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The grain trader who made $1bn playing chicken

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The earth is black in Ukraine because it is made from burnt cash, Agrimoney.com has heard tell.

Landkom, the farm operator, at least appears to be recovering from its singeing. Some other, less high profile, victims of the country's agricultural challenges (disappearing fertilizer is one oft quoted to this website) never did.

"A lot of people lost money" pouring money into Ukraine when crop prices were soaring in the run up to the 2008 crop price spike, Yuriy Kosyuk, chief executive of one of the survivors, says. "They lost millions and millions of dollars."

Cereals vs chickens

So how has his concern, the giant MHP, survived, thrived even, making him a paper billionaire (in US dollars too) despite the collapse in farm commodity fortunes, a hard felt recession in Ukraine, and now the agricultural woes in the former Soviet Union?

One secret is that while Mr Kosyuk has a background as a grain trader, the empire he has built up is involved primarily in producing poultry - not crops.

"A chicken business is completely different from a land business," he says. "To be successful in each requires taking different routes.

"A chicken farm is more industrial." It certainly is at MHP, which has just completed a $500m complex at Myronivska, and has plans for more than $1bn more, to raise capacity from 360,000 tonnes of chicken meat a year to 800,000 tonnes.

"In a land business, 80% of success is about people. The right people, the right people, the right people. Those are the three important points of success."

Soviet hangover

While MHP does have a huge arable operation too, covering roughly 200,000 hectares, Mr Kosyuk has avoided blow-ups by building up slowly and focusing on hiring "honest guys" for managers who have the "right feeling about what they must do".

Not that there is anything inherently wrong with local staff. Indeed, he cites the "enthusiastic people" at the company's first arable purchase, the Druzhba Narodiv farm in the Crimea, for turning a "cool by completely destroyed" relic - it was once the Soviet Union's biggest farming enterprise – into a profitable business within three years.

But there is a cultural hurdle that often needs to be overcome, after Ukrainians' love of the land was beaten out of them by a Soviet regime which denied them ownership.

"That's the difference between us and Poland," Mr Kosyuk says. "In Soviet times, Poland kept private farms. In Ukraine and Russia, there were not. So there is now a completely different mentality."

Meat for our times

And having made the operations work, Mr Kosyuk has found MHP in something of a sweet spot. Chicken is the meat to be in tougher economic times, given its cheapness relative to red meats, which makes it the top option for hryvna-conscious Ukrainians.

It is also the better option when crop prices are high, given that chickens need half as much of the stuff to put on a kilogramme of meat as pigs do, and roughly one-quarter as much as cattle.

In fact, with MHP's crop business providing some 90% of its poultry feed needs - mainly through corn but with sunflower meal for extra protein – the group is well suited to ride out the return of agricultural market volatility, he says.

"When markets go up and down, we are stable, especially compared with rivals who are just chicken producers.

"It is just chicken prices which affect us."

Given that Ukraine's costs of chicken production are "the lowest in the world", he says, below America's and even Brazil's, it would take quite some collapse in poultry values to catch out MHP.

Chance beginnings

So where to take the company now? It has already been on quite a journey on its way to a market value of $1.6bn, valuing Mr Kosyuk's stake at nearly $1.3bn, having started off as a silos operation, which he bought in the 1990s while still trading grain.

The silos came with a run down feed mill, which was not working because it had "no consumers" – a fact which set him off on a tour to find out why. He visited poultry farms to find them "completely closed. No people, no chickens, nothing".

So he bought the chicken farms too out of bankruptcy, from the state, invested in slaughterhouse and hatchery facilities, and began the process of reintroducing Ukrainians to domestically reared, fresh chicken.

"At that time there was just frozen chicken. We had to alter perceptions."

'We are not vegetarians'

Even some 15 years later, the job is not finished, he says, with Ukrainian meat consumption levels still relatively low - at 48 kilogrammes per person compared with some 120 kilogrammes in the US, according to Renaissance Capital – yet domestic supplies poor. The country is the fourth biggest meat importer.

"We are not vegetarians. Ukrainians would like to eat more and more meat," Mr Kosyuk says.

And then there is the promise of export markets, for MHP to try its hand at exploiting its low costs. . The company has won consent to export Russia, and is seeking permission to ship to Europe, and help fill a "white meat deficit".

It is also in talks to explore the US chicken market, the world's biggest, to fill a gap in breast meat supplies.

Home-grown nutrients

And if investors have any doubts about whether Mr Kosyuk can maintain MHP's progress, which has taken it to a market share of 52% in the domestic chicken market, when other farm operators have had less luck, well, at least the group looks to have any trouble keeping tabs on its fertilizer supplies.

They consist of "thousands and thousands of tonnes" of chicken manure.

Dung would appear far less likely than bagged nutrients to find itself disappearing out of the back gate, as anyone whose nose has come within half a mile of a chicken farm can attest.

By Agrimoney.com

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