John Shmorhun: Decision-making in AgroGeneration is organized bottom up

John Shmorhun, President of the France-based agroholding AgroGeneration that operates 110,000 hectares of farmland in Ukraine, tells about decision-making, management autonomy, business performance and collaboration with small farms in his interview to Landlord.ua.

Vertically integrated agroholdings are typical of Ukrainian agriculture. However, there is a growing tendency for agroholdings to engage in horizontal integration by collaborating with small farms. Is AgroGeneration engaged in such cooperation?

Yes, we have the programs of cooperation with different farms in the regions where we operate, with a focus primarily on exchanging information, experience and technologies. For example, if a certain hybrid crop has proven productive on our fields, we share this information with the neighboring farmers. We also practice the shared use of our elevators.

Such cooperation meets the interests of all involved parties. We, as an agroholding, are concerned that all the fields in the region be cultivated promptly, the technologies be implemented at all farms simultaneously, and fertilizers or plant protection products be purchased collectively. Such cooperation is mutually beneficial, logical and natural. That is why we encourage it. However, the best way to help small farmers is to support them financially through government programs. This would make the small farmers leave the “grey market”, where many of them are currently compelled to operate.

AgroGeneration operates in five regions of Ukraine located remotely from each other (from East to West across the country). What management practices are used to run such business? How independent are the enterprises of the company in making decisions?

AgroGeneration employs a bottom-up approach, whereby the field managers of our subsidiaries have broad decision-making power. All budgets for all orders are analyzed, systematized and optimized in the head office. For instance, the head office may decide that there is no need to buy 20 types of fungicides if 5 of them would be enough for efficient farming in all regions. Once budgetary proposals from all subsidiaries are consolidated in the head office, we issue tenders for centralized purchase of all required input materials, resources and machinery. Such model is far more cost-effective.

Besides, most of our sales are also optimized. We work with known traders that offer us the best prices and conditions. However, our field managers are able to sell at a better price locally. They only need to get approval from the head office. Thus, financials at our company are relatively little centralized while decision-making mostly depends on specific conditions.

How independent are field managers at your company in making management and production decisions, e.g. regarding crop rotation or other similar issues?

There is certain autonomy here as well. As I have already mentioned, our budget follows a bottom-up approach. We consider field directors as independent decision-makers, not as just implementers. Additionally, they carry out a very important function - they are in direct contact with the landowners. The field managers also have all the powers to cooperate with local authorities. They bear a great responsibility.

There is probably one management function the head office is solely involved in, and it is coordination of the use of machinery and inputs. We have coordinators who make the optimal schedules for machinery use and are authorized to transfer machinery from one enterprise to another within the farm clusters or sub-clusters to perform certain works. Such approach allows to effectively distribute machinery among enterprises and to increase the efficiency of the entire holding.

Which performance indicators do you consider the most important for your company?

This is a very difficult question. I would say profitability per hectare. This is a universal indicator. And for Ukrainian agroholdings, the percentage of registered land lease agreements with landowners is another extremely important indicator. We have more than 30,000 of such agreements, and we are working hard every day to care of our landowners.

Adapted from Landlord.ua