARMERS?
We hope that silo capacities increase will allow keeping the existing throughput volumes. If the railway operates better it will even increase the volume by 30% due to extension of range of crops we take at our elevators. This year we plan to start taking sunflower and soybean – the crops we hadn’t worked with before.
Besides storage capacities we also increased our dryers’ efficiency by 30% and our operational silo bins for moisture and unclean grain storage. Considering that our enterprises are located within highly efficient zone of production of corn which requires drying, we believe that our capacities of corn handling will increase by 30%.
ARE THERE ANY DIFFERENCES IN YOUR SILO SERVICES RANGE DEPENDING ON THEIR GEORGAPHICAL LOCATION?
We apply “dry port” concept at our enterprises. We provide uniform range of services and are ready to take and dry 7000 tons of grain at 10 ton-% of moisture removed at each our grain elevators. We ship 54 railcars. The only thing that can be different at every individual silo is taken products range, which is formed by the market depending on producer’s and exporter’s demands.
WHICH SILO SERVICES ARE THE MOST EXPENSIVE AND WHICH ARE THE MOST PROFITABLE?
Silo services in their pure form are not profitable considering cost of funds for the facility construction. In order to succeed we should trade and make a few silo storage turnovers during a year to reduce the cost value. It’s like in polygraphic industry – the bigger the feed the lower the cost value is, and the higher the profit is, respectively.
CAPACITIES INCREASE IMPLIES FOR A WELL-ARRANGED COOPERATION WITH BAILORS IN PARTICULAR. WHAT TERMS AND CONDITIONS THEY ARE ATTRACTED WITH? WHAT ARE YOUR COMPETITIVE ADVANTAGES?
Indeed, we develop cooperation with bailors and the number of such partners together with their grain volumes in our portfolio increases every year. It’s a good trend: if a customer placed certain volume of grain within our facilities, we’ll definitely see him next year again with even bigger volume. We attract our customers by providing a package of integrated services, and we also keep our word and treat others like we’d like to be treated ourselves. In my opinion one of the most powerful competitive advantages of Alebor Group are, first of all, a good team and new high-tech equipment which enables avoiding transferring all the expenses incurring in the process of grain processing to the producer. It can be illustrated by the example of corn drying. Our grain elevators are equipped with special cone-shaped bottom silo bins designated for moisture and uncleaned grain storage. They help us to sort the grain according to its moisture content before entering the dryer and split it into three or more fractions (categories). Conveyors are footed with plastics and have special blades which do not damage grain in the process of transportation. Norias are equipped with plastic buckets. All the processes are fully automated. Moreover, we have a number of secrets gained in the process of operation which allow decreasing moisture content in the process of grain conditioning. All these are our competitive advantages, while other grain elevators just put wet corn out-of-door in a heap, leave it under rain, can cross it with a tractor for a few times, then carry it to the dryer by an old truck, and all those expenses are covered by the customer.
IN ALEBOR GROUP YOU STATE THAT THE MAIN PRINCIPLE OF COMPANY’S PRFORMANCE IS HONESTY AND TRANSPARANCY IN PARTNERSHIP RELATIONS. YOU EVEN GAVE A NAME TO ONE OF YOUR GRAIN-COLLECTING STATIONS – “CHESNE” WHICH MEANS “HONEST” IN UKRAINIAN. WHAT IS MOTTO IN PRACTICE?
I would like not only we would state it within our company, but our customers would also think so. We do our best, and the evidence to prove the correctness of the way we’ve chosen is our annual increase in volumes provided for storage by our customers. Note, that we do not offer the cheapest prices for our services.
We gave a name to the grain-collecting station in the North of Odesa region being driven by marketing point of view, indeed. There is extremely competitive market of silo services within the region, thus we focused on fast offload, fast and timely payments, honesty and transparency in determination of grain quality and quantity. Everything is possible to be done, because the enterprise is new, technological and energy efficient. This is our third in turn grain elevator, and while constructing it we took into consideration all the previous mistakes and experiences gained in the process of construction of our two other silo facilities. Such an approach delivered its benefits: within the first year of operation this enterprise made five turnovers.
DID YOU HAVE ANY EXPENSES ASSOCIATED WITH INFRASTRUCTURE DEVELOPMENT? WHAT HAVE YOU OBTAINED AS A RESULT?
We built our entire silo infrastructure by our own efforts. Just this year alone we built an access road to Khrystynivka Grain-Collecting Station and locomotive depot in Bilyne, a new electricity transmission line in Voronovytsya and Bilyne. I gives us an opportunity to take leading positions in terms of transshipment volumes within the region of our operations.
WHAT RESULTS DO YOU EXPECT FOR?
We hope for the further increase in crop yields in Ukraine. We consider that we are at the edge of infrastructure revolution now and we estimate our level of preparation as a very good one. Only 50 out of 800 grain elevators in Ukraine can ship 54 railcars per 24 hours. We have three such grain elevators; all three have railway shipment points.
Larysa Stepanushko, Landlord.ua
