Towards grain processing factory construction

ULDIS GRAUDIŅŠ

While managing Latvia’s largest organic Farmers’ cooperative, you have omitted the biological farming model in your own company – why?

I was one of the biggest organic grain producers. Huge amount of money was invested in production, machinery was bought, including harvesters and tractors. I am working hard for myself, not for the country or European union, currently previously taken loans have to be covered. What to do, if money income from sales, state and EU support does not go along with the expenditure? I have to support my family, provide good education for my children. In the absence of stability and predictability, what motivation do I have to do organic agriculture? What green course, if the price of organic grain is 30% less than for conventional grain? Last year’s balance was hardly pulled out by the conventional part of the farm, although it was also negative. In this year, absolutely all winter rape crops of 300 hectares froze. Everything needs to be re-sowed. Who will compensate it? In compensation for last year’s natural disaster there were nine euros per hectare, however, the actual cost was 300 euros! It would have been better to divert the money for insurance support. We are not fanatics aiming blindly to transform everything. The train rolls on, we have to draw our own conclusions. They will be based in mathematics and economics. The real strategic matters show the reality. If there will be no planning on a larger scale, no change in thinking, we are going to suffer the same way for years to come! Nothing will change. The way of thinking of country, the people and the farmers must be radically changed.

Kaspars Bokta. “The way of thinking of country, the people and the farmers must be radically changed.”

The intended construction of a processing plant of “Jurgensburg Agro” cooperative could be a good example of change in thinking.

“Jurgensburg Agro” is the largest and the first recognized large-scale organic cooperative in Latvia with 75 members. 22,000 hectares of organic land together. There used to be several small formations without extensive scope and vision. “Jurgensburg Agro” has been formed on the basis of “Biograuds” cooperative, whose creators united several years ago for the oat cargo export. Many years the cooperative was languishing, then the management changed. We started a rapid growth – from 22 members to 75 with more than 2.5 million euro cash turnover. We are planning to double or even triple this number in the next years. The goal is to create the basket of benefits for members on a scale that can optimize all potential costs, including technical support in land cultivation. We wish to provide all the necessary infrastructure for our members, including pre-treatment complexes, capable of accepting all the crops, cleaning and storing it and consolidating until the moment of sales. Currently there are four such complexes established in different parts of Latvia where we provide grain pre-processing services to our members.
We have already planned to provide high quality seed for the market in the next couple of years. This means that we produce it as a raw material and also prepare it ourselves at a proper level, working with professionals and equipment such as photoseparation. That requires a huge investment of finances. Also the construction of the processing plant is planned over the next two years. Factory will process the crops of our cooperative members and also crops grown by other farmers. The most important goal is to create added value for self-grown products. The biggest Latvia’s long-term problem is selling our grain without added values. The grain is taken to the port or sold to some processing companies. In Latvia there are no organic and also integrated cultivation grain processing factories, apart from “Dobeles dzirnavnieks” and “Aloja Starkelsen”. Thus, the competitiveness for other product groups doesn’t really exist. In Latvia, only a small part of what is grown remains for processing. Our most important goal is to develop larger and smaller grain processing companies able to export, so that the grain left over after our own consumption is processed with added value. Currently this added value is collected by the Netherlands or Germany or any other country, who buys the crops grown by our farmers. It is important to keep this added value in our country. A farmer in Latvia, not just a cooperative member, assumes all possible risks – nature conditions, current assets, harvesting and selling the crop. The added the value is mainly extracted by others. They are either traders who buy and resell and consolidate quantity or added value is taken by processing factories. But it should stay in the hands of farmers.

Grains grown in Latvia mainly end up in so-called third countries, including Nigeria and Morocco. Biological grain markets are other. European Union market of cereal products is saturated. How will this processing plant be able to compete?

It will be a universal factory for both biological and also conventional crops. Building a specific factory for organic products only is a very high risk. We must be as universal as possible with the ability to gradually grow the processed quantity of products. If we concentrate in one direction, we risk a lot with focusing in a very narrow niche and also with a monetary investment. Modern times require very fast adaptation to the changes in market. We cannot produce, for example, only rye. Everything must be done to be able to process and export all crops grown by Latvian farmers. If we don’t, we can’t pay a competitive price to farmers as it is done, for example, in Germany and Italy, where procurement prices for organic products are significantly higher than in Latvia. Support for crop production is also much higher there. The reason – they have processing and they create added value in their country. We haven’t done it for years. It is a big strategic mistake! We are actually losing competitiveness and added value of labour and other matters, which we can be left in Latvia. This is what needs to be changed! We have ports, the railway, the overland transport option, the geographical location is also good. Our advantages compared to Western Europe manufacturers are several. Firstly – logistics. It’s one thing to take away grain from Latvia to the Netherlands, where they have logistic chains, value is added for grain, labour costs, everything is there. The next most important thing – the processing factory we are going to create will be more modern, more thoughtful than the companies built earlier in other countries. We intend to operate the latest and most modern equipment, use the latest technologies. We have envisioned a fairly robotic factory where the human resource will be less important. This approach will allow more efficient production, we will be more competitive.

Will Italian or any other economically developed country buyers want to buy flour produced from grain grown in Latvia?

Politics in economically developed countries is very simple – first they would buy the most demanded products from their own country. Only if there is not enough, they would buy from others. This is what happens in Scandinavia, in the old EU member states, in Lithuania and Poland. These countries firstly do everything to process products produced by their farmers. That is what our leaders have not understood until now – in the national level. When will it change? As long as we get the EU support, it must be worked on every day. It is not about “Jurgensburg Agro”, but about state policy. Every region should have a place where farmers hand in the crop, where the value is added to it, everything is packed and delivered to the port, as it is done in “Dobeles dzirnavnieks”. Only the scale is different. No grain should be exported from Latvia without added value. Everything that Latvian farmers are able to grow, should be here processed, packaged and sold. A good example is Aldis Locmelis’ ZS “Kotes”. Aldis is gradually developing processing and adds value to production of their farm. This should be done in a wider scale. And there must be an exportable product. The Latvian market is very small. That cannot help all farmers and be interesting for international players, large markets. If we don’t create quantity, which will be interesting for the big international large-scale buyers, we will continue to be uncompetitive. For example, the Lithuanian cooperative “Auga” has created and international well positioned own brand with turnover close to a billion euros. Why can’t we do it? It is a typical Latvian inability to sit down for a conversation and agree on things that will lead to result. We must learn from the best examples. In Scandinavian countries, farmers own not only processing and logistics, but also pretreatment complexes and often also supermarkets. There is a very strong developed lobby for selling their products in their networks. Primarily they are selling only production of their own country. Almost nothing is bought from outside. They are buying only what they cannot produce themselves. We must do exactly the same – promote our own products manufactured by Latvian companies firstly. It is plausible that a political intention also is felt into this direction. Now they are finally talking about country flag signs being attached to the product price tags. Another strategic condition is brand. They do not know Latvian products, because they are produced in relatively small quantities. Probably “Dobeles dzirnavnieks” is more widely known. A common brand must be created with state support, with which we are able to export and who should have a name recognized in the international market. Such a brand will guarantee some security, quality and traceability. It must be fairly heavily supported. If everyone builds a brand individually, it will be very expensive and take long. It should be done on a national scale. There must be one brand through which the Latvian farmers can grow and process the product and it is sold and export is organized. I see it strategically as well. Every country has such types of state-supported brands. You can connect a lot of brands together – such brand must be properly and strongly formed. All our state support channels, including embassies around the world, should distribute it. Sounds beautiful, another question – how to implement it in real life? A huge investment and large administrative team is needed to professionally create and maintain this brand.

There were attempts with “The Green spoon” and other miracles. Who remembers and knows it anymore? “The Green spoon” is known by a few percent of society. Is it known in Lithuania, Germany, China or Dubai? What are we even talking about? That in my view is a very misused resource. “The Green spoon” is not international, recognizable brand and it is also outdated. “Coca Cola” or “Apple” level brand should be created with which we are known as food product manufacturers. If we continue thinking only in a scale of farms, financially and in every other way we will be small players. There must be a common strategy for the general direction.

The biggest Latvia’s long-term problem is selling our grain without added values.

Currently in connection with sanctions and the port policy implemented by the state, our ports and the railway is in idleness. The drop in cargos is dramatic, people are and will be massively fired from work. A whole industry needs to be supported while working with little power. We do not in any way support aggression in Ukraine, however, the reality is that our economy suffers very heavy losses. The added value must be found and ports should work with the resources available in Latvia. Those are not only forests, grains, it is also processing with the creation of added value from what we are able to grow and produce. Only then we can revive ports, some inland reorient logistics. Otherwise, one by one we destroy all sources of money flow.

What could be the products manufactured in the intended factory?

Negotiations are going on, we are going through research, during the last three years we have visited the world’s largest exhibitions. We have invested a lot of money to understand how the market works and what a demand is. Circumstances are variable. The covid pandemic has changed eating habits a lot. Also, the following war. The buyer is currently evaluating the product price, not quality. Purchasing power of people has fallen. We can be competitive only if we can produce the required products not only cheaper, but also in a better quality and in a sufficiently meaningful quantity. We should focus on the things that Latvian farmers can grow. Currently, in the cooperative, we are aiming firstly to process the cooperative’s potential production and develop this more and more. Then we will be able to pay the farmer much more, and this will give him the motivation to cultivate specific products and plan differently. Currently the processing factory is designed, the last nuances of the technical lines are being polished. Cooperation with financial development institution “Altum” is going on where project financing is being negotiated. Of course, we hope that cooperatives will be able to receive support from the state for development of this type of production. Currently documents required for the construction of the production plant are in the final stage, they are being polished to be able to choose the right technology specific for crop processing. When we will be done with project documentation, then the amount of required cash investment will also be clear. Provisionally it is currently emerging. Potential investors have also shown an interest to engage in the implementation of such a project. Conversations are successful, they have come to for the stage when the overall budget and cash flow is formed for the implementation of such a project.

Have other cooperatives shown interested in getting involved in the project?

I would like to note the very good cooperation with cooperative “VAKS” and its manager Indulis Jansons. We regularly discuss and evaluate elements of this type of potential cooperation. Locking together our cooperative and “VAKS”, a huge raw material base is created, which can serve as a guaranteed flow for processing.

We also cooperate with “VAKS” on everyday basis. This is a good example how a cooperative works not only with its members but also with other cooperatives. Our cooperative members are even other cooperatives. Cooperation takes place in many directions – with the seed, information exchange, planning, regional cooperation and logistics. We discuss the overall vision of the industry and the process streamlining and optimization. Respectively, the work is being done in order so that the farmer could reduce the cost, get more accessible services and feel comfortable. The most important thing – so that the farmer has more money left for the development of own farm.

By producing higher added values products, we will be able to pay the farmer higher purchase price. Cooperative members are guaranteed to sell the crop. That means that they can systematically grow and count on something. They will not be subjected general market fluctuations, but planned procurement according to factory capacity and according to sales which the cooperative will arrange in other countries and domestic market. In this year we bought the agricultural machinery for a million euros to provide services to cooperative members. The goal is to plan everything and thereby optimize the workforce, technical and also fertilizer and fuel procurement costs. We are on our way to this operating model.

Is there hope to receive state support for construction in this planning period?

Money available in general order is for farmers, including cooperatives, their growth and other purposes. Financing politics of agriculture should be radically changed. The only national support institution is “Altum”. Everything possible must be done for strengthening it and making it even more accessible to farmers. In Latvia, almost the entire banking network is Scandinavian, and economic performance indicators show that they are just thinking about their own pocket. 40% Latvian lands belong to citizens of other countries and foundations owned by the same commercial banks. Who does or doesn’t finance Latvian companies? The same Scandinavians! How can we compete with the given 5 or 7 percent rate for Latvian companies, if Scandinavian investor who buys land in Latvia gets the 1.5% rate? They can receive money on 30 years, we – for a significantly shorter term. They are interested in cooperation with their own related investors, buying cheap resource – Latvian land and continue to do everything to enslave Latvians. That’s it. There is no strategic interest in our development. Let us be managers at employee level but not hosts. Everything possible should be done at the national level to develop the country and give our people the most profitable resources for growth, including support for products with higher value-added production and thus increase competitiveness. Work must be done so that “Altum” would lend money with lower loan interest so there would be faster processing of applications, more support programs for farmers and recourse from this national bank would be possibly cheap.

Read the article in the May issue of the magazine Agrotops 2024.