82034 ASSESSING PRIVATE SECTOR CONTRIBUTIONS TO JOB CREATION: IFC OPEN SOURCE STUDY THEME: DIRECT, INDIRECT, AND INDUCED JOB CREATION MRIYA: Employment Effects In The Food Supply Chain Mriya, an agricultural group in Ukraine, was granted two loans by IFC in fiscal years 2010 and 2011, totaling $60 mil- lion, to help expand its capacity and finance working capital needs. This incremental capacity helped create about 2500 direct and 7,400 indirect jobs over two years, more than 80 percent in distribution. The new jobs are unskilled and low skilled and were created in the poorest areas of western Ukraine, which helps reduce poverty. Mriya and IFC Engagement Mriya is an agricultural group in Ukraine that had 295,000 hectares of land under its control as of December 2011. Mri- ya’s diversified crop portfolio includes wheat, corn, rapeseed, buckwheat, potatoes, and sugar beets. In the next four to five years Mriya aims to expand its agricultural operations to 650,000 hectares. To help Mriya in its expansion plan, IFC has made two investments in Mriya, in fiscal years 2010 and 2011. The second investment has provided a $35 million A Loan in the form of a three-year annual renewable working capital facility, which increased the amount of IFC working capital Specialists inspecting seeds at a new silo in Derenivka financing to Mriya by $10 million, from $25 million. Direct employment effects Mriya expanded quickly over the past two years, doubling its revenue. The expansion led to large direct employment cre- ation due to movement away from contracting, significant female employment, and emphasis on training—leading to employees earning more. Direct employment jumped from 761 in 2009 to 3,266 in 2011. This rapid increase mainly happened due to Mriya con- tracting out fewer jobs and hiring more employees directly New computerized system checks temperature and for transportation, security, and transportation jobs. This way humidity inside silos Mriya increased reliability and secured the highest quality of products it produces. have been recruited to fill specialized positions at Mriya. Gender Employment at Mriya. Mriya recently made a To remedy the situation, Mriya opened a school that prepares tremendous leap in gender employment. In 2009, 21 percent its employees for higher-skilled positions. Four full-time train- of direct employees at Mriya were women. In 2011 almost ers teach courses for 30 staff at a time. Mriya took the ap- half were. Mriya offers competitive salaries to all its employ- proach of retaining its talent by training them and helping ees. Women enjoy maternity benefits such as bonuses, hous- them move up. As a result, Mriya’s turnover rate is among the ing, medical leave, and 10 additional days of vacation a year lowest in Ukraine’s agribusiness industry, at 1 percent com- for mothers. Such benefits and flexible work schedule create pared with an industry average of 14 percent. a favorable environment for women to return to work after having children. Effects of Mechanization of Processes on Employment. In the past two years, Mriya upgraded many of its facilities Training and Creating Specialists at Mriya. Agribusiness in to the latest technologies. In addition, all facilities that Mriya Ukraine is facing a lack of specialists. Since the Soviet Union built, including silos, are highly advanced. This called for an in- collapsed, universities have been teaching outdated informa- creased number of specialized jobs. To assist with this change, tion because most professors received their education during Mriya has been training its staff in working with and main- Soviet times. In addition, agribusiness is an unpopular ma- taining computerized machinery. This shift allowed workers to jor among students. As a result, Mriya finds it difficult to fill move to more skilled positions. specialist positions. Four specialists from Western countries 1 Indirect Employment Effects Figure 1: Incremental indirect jobs following Mriya’s expansion helped create nearly 7,400 indirect jobs be- capacity expansion tween 2009 and 2011. The four areas along the supply chain 8000 with additional indirect employment are suppliers, seasonal 7000 labor, construction, and the distribution network (figure 1). 6000 Most indirect employment was generated in the following main components: selected suppliers of Mriya (constituting 5000 most of the cost), seasonal workers involved in crop production, 4000 construction contractors, and the distribution network.This Suppliers, 50 3000 study could not analyze the distribution network for every crop Construction, 450 2000 Seasonal, 890 that Mriya produces, so it focused on the distribution of sugar 1000 Distribution, 6000 beet products.1 An estimate was used to calculate the number of indirect jobs created in the entire distribution network. 0 Incremental Indirect Jobs Suppliers. The three main materials required for Mriya’s crop production are fertilizers, crop protection chemicals, and fuel. The number of local companies supplying to Mriya increased World Bank’s poverty threshold of $1 a day per capita. At least from 22 in 2009 to 59 in 2011. But its indirect job creation 60 percent of rural western Ukrainians and 45 percent of was marginal during this time. urban western Ukrainians were poor. In 2010, the region’s In 2011 Mriya had 59 domestic suppliers of fertilizers, crop poverty line based on the nationally defined poverty line was protection chemicals, and fuel. Of these, 16 were companies 24 percent.4 The poverty level in rural areas is almost twice for whom more than half their revenue came from Mriya. as high as in urban areas. About 50 indirect jobs were added on the supply side. Most seasonal jobs created by Mriya are low or unskilled, which This marginal increase occurred because Mriya reached a size helps reduce poverty. Mriya is considered a great employer large enough to buy goods from international suppliers at for subsistence farmers in its areas of operations. Farmers are discounted rates2 and the number of companies that derive loyal to Mriya, sorting potatoes, loading trucks, and clearing half or more of their revenues from supplying goods to Mriya land. In 2011 Mriya hired 3,560 local subsistence farmers to decreased.3 There is no evidence that Mriya has destroyed perform unskilled and low-skilled jobs on a seasonal basis.5 jobs, though companies have had to diversify their buyers to Mriya was the main source of their income other than subsis- adapt to the change. tence farming. Mriya has a positive reputation because it pays 5–10 percent more than the regional average and invests in Seasonal labor. Between 2009 and 2011 the expansion of community development. operations created a full-time equivalent of 890 indirect jobs, reflecting 3,560 additional people who got seasonal contracts Construction contractors. Mriya contracts out its construc- with Mriya. This had a significant poverty impact on Mriya’s tion and maintenance needs. Between 2009 and 2011 it operations in the poorest regions of western Ukraine. Some hired an additional 450 workers. About two-thirds of those 30 percent of the jobs went to women. jobs are low skilled, the rest are unskilled. Poverty rates in Ukraine. The rural western region of Overall distribution. About 6,000 indirect jobs were added Ukraine is among the poorest in the country. In Chevnivtsy, in the distribution of Mriya’s products between 2009 and Ivano-Frankivsk, Khmelnitsky, and Ternopol, the areas of 2011—80 percent of overall indirect job growth. Mriya grows Mriya’s operations, average monthly income is 2,000–2,200 a diversified crop portfolio including wheat, corn, rapeseed, hryvnias ($250-275), compared with 4,200 hryvnias ($525) buckwheat, potatoes, and sugar beets. Given that the anal- in Kyiv. ysis focused on the indirect employment effects in the dis- tribution of sugar products, a reasonable assumption was Western Ukraine has the country’s highest poverty rates. In made on how many indirect jobs were created in the entire 2001, 39 percent of Ukraine’s population lived below the distribution network. Figure 2: Food Supply Chain Fertilizers, Crop Protection, Fuel and Seeds Land Service Function Farm Inputs Collection Processing Marketing Distribution Retail Production Transportation/Logistics 2 Distribution of sugar beet products. Mriya works with six Calculating Indirect Job Creation related sugar factories (with some overlap in ownership) in Instead of using a multiplier to estimate indirect job creation its areas of operation. Seasonal labor hired by these factories effects, volume can be used for such estimates. For Mriya during the high season are mostly low skilled and unskilled. the indirect jobs baseline and the total capacity addition can There are three sugar beet products that factories sell: be used to estimate indirect jobs created between 2009 and sugar, pulp, and molasses. Sugar beet products are distribut- 2011. Using this calculation method, 14,500 new indirect ed locally. There are more than 400 buyers of sugar, 13 buyers jobs have been created. This number is slightly smaller than of pulp, and over 40 buyers of molasses. Most of them derive the 15,410 jobs estimated by this study, but the numbers at least half of their revenues from Mriya. About 3,000 new are comparable. indirect jobs were created in the distribution of sugar beet products as the result of Mriya’s capacity doubling between Implications for IFC 2009 and 2011. • Significant share in distribution. Some 80 percent Some 80 percent of jobs in distribution are low skilled or of indirect jobs have been created in the distribution skilled because companies that buy sugar products include network. The relatively small proportion of indirect job administrative and managerial staff as direct employees and effects in the supply chain is because Mriya no longer outsource transportation and loading jobs. outsources jobs in transportation, security, and construc- There are no strong poverty reduction effects in the sugar tion and buys goods mainly directly from international distribution network. But buyers of pulp and molasses, which suppliers and less from local suppliers. are fewer in number, heavily depend on their proximity to • Mriya’s operations have a positive impact on poverty one of the six related sugar factories. In most cases these reduction in western Ukraine in a number of ways. micro, small, and medium-size enterprises (MSMEs) stated More than 3,000 local subsistence farmers are em- that they would scale down or even cease operations if the ployed on a seasonal basis. In addition, buyers of sugar factories were closed. For pulp, one buyer is a small pulp and molasses, owe their expansion and at times farm that uses pulp to feed its livestock. The buyers inter- livelihood to their proximity to Mriya’s related parties— viewed for this study said that they almost doubled their pro- sugar factories. Finally, Mriya launched training for duction of livestock due to acquisition of the sugar factory employees to move to higher-skilled positions. near their village by Mriya’s owners. • Cautious use of multipliers. Replicability of indirect job multiplier for other agribusiness projects is ques- Indirect Job Creation Multiplier and Its tionable due to the large fluctuation of the multiplier Applicability for Mriya, which fell from 10.4 to 4.7 in two years. For Based on the data collected through the interviews and agribusiness projects, the multiplier would be affected assumptions used above for calculating the indirect employ- by several para-meters including the regional context, ment effects, Mriya expansion helped create 8, 014 jobs the level of maturity which the client has reached in indirectly between 2009 and 2011. This yields a multiplier of the industry context, local labor regulations that affect 10.5 indirect jobs for every direct job. This multiplier falls to direct employment, and most importantly the degree 4.7 when calculating the same ratio using 2011 data. Such to which a company decides to have work “in-house” drastic change in the multiplier was due to the rapid increase or outsourced. of direct jobs at Mriya. • Basing estimates on volumes is a different way to esti- Such a considerable change in the indirect job multiplier mate indirect employment creation, and may be more just two years apart suggests that using a multiplier can be reliable than job multipliers. misleading out of context. For Mriya the multiplier changed significantly due to a rapid increase in direct employment for jobs that used to be a part of indirect employment. Endnotes 1 IFC loans to Mriya are working capital loans to companies and not tied to 3 Another 43 companies that supply to Mriya were not counted toward production of one product. indirect job creation because they derive less than half of their revenue from Mriya. 2 In 2011 Mriya imported 5-10 percent of its fertilizers and 95 percent of its crop protection chemicals. All fuel was purchased locally. 4 UNDP in Ukraine, 2012. 5 Divide by four to get the full-time equivalent. Authors: Oxana Miliaeva • Strategy Analyst, Strategy & Finance, Global Financial Markets (CFGSF) • Omiliaeva@ifc.org Photo Credits: Oxana Miliaeva Contact: ifcjobstudy@ifc.org www.ifc.org/jobcreation 3