Pavel Pohůnek, 61, is happy. “It will attract tourists, and the locals might find jobs there,” says the mayor of the central Bohemian municipality of Olbramovice, with some 1,000 residents. “Anyway, having here the seat of the richest man will be an asset for the village.”
What Mr. Pohůnek is talking about really has no parallel in the region. The idle distillery Čapí hnízdo on the edge of the village is changing into a generous “congress centre” for managers, equipped with studs for various animals and a vast swimming pond. The project will cost an estimated CZK 100 million and, as the mayor suggested, also attracting attention is the owner of all this, the famous businessman Andrej Babiš (55).
Actually, the dilapidated distillery was not the only thing the new neighbour bought in Olbramovice. What caused a real stir among the locals was the news that the billionaire wants to purchase the local agricultural cooperative operating on thousands of hectares of land.
A good neighbour ”We did not want to sell, the company did well,” the cooperative head Josef Šembera said. “But it was a sort of an offer that one could not refuse.” The bid was allegedly breathtaking – the locals, who got their stakes in the cooperative in the early 1990s as a compensation for property stolen by the Communists, could suddenly sell their shares for approximately ten times their real value. As a result, Andrej Babiš has already agreed with virtually all of the 500 shareholders. The sum exceeding CZK 120 million has secured him both control over the cooperative and extraordinarily warm relations with his new neighbours.
The investments in Olbramovice are interesting especially as a symbol of success that has no parallel in Czech business. Czechs could watch its finals a few weeks ago when Babiš’s Agrofert acquired, with the anti-monopoly office’s consent, its biggest rival, Agropol. The giant business owned by a single man has become the most influential company in the Czech Republic besides ČEZ. Babiš’s empire now stretches from strategic chemicals makers to agricultural cooperatives to big food concerns. Expressed in figures, it’s more than 200 companies with annual sales of roughly CZK 150 billion. Babiš employs more people than Škoda Auto does, and has invested his money in 14 other countries in Europe.
Life-giving warehouses When the Slovak Babiš came to the Czech Republic for good in 1994, he was one of few entrepreneurs with a fair experience in big business. Babiš’s father, who negotiated international trade conditions in the socialistic Czechoslovakia, sent his son to study at a prestigious grammar school in Geneva. Babiš Jr started doing business very early. As a manager in the Slovak company Petrimex, securing foreign trade in chemicals for the communist ČSSR, he spent many years in “capitalistic foreign countries”. And, as it turned out later, his mission was also influenced by his alleged cooperation with the communist secret police StB, where he was registered as agent Bureš.
In the early 1990, Babiš turned the Petrimex Czech unit into an independent firm under his control. His Slovak colleagues then described it as theft, but Babiš never went beyond laws that were in force at a given time.
Renamed Agrofert, Babiš’s company gradually acquired several chemical plants, food companies and also something that many agricultural economists call the true key to Babiš’s current success: at a time seemingly unimportant companies securing the buyout and storage of crop for farmers. Babiš has acquired dozens of them over time, and now Agrofert holds almost a half of all agricultural warehouses in Bohemia and Moravia.
It soon became apparent how precious capital these firms are. “Simply realize that when you have no place to put your crop, you have a problem,“ said Jan Miller of the Czech association of private farmers ASZ ČR. “There are not many warehouses in the Czech Republic, and there are huge distances between the existing ones. Transport is expensive, so you naturally go to the nearest one, whose owner then can dictate conditions.”
And Babiš’s dictate soon took a more concrete shape, as other farmers said. “Those who want to use his services also have to buy seeds and fertilizers from other Agrofert companies,“ several representatives of agricultural cooperatives confirmed. And so-called green loans are a key tool in the process of deepening of dependance on Agrofert. The rules are simple: in the spring Agrofert offers seeds and fertilizers for free and farmers are supposed to pay in the autumn after harvest. However, they subsequently have to sell their crop to Agrofert warehouses at a price set by the company. “Many indebted businesses then end up in the hands of Agrofert,“ said a farmer who did not wish to be named.
On friendly terms with politicians
Besides his stubborn way of negotiating and his diligence (he is allegedly used to working eighteen hours a day), Babiš is also known among local entrepreneurs for his unusual ability to win favour with politicians, regardless of whether they are from the left or from the right. Just to give an example – former interior minister Ivan Langer from the ODS and his predecessor and later PM Stanislav Gross from the ČSSD both describe Babiš as their “good family friend”. Babiš was able to be on friendly terms with all agriculture ministers, with the exception of Jaroslav Palas with whom he unsuccessfully fought for the petrochemical giant Unipetrol.
That of course bore fruit. Just for example: When buying out surplus crop from farmers, the state pays two prices – for the better-quality alimentary wheat and for lower-quality fodder wheat. The difference in quality is often little, but with millions of tonnes bought out every year, billions of crowns are in play. Moreover, wheat can be easily cleaned up in warehouses and fodder grains can be turned into alimentary grains using a simple method. Therefore, by repeatedly deciding on extraordinary buyouts of alimentary-quality grains in the past, the state helped firms like Agrofert and Agropol make profits in the order of hundreds of millions of crowns.
Still today, politicians refuse to transfer part of subsidies to the programme for construction of warehouses for farmers themselves. Since having such warehouses is a common practice in the old EU member states, the Czech stubbornness offers just one explanation – it’s an effort to block competition for influential and established bosses like Andrej Babiš.
Hundreds of millions of crowns in profits also came to Agrofert from other transactions, such as orders to export wheat to Belarus in 1999 and 2000 that the company got without a tender.
State authorities also helped Babiš with the Čapí hnízdo project in Olbramovice. Giving just a brief explanation that it “met the necessary criteria”, a regional commission in Central Bohemia decided last year that from among fifty applications, Babiš’s project is the one that deserves a CZK 50 million helping hand from European funds.
Like in Russia
What is also becoming apparent is that Czech agriculture is undergoing fundamental changes under the baton of Babiš and that everyone will feel the change – when going for a trip to the Czech countryside or just buying food labelled “Czech made”.
The Agrofert portfolio now consists of thirty large agricultural companies operating on more than 50,000 hectares of farmland. That does not seem much compared with the three million hectares of arable land in the Czech Republic, but there are hundreds of huge agricultural firms like Agrofert and their number is growing. “Instead of broken landscape where plants and animals do well, vast monotonous fields are emerging,” said Tomáš Doucha from the Institute of Agricultural Economics and Information. And farmers from various parts of the Czech Republic add: With large companies managed from offices in towns, any interpersonal relations are disappearing from the countryside. In huge farms, local residents are often being replaced with labourers from Ukraine and Poland working for the minimum wage.
The trend of forming large agricultural entities is also apparent in other EU countries, but is not that strong there. An average farm in the rest of Europe operates on just over 20 hectares of land, but in the Czech Republic the average area is six times bigger.
“There is virtually no experience in Europe with the operation of giants like Agrofert that are interconnected with other branches of the industry. Something like this works in Russia, where large agricultural cooperatives are tied to companies like Lukoil,” said Tomáš Doucha.
