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Titans of the industry

FARGO, N.D. It's been nearly 10 years since Peter Christianson, president of Titan Machinery Inc., first took a trip into the vast Ukrainian farming areas.

FARGO, N.D. It's been nearly 10 years since Peter Christianson, president of Titan Machinery Inc., first took a trip into the vast Ukrainian farming areas.

Today, Christianson has made numerous trips and is one of several North Dakota agribusiness companies active in the country.

He and Olga Hall, Titan's director of international marketing, think a lot about ways to link the marketing and customer service expertise of Titan Machinery Inc. one of the largest Case-IH dealers in North America with NovoFarm Ltd., which has become a major Case-IH distributor in Ukraine.

Titan supplies NovoFarm with technical advice and industry knowledge, as well as supplying new and used machinery. Christianson did not say how much equipment or how much money is involved, citing securities rules and competitive reasons, but it's clear that work has its rewards.

"What's exciting about it is that we're able to leverage on information from North America and put it to use in another region," Christianson says.

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West meets East

Christianson's forays into Eastern European agriculture started in 1998, when Phil Kaikov visited Fargo, N.D.

Kaikov, of Moscow, had worked in the United States and went back to Russia in 1991 as communism fell. He'd become the local distributor of Case-IH equipment in Ukraine known as the breadbasket of Europe.

With a bearlike countenance, the Russian was in Fargo primarily to visit the famed Steiger tractor manufacturing plant. During his stay in Fargo, Kaikov visited Christianson at his then-Farm Power Inc. dealership in Fargo.

Kaikov and Christianson quickly became friends.

Kaikov soon invited Christianson to travel to the Ukraine region.

"He wanted me to assess their farm equipment dealer distribution network," Christianson says. "That's what I did."

Before long, Christianson found himself in a minivan, traveling with three of Kaikov's associates across the back roads in Ukraine. He found the country to be rich in farming resources soil and climate but with very outdated machines in the field. "They were farming with 1950s machinery," he says.

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He toured factories that were equal parts farm equipment and military. One, he remembers, had marble floors and covered 360 acres. It made farm equipment and intercontinental missiles.

As it happened, Christianson was in Ukraine during a historic economic collapse of the Russian ruble.

"While I was there, the ruble was severely devalued," he says. "It was all happening so 'real-time,' they didn't know how to react."

The market for any foreign technology or machinery went dead or dormant.

Christianson went home after the collapse. Kaikov withdrew from Ukraine.

Fast-forward four years.

An awakening

By 2002, Christianson's dealerships had joined Titan Machinery, with David Meyer, who had been based in Lisbon, N.D. Today, the joined company includes 38 dealerships in four states and recently became publicly traded.

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In April 2003, Titan made an important hire which led to another hire. It hired Mike Hall, originally from the Park Rapids, Minn., area, to manage its Fargo construction equipment business (then called Krider Equipment Co.). Hall had experience with Case-IH and worked for Deere & Co., out of Minneapolis.

Mike was engaged to marry Olga Vasilyeva, a native of Irkutsk, Siberia, who had also worked for Deere in Waterloo, Iowa. Olga held degrees in marketing and a master's of business administration in international marketing.

Initially, Olga headed Titan Machinery's marketing department.

"We made a commitment that after she got our domestic marketing developed that we would look at any possibilities in international marketing," Christianson says.

In April 2004, Olga helped put together a trip through the North Dakota Trade Office. The tour involved stops at U.S. Commerce Department trade offices in Ukraine and Russia.

"We called on three businesses a day for 10 days cold calls," Christianson recalls.

When they returned home, people asked if the trip was successful.

"We told them we didn't know until we sold something," Christianson says. "Within two weeks of us coming home, we'd put together a business deal to send 16 used combines to the Ukraine."

Titan's main contact became Irina Michaylova of NovoFarm Ltd. Actually, Christianson had met her on the first trip in 1998.

By now, the Red River Valley's influence already was being felt in Ukraine. Among others, Amity Technology of Fargo, led by Howard Dahl, was making progress selling sugar beet equipment in the region. Several other North Dakota companies had marketed

various products manufactured there.

That August, NovoFarm brought more than 20 Ukrainians to the Red River Valley, where they attended one of Titan's large, in-field equipment shows near Wahpeton, N.D.

A few months later, Titan officials returned to Ukraine and put on an October field show.

Christianson says it's been a huge help for Titan to employ Olga, who understands the mentality of the Ukrainian and Russian culture and is fluent in the language.

"One of the reasons we work with Irina, on the other hand, is that she understands the American mentality," Hall says. She is fluent in English and has traveled extensively in the United States.

Titan Machinery has grown considerably in the past few years. According to government filings, the company's revenues went from $162.2 million in 2005 to $228.5 million in 2006, and $292.6 million in 2007.

The recent IPO brought in $48 million.

Meyer, the chief executive officer, says "our industry is on the front end of major consolidation. Capital from our IPO will allow us to participate in consolidation opportunities."

Neither Christianson nor Meyer will comment on how much of their growth is attributable to the international business.

Exchange of success

In the beginning, Christianson measured success simply by how much used equipment they could sell. That's changed.

"Initially, the best part of selling over there was that there were no trade-ins. That's simple, clean business," Christianson says. "You sell it, you're done."

Customers there were looking for five- and six-year-old combines both John Deere and Case-IH.

Three underlying factors are changing.

First, as the Ukrainian economy has developed, the farmers have put lots of hours on the equipment they bought three years ago.

"Because of that, very quickly, they'll have their own source of used equipment in Ukraine," Christianson says.

Titan Machinery is consulting with the Ukrainians on how to put value on machines the customers are trading.

"They're learning how we sell, trade, service and sell parts. Literally they're bringing their customers to Fargo, N.D., for a whole week and do nothing but tour our facilities, talk to our parts people, to Peter, to our farmers, to learn about how we operate," Hall says.

Second, the market has shifted almost exclusively to new goods.

"'New' costs more than 'used,' but the freight costs the same," Christianson says. "Freight is a lesser percentage of the price on new versus used."

Initially, the Ukrainians simply looked for equipment. There was little discussion about what happened after the sale.

"The market, at some point, matures to the level where the customer is looking not only at the features and benefits (of equipment), but also the service and parts," Olga adds.

One of the things Titan has been helping its distributor with is teaching, demonstrating and recommending equipment service.

The third factor is the weakening American dollar.

"What's really driving things is the (currency) exchange rate," Christianson says. "All of a sudden, our equipment has become more attractive than equipment from Europe."

Still, Christianson says, U.S. machinery provider faces stiff competition from Europeans next door.

"It's four hours to be in Germany, to get access to German technology," he says. "For them to cross to the U.S. and travel inland and find a place like the Red River Valley most of them won't do that."

Today, Christianson says the Ukrainian business has transcended immediate sales.

"Our success is seeing a lot of our technology our farming practices being implemented in that region, the Ukraine," Christianson says. "It's exciting to go to the Ukraine and see products built in North Dakota running there.

"You're not just selling equipment, you're coordinating field days, visiting customers and seeing how they can learn from our equipment and the farm techniques we've been using in the Red River Valley for many, many years. It's exciting for us to see the North Dakota Trade office promoting relationships with North Dakota manufactures and dealers with the people in the Ukraine."

In 2006, NovoFarm hired a camera crew to film Christianson as he talked about Case-IH products at an ag show field day in Ukraine. There was no script, but the company made and copied dozens of DVDs of Christianson's off-the-cuff remarks and now provides them with translations to their customers.

Christianson has become a familiar face among the Ukrainians.

Market to market

Agricultural equipment trade between the United States and Ukraine is evolving.

NovoFarm Ltd. officials travel to Fargo about four or five times a year. At least twice they've brought their customers for field days, for Big Iron or to tour factories, dealerships and farms.

There is a difference in mentality between the United State and Ukraine. In the U.S., there are dealers in many towns. In Ukraine, there might be only five tractor service "stations" in the whole territory.

"If your machine goes down during harvest or planting, you need to have people get out there with service trucks. They have good shops where you can bring in and service equipment after the season," Christianson says. "They're developing the in-field service."

Another difference between the U.S. and Ukrainian farmer-customer is that customers in that U.S. typically are owner-operators.

"Customers in the Ukraine are people who may never get out in the field," Hall says.

A farm there typically runs from 25,000 to 50,000 acres. Christianson knows of several operations in the 250,000-acre range.

"There may be several owners that work together," Hall says.

Each farm of this size would have key employees who are very smart in mechanics.

"If you went there, you wouldn't believe what they could put together without an owner's manual," Christianson says.

A key connection between the North Dakotans and the Ukrainians has been the similarity in climate and farming conditions. Products used in the Red River Valley can be used identically in the field in Ukraine.

"They tell us, 'you guys 'spec' it out whatever you use, we'll use 100 percent,'" Hall says.

A prime example is a shift in traditional plows to rippers deep-tillage rippers, to break up compactions from 70 years of Ukrainian plowing.

"Now, all of a sudden, nobody wants to plow," Christianson says.

One of the stunning changes in 10 years has been the Ukrainian adoption of larger tractors. In 1998, the Ukrainians were dealing on the largest U.S. front-wheel-drives as their primary power source 200 horsepower, at most.

"I stayed quiet as long as I could on this point," Christianson says. "After I became accustomed to them, and they to me, I made the point that they were 'one cog off' on their tractors. Back in the Red River Valley, we were using 400 horsepower as our primary tillage tractors."

Six years later, when Christianson returned, the Ukrainians weren't looking at anything less than 400 horsepower, and one of the most popular tractors is 500 horsepower.

"They are very quick to adapt to successful technology. When they see it, they know it boom," Chrisitianson says.

Ditto for the implements.

The Ukrainians started with narrower, smaller implements. Nowadays, they go for 70-foot harrows.

"Essentially, their farming is identical to our farming," Hall says. "Same sugar beet lifters, same planter, harrows everything."

The Ukrainian soil is called "black dirt" and is comparable to the soil in the Red River Valley, except there's a lot more of it.

"They have black dirt all over the country very, very productive soil," Hall says.

"And they're just picking up on the whole idea, as far as capitalism," adds Hall, who grew up in the Russian system. American-style business is different. "You need to watch cash-flows, balance sheets, profitability and making sure customers are satisfied. It's never been like that in their part of the world. Governments operated things from above."

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