REPORT: AGRIBUSINESS STUDY WEEK 19-23 May 2010, Kiev (Core courses: Management and Agribusiness)
Introduction: The MBA study week is organized on the annual basis by different partners of the MBA programme. This year the event was held by the Ukrainian University of Life Sciences and took place in the charming Kiev. The main idea of the study week is to give students the opportunity to learn agribusiness through working in international teams on real-life business cases. Such practical training is also a possibility to improve skills in decisions making, data analysis, strategy formulation and communication in an international business environment. Participants: - Lecturers/instructors: Bruce Ahrendsen - Professor and Interim Head of Agricultural Economics and Agribusiness (form University of Arkansas, USA). - MBA students from Czech Republic, Poland, Ukraine and one French participant as a guest (approx. 35 students). Programme: 20 May: visit to Companies A: Milk Company management, tour facilities, and discussion to include company description, historical development, future direction, strengths, weaknesses, opportunities, & threats, issues to be addressed by MBA students, and company s expectations. Company B Visit to Machinery Company, tour facilities, discussion and presentation to include company description, historical development, future direction, strengths, weaknesses, opportunities, & threats, issues to be addressed by MBA students, and company s expectations. 21 23 May: The second part of the study week was dedicated to practical applying the theory gathered during the previous days. Although it was possibility for teams self-work according to own knowledge and experiences. Instructor supervised progress and were always ready to help participants and give practical and theoretical advices. The last day four international teams presented their propositions and solutions for both companies and discussed them with all participants. Finally all presentations were evaluated by instructor. The best solutions were chosen and awarded by the instructor. The main idea was to find new innovated solutions or visions for the future activities of the companies.
AMAKO (American Machinery Company) About the Company AMAKO (American Machinery Company) began its history in 1992. It is a division of a large international group of companies operating in the USA, Europe, Africa, and the Middle East. AMAKO s main activities are technological solutions in the areas of agriculture, construction machinery and commercial vehicles. AMAKO s partners network includes 33 dealer centers and 25 regional centers in the CIS. We are always open to mutually beneficial cooperation. How to Buy AMAKO offers agricultural machinery and technologies for agriculture, construction machinery, and Iveco commercial trucks on credit or leasing terms. Financial institutions play one of the key roles in our activity. With their assistance, our customers can always count on the individual approach and the most optimal solution for machinery purchase financing. At present, our company successfully cooperates with the largest financial market players to provide credit and leasing financing. A vast network of trade representative offices, service centers and dealers allows finding the immediate and quality solutions to the most complicated tasks related to machinery, commercial trucks and spare parts purchasing. We strive to find and offer the most favorable terms available on the financial services market. Maintenance and Spare Parts Over the years of operation AMAKO managed to create one of the most powerful maintenance support systems for machinery and equipment: - The repairs may be conducted either at the service center or right on site of machinery outage. - The logistics structure ensures the shortest delivery. In-house, constantly replenished warehouses for spare parts of the leading world producers have been constructed.
- Significant funds were invested into modern service center equipment, which ensures quality and quick performance with tasks of various degrees of complexity. - AMAKO employs qualified engineers with valuable practical experience gained at the production plants abroad. The SWOT - analysis Strong - Brand AMAKO image - Good and reliable international suppliers - Reliable partner for agriculture sector Weakness - Not enough information about special offers on the web-site, no Ukrainian complete version of it - No offer for municipal sector and construction companies - No own financial services Opportunity - Barter transaction - New financial services for customers - New brands to introduce on market - Expansion in Belarus - Increase activities in Russia - Longer periods of free service Threats - Competitors activity - Economical recession
SUMMARY The main theme of the case study is HOW TO SALE 20 TRACTORS OF MASSEY FERGUSON MF 6499. The second question to be solved was to decide, WHAT KIND OF SEEDS TO USE FOR THE MOST EFFECTIVE PRODUCTION. We were trying to show possibilities of solving this problem, which we found not easy to realize in given conditions. We analyzed all the conditions from information we have received from AMAKO and also from the web sites. On the base of this information we tried to describe possibilities. We found not all of them suitable for realization, but we also found new ways to go, for instance new markets like municipal and construction sector. Time for realization of our propositions is limited, so it was very difficult to suggest the best way to solve the problem. We pointed four potential customer groups and proposed the best solutions for each of them. In our opinion new markets seem to be important for AMAKO, but expanding there would take more time than one month, so we recommend focusing on agricultural customers, motivating them by the special bonus from AMAKO and also by the special state subsidy 35% return of the tractor buying price.
We received the SWOT analysis from AMAKO during the visit and it contained a lot of details. For us it was hard to find new ideas, but we tried prepared own SWOT analysis and point at the ideas that were not mentioned in the original one. At the base of the analysis we consider AMAKO strong, reliable and experienced partner for the Ukrainian agricultural sector. What we found not convenient for the image and also for sales of the company is that the Ukrainian version of web sites is not working. We found new opportunities in the cooperation with the municipal and construction sector and also in providing own financial services for customers. We found very important the possibility to introduce new brands on the market and also increasing the activities in surrounding countries. Providing of longer free service periods can be a competitive advantage for the company. In case it would not be possible to sell the tractors the way we mentioned for each customer group, there is the way to solve the problem by using credit from the financial partners AMAKO cooperates with when selling their products. Although AMAKO has a strong position in the sector and in Ukraine, it is very important for the company to work on the service quality, keep on educating sales men and motivate them well enough to be able to guarantee the best for the customer. The competition in this sector is strong and AMAKO should always do its best to be one step or better several before the competitors. The economical recessions has influence on every business and as AMAKO faces the reality of decreasing sales and profits, to be a leader in the sector it has to run its business more carefully and effectively than in times of prosperity. Regarding the seeds case study we cannot strictly say, which kind of seeds is better. Each customer has own production costs, which has affect on final result of the production. We consider Pioneer seeds more profitable than the domestic corn seeds. Using the Pioneer seeds the farmer always covers his costs. Although we find the Pioneer seeds more profitable and so better to recommend to the farmers, it is also very important not to forget about the domestic production to support Ukrainian farmers and production. The task for AMAKO can be to offer the study fields with different varieties of corn seeds to the farmers to let them see the progress in the production cycle in different varieties. At the base of own experiences they could recommend the most suitable variety for the concrete farmer and conditions he is
working is {using long term results from the study fields}. Finally AMAKO is obliged to look to results of Ukrainian universities and research centers and try to put it into the reality. UKRAINIAN MILK COMPANY Ukrainian diary market is on stage of evolution. Today demand exceeds offer. Instead of necessary 400 liters milk a year, Ukraine consumes 200 LITERS. Umc Ltd. Is one of the pretenders for the main diary company in Ukraine. If talking about the today s structure of Ukrainian suppliers, 80% of mild is supplied by home factories (with not good quality). I.e. enterprises which supply the rest 20% of raw materials have out-of-date equipment. UMC productions is produces on the up-to-date equipment. Milk is accepted by extra-class quality, it is favorable to differ by stable chemical compound, high fiber content and fat. The most valuable thing is a stable biochemical compound of milk during the whole year. The Company plans to increase milk yield to 100 000 liters a day till the end of 2009 year. The yield of milk on one cow have made 9 873 kg. for 2008. These are the best indicators of milk yield in Ukraine, and in the Europe countries. UMC is a young progressive factory which was found in 2006. The company is a specialty wholesaler; it producers milk for further processing and production of different products. The size of agricultural grounds, hectares 14 000 Number of herd, goals 6 653 Milch heard, goals 3 200 Breed Holstein Key Issues:
Profit increase; improvement of market position; possibilities of entering foreign markets; new opportunities; short and long term suggestions; how to expand the company The SWOT - analysis Strength - Multi-years forecasts of sales and production - Closed production system - High quality genetic material - Self-sufficiency (feed and gas production) - Modern equipment and buildings - Stable, fixed sales - Big area, easy to rebuild and develop activity Weakness - Risk of contamination - The lack of good work organization - Low hygienic level - Incorrect conditions of feed storage - Lack of well qualified stuff
- Threat of currency value changing - Bad financial conditions - Long distance from the settlement (during the winter problems with getting to work) Opportunities - Feeding optimization High quality reputation - Possibilities of drove improvement - Specialized production (infant milk) - Feeding optimization - Biogas sales - Big areas, possibility to lengthen the rate activity - Strong brand - Possibility of cooperation with international markets - Pilot plant modernization. - Costs reduction - Volume increasing - Proposal for improving production - Competition advantage maintaining - New markets searching - Alternative branch of activity: investment in pasteurization and UHT equipment - New big international players on Ukrainian market in the nearest future. Threats - Two the main customers only - Cost production increasing - Price milk decreasing - New competitors appearance - The lack of interest to lengthen activity - Substitutes - Investment credit
SUMMARY Recommendations for the future 1. Feeding system - savings Feeding system applied in this company is Total Mixed Ration which stands for Total Mixed Ration and this means that all cows are fed the same ration at the feed fence. Lely industries made a research in Germany and Canada into the effect of PMR and TMR feeding on feed costs and intake of concentrates and roughage, were PMR stands for Partly Mixed Ration. If PMR feeding is applied, the cows get a basic ration at the feed fence with additional concentrates per individual cow (supplied in the robot, feed station). They concluded that PMR feeding strategy may lead to savings of 1.67 Euro per 100 kg milk in Germany and 1.51 Dollar per 100 kg milk in Canada. Cows on a PMR ration are fed according to their requirements and therefore the animals will be healthier while in addition the total consumption of concentrate products will also be lower. For Ukrainian Milk Company that would lead to savings: (Data for Germany) Quantity of milk per last year: 24 000 tones = 24 000 000 kg. 1,67 per 100 kg of milk Savings: 240 000 000 kg / 100 kg *1,67 = 400 800 Which is 400 800 is 23 % of profit.
2. Milk - Farm produces 100.000 liters a day, which is pasteurized (low temperatures) and is distributed for 2 diaries Galacton and Wimbledon. - Both diaries makes from this milk sour children's products, which contain full nutritional value of milk. - Farm should take advantage of near-monopoly position in the market for so-treated milk and build up own diary to finalize production line of this type of milk products. - As a result of monopoly in the manufacture of this product will not be difficult to secure the sales of own redimate products in the commercial network of the Ukrainian market - Merchandize of final products will increase the added value of their production and profitability of the company. - Another key element of the proposed investment is the fact that the Ukrainian government supports the production of products based on whole milk and milk products for children through subsidies. - This business will lead to synergy effect, which has impact to higher level of margin - Investment in the necessary equipment would represent USD 20 mil, regarding the fact that the product portfolio will be limited by the milk sour products. - The company could receive a grant in level of 25% to the whole investment by Ministry of Agrarian Policy of Ukraine - The sum of all present values is the net present value, which equals $169 554 077 - Since the NPV is greater than zero, it would be better to invest in the project than to do nothing, and the corporation should invest in this project in case of fully free market conditions - Investment is 20 million USD, revenues from the milk product is 75 250 000 USD, costs are 18 250 000 USD which might include machinery, and employee training costs
Years CF PV 0 1 2 3 4 5 6-20 000 000-20 000 000 57 000 000 47 500 000 57 000 000 39 583 333 57 000 000 32 986 111 57 000 000 27 488 426 57 000 000 22 907 022 57 000 000 19 089 185 169 554 077 3. Other subproducts - farm owns herd of about 6700 heads of cattle and the intention is to further extend - Activity in this range automatically creates a problem with the recycling of excrement - Those can be productively used for biogas as a source for electricity generation - Currently, the farm has the needed technology, but not the sufficient volume and being production covers only 80% of its electricity consumption. - Firm is considering a possible expansion of electricity generation from existing 625 kw to 950 kw, which would not cover the consumption in case of implementation the proposed solutions - The company has to use their own renewable energy sources to generate electricity and heat supply security in a much wider scale and to sell the surplus energy to the public network at lucrative prices in the green tariff scale - Net income of each produced kwh is the amount of 0.97 UAH. It is caused by differences between green tariff price and normal price
THE INTERNATIONAL MBA AGRIBUSINESS