23 October 2016

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Ukrainian dream: Feeding the world

Ukraine is in many terms one of the world's largest agricultural producer. But the realization of the country’s ambitious goal - to become the world’s food basket – still remains at the initial stage.

Ukraine was dubbed
Ukraine was dubbed “bread basket” / Photo from UNIAN

Ukrainians often complain about the quality of food, while foreigners, on the contrary, set up gastronomic tours across the country. A famous example was the Kyiv office of one of the Chinese corporations, whose employees used to send by aircraft various foodstuffs from Ukraine to their families back home in China. Today, because of the war in Donbas the office is closed, and its staff certainly regret that they are no longer able to treat their loved ones with delicious and healthy Ukrainian food products.

The world is getting more and more convinced that the Ukrainian companies produce high-quality food products from fine raw material. The country was even dubbed a “bread basket”. Indeed, the Ukrainian grains are being exported worldwide, as many countries cannot provide their domestic markets with high quality food. On the world market, it’s only the U.S. and the EU (which comprises 28 states) that are ahead of Ukraine. Also, Ukraine is one of the world's largest exporters of nuts, honey, eggs, chicken and soy.

Food exports account for 40% of Ukraine’s total export earnings. At the same time, agriculture has only a 16% share of the national economy and 18% of the jobs. Almost 42% of the agricultural revenue comes from the sale of grains, 23% - from vegetable oil, 17% - from ready-made food products.

The main share of Ukrainian food exports last year was to Asia (46%) and Europe (27%). Africa accounted for 13%, while the CIS countries saw 10%.

Unfortunately, our main supply is raw materials for the foreign processing industry. Thus not only Ukraine’s foreign partners provide their nations with food and jobs, but sometimes they also earn on delivering back to Ukraine ready-made products made from our raw material (for example, imports to Ukraine of the Italian spaghetti made from Ukrainian wheat).

All of the products processed in Ukraine, for example, confectionery, canned fruits and vegetables, sauces, mineral water and others are traditionally exported to the CIS. By the way, the national statistics does not include milk powder, butter, cheese and yoghurt as processed foods. But, despite the fact that Ukraine is in the world’s top 10 exporters of butter, the share of dairy products in our exports is rather small and cannot significantly improve the overall percentage of processed products in exports.

In addition, Ukraine is the leader in production and export of sunflower oil. Our exporters control 60% of the world market of this product. And this is also about processing, and one more reason to be proud.

Export locomotive

In the next five years, Ukraine will not give up on the export of grain / Photo from UNIAN
In the next five years, Ukraine will not give up on the export of grain / Photo from UNIAN

It is obvious that over the next five years, Ukraine will not give up on the export of grain. Experts say that the geographical structure of deliveries will not be subject to change. It will be Asia, the Middle East and North Africa who will be importing Ukrainian grain. Among the biggest buyers will also remain the European Union, where one-third of Ukraine’s exports go.

Since 2013, the gross grain yield in Ukraine has been over 60 million tonnes. This year, according to forecasts, the bar won’t be lowered, either. We shouldn’t forget that just a decade ago, in 2006, the grain yield in the country amounted to 34 million tonnes, and twenty years ago, in 1996, it was a mere 25 million tonnes.

Some experts believe that Ukraine should focus on the processing industry so that it could export the products with higher added value, such as flour, rather than grain.

However, head of the Ukrainian Grain Association, which includes the largest exporters of grain, Volodymyr Klymenko, does not quite agree. He believes that Ukraine should develop its agriculture following the example of the high-tech United States, which still relies on corn. Under this condition, he said, in 10 years, we will be able to double the yield of grain, that is harvest 120 million tonnes instead of 60 million tonnes. In this way, we will survive competition from Argentina and Brazil, who have followed the example of the U.S. and are now trying to push us out of the position of the world's third largest exporter. In addition, Ukraine will have a sufficient source of raw materials for the production of biofuels from corn, which would greatly reduce the dependence on imported gas.

But we must take into account one important thing: 75% of corn in the United States is genetically modified.

"We need to get our act together and take the first step: to change the law on biosafety. It is necessary to approve all varieties of GMOs, which have been tested and approved in the United States and the European Union. It is necessary to take the path of biofuel production. This will be a strong incentive for an increase in grain production, use and recycling," said Klymenko.

The expert stands for full democracy: it does not matter, whether the farmer wants to deal with GMO or organic farming, but they should have equal opportunities.

"If we abandon the path of the United States and say that Ukraine has to engage in organic production, then we will be lucky if we produce at least 60 million tonnes over the next five years," said Klymenko.

Grain market experts mostly agree that Ukraine needs to keep its grain specialization and continue to increase the gross yield.

It only remains to decide, on which path the grain production will be developing. It is possible to produce GMO corn, export part of the crop and send another part to the production of bioethanol, while the waste can be used for the production of animal feed. Another option is a sound approach to the selection, the use of varieties of wheat and barley, suitable to our climate; as well bidding on organic production, for which the demand in the developed countries (including the U.S.) has been growing continuously. Ukraine might as well decide to leave everything as it is. Or develop a variety of other approaches. But as the number of advocates of GMO is growing, we should expect, if not legalization of such types, then at least the resumption of heated discussions on the subject in the years to come.

Bureaucratic barriers and level of the sellers’ readiness

The problem is that the majority of Ukrainian enterprises are not yet ready to export processed foods / Photo from UNIAN
The problem is that the majority of Ukrainian enterprises are not yet ready to export processed foods / Photo from UNIAN

Conquering new markets is not an easy task because the authorities in many countries tend to protect the domestic market and resist new processed products, which can compete with local producers. Therefore, acquiring a certificate on the delivery of a product can take months or even years.

For example, in South Africa. We are now third in line for the certificate for chicken and could potentially raise to the sixth or eighth spot in the queue for a certificate for pork and beef.

"Ukraine was third two years ago, too. Actually, since the Ukrainian poultry farmers filed an application, obtained the questionnaire and filled it, we moved just one position up," said the economist from the Technical Cooperation Department at the Food and Agriculture Organization of the United Nations (FAO), Andriy Yarmak.

"On average, they try to handle one application each six months, but the reality is that only one person is dealing with this, and the processing of the application takes one and a half years. After the application is processed, if it is filled not very good, you can lose a turn and once again appear behind those who have filled the application the right way. However, even if everything is perfect, it is necessary to arrange an inspection visit... And one more thing, if the data in the application are outdated at the time of its review, the process starts from scratch," Yarmak said, commenting on the complexities and offering to estimate on our own, how much longer Ukraine should wait for its certificate for meat.

Another complication is that the majority of Ukrainian enterprises are not yet ready to export processed foods. Even though Ukraine has a corresponding certificate. When receiving requests from the foreign companies, some businesses simply don’t know what to do with them.

"When our association receives requests from European companies or associations, we immediately turn to our companies, ask them to give us the price list, we look at their certificates. Already at this stage, it appears that there are very few companies who are ready to export products to Europe," said General Director of the Association of Suppliers of Retailers Oleksiy Doroshenko.

"You have to show all your customers and suppliers. The importer must check them, and then check you, and this is six to nine  months of full-scale work," Doroshenko said.

European prospects


Another priority - it is, of course, the increase in the share of processed foods in the structure of Ukraine’s agricultural exports. Prior to its exemplary punitive operation in Donbas and Crimea, Russia took some 10% of our agri-exports alone, including a significant proportion of processed foods.

Times have changed and, as the head of the All-Ukrainian Agricultural Council Andriy Dykun puts it, "Thank God we lost the Russian market." Ukraine, in view of the difficulties encountered, is now looking for new markets for its products, so as not to rely on the mercy of the unpredictable and aggressive neighbor.

Experts believe that the correct strategy for conquering the world markets is focusing on niche products. It’s not that important, where are you going to deliver your product – find your niche and go for it. Such parting for the small and medium Ukrainian farmers is provided by a manager of a project with a very long name "Consulting Ukraine in matters of agricultural trade in the framework of the Ukraine-EU  Deep and Comprehensive Free Trade Agreement " Olha Trofimtseva.

In particular, in the EU, she identifies three main niches, in which Ukrainian products will have no equals: the so-called superfood (healthy foods such as flax seeds, hemp, various nuts and healthy oils), organic foods, as well as fruits, vegetables, and products processed from them, including baby foods.

"This is one of the most uncovered niches in the European Union. One of the fastest growing niches where demand is still strongly exceeding supply. There’s plenty of work to be done there," said Trofimtseva.

By far, the most common product her Center receives requests for is honey. There are also requests for poultry, meat, milk and cereal. But according to Trofimtseva, of all those who applied, it’s a manufacturer of a niche product – chips from flax seeds -  has most chances to quickly get to the EU market, because a German retailer showed interest.

"Very often, it’s all about the lack of information. Nobody thinks about exporting to the EU, because all they hear is that the market is saturated and nobody wants us there. But it is not so. When you channel full information, the producers of trendy of grains and oils start considering laying gardens, berry fields; they think of a transition to organics. It's not just words, I know a few examples of medium-sized businesses that really started doing something in that direction," says Trofimtseva.

Oleksiy Doroshenko believes that in the medium term, it’s the niche products and the so-called “private label” products [those under the brands of local supermarkets] that Ukraine will be supplying to Europe. The expert believes that it will be the Polish market that will open the whole Europe to Ukraine as a large Ukrainian diaspora lives there buying Ukrainian foods, plus the Poles and the Ukrainians have a close mentality.   

The same scheme will be working also at the markets of North Africa and South America, which are just as complex and saturated. However, the prospects of reaching those markets with the Ukrainian processed foods are much more distant than the grocery conquest of Europe.

Africa's potential


There is also a good chance for producers of traditional products – an extremely promising African market, where many countries are experiencing a shortage of its own food.

Export Council coordinator Bohdan Shapoval has said that the African market will only be conquered by someone who is willing to take risks. With these countries, you need to move away from the practice of 100% pre-payment of goods, while also managing to find a reliable partner and getting ready to work "in the shadows."

"One needs to work closely both with the formal African distributors, and the “grey” ones. For example, in Angola, 70% of the retail sales is provided by a system of a gray container sale in the sea port of Luanda to street vendors," says Shapoval.

According to him, first of all, Africa is interested in the ready-to-use and conveniently packaged products. There are no large refrigerating facilities for storing products of animal origin in many African countries.

"Very often, these products, like meat, are stored ‘on the verge’ at temperatures between 0 and + 3 ° C. So the products like stews of long-term storage, dry milk products, and vegetable protein foods will be the priority in these countries," said Shapoval.

He also stressed the flour, confectionery products (roasted nuts, dry cookies, etc.), whole milk powder, and beef with a two-year shelf life as the most promising products for sales in Africa.

Go East


After Africa, the Ukrainian sales representatives this year went to the rapidly developing Asia with its vast population. They held talks in Hong Kong, South Korea, Taiwan, Vietnam, and other countries of the region.

The Ministry of Agrarian Policy believes that in the next five years, Asian markets may become major buyers of Ukrainian meat products.

"Very promising, in particular, is Vietnam. We are now in a very constructive dialogue. In 2015, Vietnam imported food products worth $25.5 billion, with a $4.1 billion share of meat and meat products. They continue to increase food imports and the market is very interesting for us," said the director of the International Cooperation Department at the Ministry of Agrarian Policy, Oleksandr Romanovskiy.

According to him, Ukraine will also receive certificates for the export of chicken and beef to China in the near future.

According to the expert from the Milk Producers Association, Hanna Lavrenyuk, China, along with the Gulf countries, will be interested in the supply of dairy products from Ukraine.

"For the next five years, the most promising destinations for the exports of Ukrainian dairy products, in particular, are China and the Gulf markets. For these markets, the most preferred is the supply of Ukrainian ultra-pasteurized milk (the so-called UHT-milk), skimmed milk powder and whey, condensed milk, as well as technical and edible casein," said the expert.

The Association of Ukrainian livestock producers draws attention to another perspective direction – the export of feed. For example, it’s Saudi Arabia, where 95% of water, which is a deficit in the desert, is used for agriculture, which, in turn, occupies only 2% of GDP.

"The Saudi government intends to adopt a decision to reduce the use of water in agriculture, therefore it will be forced to increase imports of livestock feed by nearly four times. Therefore, this trend is promising in terms of the sales of Ukrainian feed products," the association believes.

Ukrainian products should be seen on foreign market shelves

It is worth thinking about the future of Ukrainian exports, implementing far-sighted government policies / Photo from UNIAN
It is worth thinking about the future of Ukrainian exports, implementing far-sighted government policies / Photo from UNIAN

Of course, all the prospects will be opened only provided that Ukrainian producers will not only saturate the domestic market and improve the quality of its products, but also to produce an additional volume products for export. How can the development of processing be stimulated? The issue is complex, but there are certain options. For example, Turkey back in the day compensated for half of the cost of investment in flour mills and now it is importing wheat to export flour.

We also have a positive experience. In 1999, Ukraine, despite opposition from a lobby group, has introduced export duties on sunflower seeds. Therefore, taking the seeds out of the country simply became profitable, and large operators of the market began to massively build oil extraction plants in Ukraine.

"This initiative was initially perceived ambiguously,” says the adviser to the Minister of Agrarian Policy and Food, Vladyslava Rutytska. “However, investment came into Ukraine, and oil seed processing plants were built. What is the result? Ukraine is the world’s No.1 in sunflower oil exports. Maybe it’s time to move gradually to the export of flour?"

Of course, such strategic decisions should be made only after a thorough evaluation. For example, today, according to an agricultural market analyst at the All-Ukrainian Agricultural Council Valeriy Shaimukhametov, it’s not high time for flour, even in Ukraine, due to the low profitability of the business. But it won’t be like that forever, and it is worth thinking about the future of Ukrainian exports, implementing far-sighted government policies.

Alina Zymenko (UNIAN)

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