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Restoring The Bread Basket of Europe Introduction by the President Much had changed when I started out in the Ukrainian agricultural sector. Still I recognized the true potential of the rich and fertile Ukrainian soils. Ukraine has historically been the bread basket of Europe and we want to be apart of the process in restoring the country to this status. I am convinced that with the right competence, strive, courage, technology and control great riches could be collected from the vast Ukrainian fields. People tend to maybe over emphasize the Ukrainian soils, I would instead also like to remember the Ukrainian people and the talent and competence that lies there. During my years we have managed to attract and create a strong management team. I am proud when I say that the core of our company has already 11 years history of successful farming. During the last years the company has developed rapidly and we are today one of the most modern agricultural com- panies in Ukraine, where innovative IT-solutions play an important part. We have also during the last years, even during the crisis, expanded rapidly, still maintaining our margins and the strict control. Our goal is to expand further in the regions where we are active and continue developing and improving the company into one of the leading agricultural companies in Ukraine and the CIS. We will continue to invest into more modern machinery, drying and storage facilities and into good competent co-workers. I am confident in the development of our company, as well as the Ukrainian agricultural sector as a whole and I look forward to the challenges in the years to come. Alex Oronov CEO About Grain Alliance Grain Alliance is modern farm operator in Ukraine, which controls approximately 40 000 hectares, of which 35,000 hectares are cultivated, in four regions; Kyiv, Cherkassy, Poltava and Chernigiv, the operations concentrated to an area within a radius of approximately 80 kilometers. The business is well-integrated with short distances to the fields and storage facilities. Grain Alliance has five grain elevators, three of which have rail road access. The core of Grain Alliance has over 10 years of successful farming, achieving yields in important crops like corn, sunflower and wheat above the Ukrainian average. In 2008, the Ukrainian/American management team joined forces with a Swedish team of entrepreneurs as a result of this a Swedish holding company was formed into which capital was added enabling a more rapid development of the company. In conjunction with this reorganization strong financial and organizational expertise was added to the company and many parts of the existing organization were restructured and new modern financial management practices and more efficient agricultural practices were introduced. In addition, new agricultural equipment was added to the production process. Today Grain Alliance operates on the basis of western European standards of accounting and corporate governance, e.g. accountability, transparency, fairness and simplicity with the goal of maximizing shareholder value while simultaneously adding value for all other stakeholders. These principles are followed to ensure that laws, regulations and ethical values are in compliance with internationally adopted principles and standards. Business concept and strategy Grain Alliance’s business concept is to generate returns by increasing productivity and efficiency in the Ukrainian agriculture by implementing best agricultural practices, modern equipment and strict financial control. Since launch Grain Alliance has created a solid organization, which efficiently and sustainably can run a large scale agriculture operation. The long term goal is to increase the cultivated area and outperform western producers in terms of productivity. In order to reach these goals we focus on the following: •• Sustainable agriculture – our production is oriented towards a long term perspective, therefore a balanced mix of crops are grown with an emphasis on crop alteration and soil recovery. •• A limited geographical area - Grain Alliance’s strategy is to cultivate and operate in a concentrated geographical area. The radius between the farms is approximately 80 km. By having farms in close proximity to each; machinery and equipment can be used more efficiently and the cost of transporting tractors, harvesters, between fields is lower. The drying and storage facilities can also efficiently service the existing farms. •• Financial management and internal control – Grain Alliance has developed a unique integrated financial management information system, which is especially developed and adapted to the conditions of the agriculture sector in the Ukraine and CIS. •• Expansion, but not on the expense of productivity, efficiency and control – Despite the fact that Grain Alliance is expanding rapidly we expand only when we are sure that we can maintain or increase profitability from the start. Sustainable agriculture In order to maintain long term profitability Grain Alliance runs a sustainable agriculture. The Company’s production is oriented towards a long term perspective, therefore a balanced mix of crops are grown with an emphasis on crop alteration and soil recovery. Grain Alliance is also unique in Ukraine by having an in house laboratory, which monitors and measures the quality of the lands. In Ukraine there are only a handful of such laboratories. By continuously analyzing the soil the agronomists scientifically know what kind of fertilizer to use and in which quantities. Grain Alliance can also in time react to problems such as increased acidity of the soil. This information is used in the long term production planning process thus securing a long term sound usage of the soil and avoiding exhaustion. Moreover, producing crops usually involves regular plowing, tilling, that stirs up the. Plowing, tilling, is used to remove weeds, mix in soil amendments like fertilizers, shape the soil into rows and prepare the soil for seeding, yet this can make the soil too compact, loss of organic substances, loss of soil microbes, arthropods, and earthworms, and increased erosion. To avoid these unfavorable effects Grain Alliance uses the so called “no-till” method. The No-till approach reduces or excludes the use of conventional tillage. Regular tilling degrades the fertility of soils, causes air and water pollution, intensifies drought stress, leads to an increased fuel consumption and even contributes to global warming. Geography of operations In order to maintain long term profitability Grain Alliance runs a sustainable agriculture. The Company’s production is oriented towards a long term perspective, therefore a balanced mix of crops are grown with an emphasis on crop alteration and soil recovery. Grain Alliance is also unique in Ukraine by having an in house laboratory, which monitors and measures the quality of the lands. In Ukraine there are only a handful of such laboratories. By continuously analyzing the soil the agronomists scientifically know what kind of fertilizer to use and in which quantities. Grain Alliance can also in time react to problems such as increased acidity of the soil. Moreover, this information is used in the long term production planning process thus securing a long term sound usage of the soil and avoiding exhaustion. Drying, storage and equipment One central component in running an agriculture business is the ability to store the grain produced. Grain Alliance has five grain elevators in three regions. Three of the grain elevators have railroad access and Grain Alliance will continue to invest into storage facilities. The railroad access facilitates efficient logistics for the Company’s products. Grain Alliance uses modern equipment, from producers as John Deere, Claas, etcetera, directly imported from the U.S. and Europe. We also have several inhouse service and repair shops. Grain Alliance is continuously investing into new machinery and equipment. By adding modern technology and competence we are gradually increasing the productivity and the quality of the work performed. Crops Grain Alliance’s mix of crops is determined by an overall framework strategy developed by the Company’s agronomists based on scientific measured data. The allocation of crops is slightly altered from the framework strategy based on forecasted outputs and developments on the international commodities markets. The overall goal is to have a production mix that maximizes returns in a long term perspective and do not exhaust the land. Therefore Grain Alliance, in the crop planning, strives to retain the superior fertility of the Ukrainian soil and at the same time cultivate crops for which one could estimate the best prices. The strategy is to reduce sunflower and move more towards a rotation of corn, soybean, barley and milling wheat. Sunflower as a crop renders high prices, but at the same time wear out the soil. Soybean on the other hand, restores and enriches the soil. Land rotated from soybean demands less fertilizer. Demand for soybean is also increasing globally and price of soybean has, during the last decade gradually increased. Yet, soybean demands more precision in the cultiva- tion process and thus requires investments into new more modern equipment. International experience also points towards the benefits of a crop rotation between soybean, corn and wheat/barley. Grain Alliance - BZK Vasagatan 38 111 20 Stockholm Sweden Grain Alliance - BZK Torfyana street 11 Kiev region Ukraine www.grainalliance.com