Golden wheat fields stretching as far as the eye can see…tractors working side-by-side in magnificent sunflower fields…. 200-acres of sun-ripened tomatoes representing the quality of hybrid genetics. Probably not what you would expect from a former Soviet state, right? Let’s try some different scenes; villages surrounded by half-acre ‘farm plots’…elderly people sitting out on streets all day trying to sell their produce … counterfeit crop input products running rampant on the black market.

These contrasting scenarios are all true in the Ukraine; you’ll find large farms like those you deal with every day and small plot owners barely etching a living from the land. Since gaining independence from the Soviet Union in 1991 and the subsequent market collapse in 1998, the Ukraine has become a country of stark contrasts. It remains as the bread basket of Eastern Europe, blessed with a rich black top soil that would make any of us envious. However, many Ukrainian entrepreneurs struggle with developing a viable infrastructure for agriculture.

Ukrainian agricultural retailers deal with this fragmented marketplace every day, facing challenges difficult for American businesses to conceive. Could you imagine doing business in a cash-only economy with $200 million of bad debt in agriculture, few potential employees with real farm experience, and a 36-50 percent interest rate on bank loans? That’s the only business environment most Ukrainian ag retailers have known since staring their businesses in the last five years.

What’s similar? Success is measured the same around the world in agriculture sales – by developing personal relationships with farmers. Just as U.S. retailers strive to offer a ‘total package’ to growers, your Ukrainian counterparts help farmers grow high quality crops through recommending the right combination of inputs, genetics, equipment, and technology. Herbicide, pesticide, and fungicide sales are complemented with agronomic advice, equipment recommendations, soil services, and farm visits.

Due to the range of farm sizes, Ukrainian retailers have to offer many types of solutions. According to Rural Agricultural Input Supply Expansion Ukraine, 17% of farmers working the land have 1-10 acres, 26% own 11-49 acres, 50% farm 50-249 acres, and 7% work more than 250 acres.

Large farms are mostly served by distributors, sometimes directly competing against their retailer customers. Retailers focus primarily on the middle segments, but high profit margins also mean they can’t ignore the small plot owners. Due to smaller farm size and cash-only terms, most inputs are packaged in considerably smaller increments than in the U.S. – think in terms of ounces and pints.

The Ukrainian distribution channel consists of manufacturers, national distributors, regional distributors, and retailers. You’ll find the same multi-national manufacturers in the Ukraine as there are here, along with some European-only brands. Manufacturers work with distributors to try to get technical information and support to retailers, but there is frequently a disconnect. Distributors (who may work only in one region or across the nation) deal with significant import logistics, along with employing agronomists and technical staff. These distributors may also sell used equipment, including tractors, planters, and combines – mostly imported from Europe or the U.S. Seed companies will sell direct to retailers and several have exclusive relationships with retail chains.

A typical agricultural retail store in the Ukraine looks more like a standard storefront than a ‘farm shop’ – you’ll see bright lights, a lot of shelf space, and tidy appearance. The presentation of products is significantly different than American culture; nearly all items are kept on shelves behind the counter. Both farmers and small plot owners are accustomed to standing at the counter, asking for products to be handed to them, and then talking to the staff about their needs. An agronomist is on hand to address any specific problems or questions; otherwise the staff behind the counter tries to find a solution within their inventory and provide background information.

Retailer inventories run at a bare minimum because of lack of credit. After the market collapse, retailers had to pay cash up front for all inventory. As a record of prompt payment and strong business management skills is developed, distributors may begin extending 30-day payment options. Growth can be difficult with a tax rate of 50 percent and painfully high interest rates.

In an increasingly competitive marketplace, customer interaction in the store is critical for a retailer to communicate their value proposition. Product and educational displays are being added to improve customer understanding of technologies needed for various crops. One of the goals of educating customers is to encourage more advance purchasing; most growers currently purchase seeds, inputs, and equipment on separate visits on an as-needed basis with very little planning ahead. Needless to say, this creates an inventory challenges for the retailers, not to mention lost sales to the competition.

Other outreach efforts to educate customers include field days, farmer meetings, and providing modern information (from the internet, manufacturers, or experts). Direct mail doesn’t work very effectively because the mail system in villages is largely dependent on whether the mailman delivers his mail or not. E-mail or a website isn’t an option in a country with a monthly average salary of less than $400.

In a way, Ukrainian retailers have a refreshingly old-fashioned opportunity to connect face-to-face with their customers – more than what we do in the U.S. Their creativity in a tremendously challenging environment and willingness to pave the way for a new economy is something we can all learn from!

Finding good people seems to be as much of a problem in the Ukraine as it is here. Many Ukrainian retailers cite this as a huge stumbling block – few prospective employees have any practical knowledge of agriculture. Even those who worked on a farm during communism have little understanding of modern practices. Next month’s article will focus on the challenge of finding employees and keeping them through effective training. Hope you’ll join me again on this Eastern Europe journey!