AIDARBEK KHOJANAZAROV, CEO OF OLZHA AGRO: MODERNIZATION AND KNOWLEDGE AS KEYS TO SUCCESS OF OLZHA AGRO
27 May 2019
In 2015, the news about financial problems at Ivolga Holding, then the largest agricultural holding in the post-Soviet region, came as a bombshell. At that time, Ivolga Holding was operating about 1.5 million hectares of farmland in Kazakhstan and Russia. The court did not approve bankruptcy of Ivolga Holding, but the company’s owners drew a lesson out of own mistakes and decided to improve the company’s operations. As a result, a new CEO, Aidarbek Khojanazarov, was appointed at the end of 2017. He proposed a conceptually new management approach while the holding itself was rebranded into Olzha Agro. Today Olzha Agro operates exclusively in Kazakhstan. It includes 11 agricultural companies with a total of one million hectares of farmland, of which 458 thousand hectares are being used for agricultural production, 174 thousand hectares for fallows and the rest for pastures and other purposes. In an interview to Largescaleagriculture.com, Mr. Khojanazarov spoke about the current developments at Olzha Agro.
Mr. Khojanazarov, you have been appointed as a CEO of Olzha Agro, former Ivolga Holding, after the problems with the company became known to the public. Today, after one and a half year in the office, what do you think about the problems that Olzha Agro inherited from Ivolga? To what extent are you satisfied with the progress on solving these problems? What has been achieved and what has not?
The most popular question about Ivolga is why it almost became bankrupt and what the future of the company is. However, there is no simple answer to your question. Among the reasons of nearly bankruptcy named most often are the 2008 financial crisis as well as bad weather that occurred quite often in the area of our operations in the past years. The latter caused either bad harvests or inability to complete the harvesting campaigns.
At this background, loans taken from commercial banks for modernization and business development could not be paid back and became the main trigger of financial troubles. Regarding Ivolga’s internal organization, problems persisted in almost each segment, ranging from poor interaction between the elements of organizational structure through authoritarian style of management to lack of floating funds. Issues such as employee qualification and technical modernization were paid little or no attention. Ivolga’s grain production segment lacked adequate crop rotation schemes and necessary volumes of fertilizer.
As for the other causes of the crisis, I personally think that these problems are typical of any business empire characterized by centralized management. First, in the process of expansion, such empires grow to the point when it becomes difficult for just one person to control large numbers of acquired units. Absence of adequate management at the local level makes such enterprises become a drag on other, healthy parts of a holding.
Second, endemic theft by employees was another important problem of the former Ivolga. According to my sources, about 10% of the harvest was stolen from the company’s fields in 2017, which equals about 4-5 billion Tenge (about $ 13 million). Third, interrelationships between units inside the holding were difficult. There was lack of industriousness and personal interest at the local level. Of course, all of these problems have little to do with bad weather but they could have been solved if the work had been organized properly.
This year, for example, we had too little snow, which implies we have to expect problems with the harvest. Nevertheless, we do not have any wage arrears and we are even able to implement some positive changes. Let me assure you that no enterprise within my scope of responsibilities will be liquidated despite some of them are still not self-sufficient. We plan to modernize our enterprises and introduce new management approaches to them.
What is the ownership structure of Olzha Agro? Who are its main beneficiaries?
Olzha Agro is owned by two Kazakhstani businessmen, physical persons, as well as by one Kazakhstani agroholding, a legal person. Their role is important because they not only provide us with investments but they also share their valuable experience gained from their previous work in various sectors, such as logistics, agribusiness and oil industry.
Have you managed to improve access to outside sources of capital in the past year and a half?
Today it is rather difficult to receive financing from foreign investors whereas access to finance from Kazakh banks is limited. The agricultural sector is considered as uncertain and non-transparent in Kazakhstan. Therefore, one of the main aims of Olzha Agro is to become more transparent and improve the credibility with financial institutions in order to get access to necessary funds.
What is the production structure of Olzha Agro today? How do you plan to develop your crop production and livestock production?
Today Olzha Agro is a group of companies that includes eleven agricultural enterprises, eight grain elevators, a machinery repair unit, a trading company and a plant for production of spare parts for machinery named Olzha Agrotekhmash. According to the company’s production strategy, the future production portfolio of Olzha Agro will be equally represented by wheat, oilseeds and livestock production.
How many people does Olzha Agro employ today? How did the company’s staff change over the past year and a half? How did the salaries change?
Currently, about 5,000 people are employed at Olzha Agro. This number increases up to 7,000 people in the harvesting season. Within the last 18 months the quantity of our personnel has not changed much. What has changed is the structure of our departments that has been reorganized so as to improve the efficiency of all departments. At the same time, salaries of our employees rose by 30-40%.
Are you satisfied with qualification of your employees? Does your company provide trainings or other qualification improvement opportunities?
Improved salaries do not imply that we are fully satisfied by the quality of work that our employees deliver and the level of their qualification. We want to raise our requirements toward employees. One of the main aims of Olzha Agro is to build a strong and highly qualified team. We have recently formed a new team of agronomists, engineers and livestock breeders. However, we are still in search for qualified personnel, as there can never be full satisfaction in this regard. One should always be in search for not so much the new people as the new knowledge.
With this purpose in mind, we have initiated a range of trainings. We organized staff trainings before as well, but those were held primarily for top management. Today these trainings include also managers of lower levels all the way down to line agronomists. More than 120 employees in total are being currently trained.
Who is a line agronomist? It is a specialist that is responsible for a small farmland unit of 5,000-10,000 hectares. It is very important that such line agronomists have the necessary know-how as they are the people who literally follow each sowing machine and each harvester and their role in our success is fundamental. They are primarily responsible for diagnosis of the situation on site and they are exactly those people who have to make operational decisions. Thus, if they are missing elementary knowledge, then this is fiasco, as this implies only one thing: the whole system is unsustainable. Having only a highly knowledgeable chief agronomist in the head office will not help matters.
Do you observe any differences between Kazakhstani agroholdings and agroholdings in Russia, Ukraine, Brazil, etc.?
Referring to Leo Tolstoy’s ‘Anna Karenina’ novel, “All happy families resemble each other, each unhappy family is unhappy in its own way.” The same way agroholdings are happy about high yields, efficient management and good revenues. At the same time, each agroholding is unhappy in its own way and this unhappiness also differs by country. Well, we are knowledgeable about some Kazakhstani agro-companies, we understand our similarities and differences, but any external comparisons would be incorrect and rather unprofessional here.
Which innovations have you introduced at Olzha Agro? What do you still plan to introduce?
In 2017, we invested in digitization a total of 380 million Tenge (about $ 1 million). In livestock production, we were the first in Kazakhstan to introduce the herd management program called DairyComp and the program of monitoring of physiological state of animals called SmaxTec. We also introduced the system of preparation and distribution of feedstuff. These innovations helped to increase milk yields by 11%, reproduction by 46% and weight gains by 16%. They also helped to reduce the animal morbidity level by about 17-20%. We plan to build a new dairy farm of 1,200 cows in size and expected annual milk yields of 9,500 liters per cow.
In crop production, we introduced agro-scouting/crop monitoring, digital field mapping, GPS monitoring of machinery operations, some elements of agro-analytics as well as meteorological stations. These innovations allowed reducing the cost of fertilizer, cropping protection, seeds, fuel and machinery repair. More precise data on reduction of these costs will be first available at the end of the current agricultural season.
What are the main management problems at Olzha Agro today?
As we operate farmland, we have to be able to plan the cropping structure in the long run, 8-10 years ahead, if we want to preserve soil fertility. However, climatic conditions require adaptation of these plans at the local level, all the way down to change of the cropping structure at the operational level of management. The management task that we are trying to accomplish today is to reduce the discrepancy between our long-term plan to preserve soil fertility, yearly business plan to increase profitability and short-term corrective actions at the local level, which our field agronomists are impelled to undertake to address high variation of weather conditions in our climatic zone.
Two important conditions have to be fulfilled to enable correct decisions in such a context. The first one is the high level of competence among agronomists, including knowledge of peculiarities of the region acquired through experience of working at the local level. An agronomist in the field should possess not only a high level of professional qualification but also experience of working directly in the fields he is responsible for, as the characteristics of the neighboring fields might differ substantially. This implies that production technologies have to be adapted to account for such differences. The problem here is that agricultural enterprises lack qualified agronomists due to insufficient social safety nets in rural areas. To this end, the profession of an agronomist is not considered as prestigious.
The second condition is good organization, flexibility and teamwork of the production staff. This is necessary to enable quick response to the agronomists’ recommendations aimed at most efficient adaptation to changing weather conditions. Thus, for a large agricultural enterprise, it is important to have a strategy of improvement of operational efficiency.
What is your vision of the development of agriculture in Kazakhstan in general and in your company in particular in the next five years?
Regarding our company, we move toward diversification, digitization of crop and livestock production, growth in added value production, improvement of efficiency and labor productivity. The question about the development of the industry as a whole should rather be addressed to the Ministry of Agriculture.
Thank you for your time!