Market Study Food Sectors in Ukraine
Market Study Food Sectors in Ukraine
Embassy of the Kingdom of the Netherlands in Ukraine
29 May 2008 Tebodin Ukraine CFI Moskovsky Prospect 16B • 04073 Kiev • Ukraine Telephone +380 44 426 49 40 • Fax +380 44 426 49 39 [email protected] • www.tebodin.com • www.tebodin.kiev.ua
Client: Embassy of the Kingdom of the Netherlands in Ukraine Order number: 71613 Report number: 71613-R Revision: 1 Project: Market Study of Food Sectors in Ukraine Author: A. Balanyuk Telephone: +38 044 426-49-40/41/42/43 Telefax: +38 044 426-49-39 E-mail: [email protected]
Date: 29 May 2008 Tebodin Ukraine CFI Order number: 71613 Report number: 71613-R Revision: 1 Date: 29 May 2008 Page: 2 of 25
Market Study of Food Sectors in Ukraine A. Balanyuk A. Sosnovsky A. Bilan V. Levko A. Sheronov O. Cherinko I. Kosova S. Makarchuk 29-05-2008 Y. Mogolivets Rev. Date Description Author Checked by
Market Study of Food Sectors in Ukraine - Introduction © Copyright Tebodin 2008 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without permission of the publisher. Tebodin Ukraine CFI Order number: 71613 Report number: 71613-R Revision: 1 Date: 29 May 2008 Page: 3 of 25
Introduction
Part A: Meat Processing Industry
Part B: Oil and Fat Industry
Part C: Fruit and Vegetable Processing Industry
Part D: Milk Processing Industry
Part E: Animal Feed Industry
Part F: Confectionery Industry
Part G: Fish Industry
Part H: Expected Development in the Food Processing Industry in the Course of Preparation for Euro 2012
Attachments:
A. Map of Ukraine B. Structure of import and export of agricultural and food products C. Consumption of major food products in Ukraine D. Ukraine’s Top retailers list
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Introduction
1 Project description 1.1 Project background
This report contains the results of a study done on the key sectors of the Ukrainian food processing industry carried out by Tebodin Ukraine. The study was carried out on the request of the Ministry of Agriculture, Nature and Food Quality of the Netherlands and is an update of previous similar studies that were performed by Tebodin Ukraine in 1996, 2000 and 2004.
Tebodin Ukraine (www.tebodin.kiev.ua) is a consultancy and engineering company founded in Kiev in 1993. The company is a subsidiary of the Dutch Tebodin Consultants and Engineers B.V. (www.tebodin.com), an international organization with 3,000 employees and an extensive office network in twenty countries. Tebodin Consultants and Engineers B.V. is a member of the one of the largest construction holdings in Europe - Royal BAM Group (www.bam.nl).
Tebodin Ukraine’s experience and expertise on the food market was used to carry out the market studies on Ukraine’s agricultural and food markets and implementing of engineering and consultancy projects in the agro- sector.
1.2 Objectives and approach
The main objectives of the market study are: - to provide the latest information on the different sectors of the food market of Ukraine; - to describe major trends and problems of the examined sectors; - to clearly indicate business opportunities for Dutch companies in Ukraine.
The sectors focused on are the ones that are of special interest for the Dutch business association, namely the: - Meat processing industry; - Oil and fat industry; - Fruit and vegetable processing industry; - Milk processing industry; - Animal feed industry - Confectionery industry; - Fish industry.
During the investigation special attention was given to the expected developments of the food market of Ukraine in the course of entering the WTO and in light of the preparations for Euro 2012.
The following scope of work has been carried out in order to meet the required objectives: x An update of the information per chapter including: A description of the status and trends of the sector; A list of key companies of the sector; The organisational structure of the sector; An analysis of foreign trade and regulation of it by sector;
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Sales and distribution schemes used in the sector; x Give an overview of the latest legislative changes for the food market operations, with special attention to the upcoming changes in the legislation because Ukraine became a member of the WTO; x Provide information of the investment climate and expected developments in the course of the realization of Ukraine’s membership in WTO.
1.3 Sources of information
For this market study alternative sources of information were used such as information from the State Statistics Committee of Ukraine, the Ministry of Agrarian Policy, the State Customs Committee of Ukraine, the Institute of Agrarian Science and other Ukrainian and international organisations, open sources.
In 2002-2004 the State Statistics Committee of Ukraine implemented a new notation group using international experience, the French system was hereby taken as the basis. The new system, more detailed than old one, has the same structure as the Ukrainian customs code system.
During the sectors’ research, the branch authorities and companies operating in the market were contacted directly and interviewed. Their opinions are also accounted in the report.
1.4 Ukraine: a brief macroeconomic survey
The main macroeconomic indices of Ukraine as well as currency exchange rates during the recent years are presented in the table below.
Table 1. Macroeconomic indices of Ukraine in 1999-2007
Period 1999 2000 2001 2002 2003 2004 2005 2006 2007
Macroeconomic indices, %
Change of GDP1 -0.2 5.9 9.2 5.2 9.6 12.1 2.7 7.1 7.3 Budget deficit / proficit, % to GDP - 1.5 0.6 - 0.3 0.7 - 0.2 -3.2 -1.8 -0.7 0.9 Change in industrial production1 4.0 12.4 14.2 7.0 15.8 12.5 3.1 6.2 10.2 Change of food industry production1 7.8 26.0 18.2 8.4 20.0 12.4 13.7 10.0 10.0 1 Change of agricultural production - 6.9 9.8 10.2 1.2 -10.2 19.7 0.1 2.5 -5.6 1 Retail turnover change -7.1 8.1 13.7 15.0 19.4 21.9 23.4 26.4 29.3 Change of import of goods and services1 14.1 5.0 28.7 31.3 20.4 22.0 34.7 Inflation level2 119.2 125.8 106.1 100.8 105.2 109.0 113.5 109.1 116.6 (Consumer Price Index) Population income growth1 13.8 40.5 25.9 17.1 16.5 27.2 39.1 23.8 30.6 Registered unemployment rate 4.3 4.2 3.7 3.8 3.6 3.5 3.1 2.7 2.3
1 to the previous year 2 from the beginning of that particular year Source: Euromonitor International, the International Monetary Fund (IMF) and the State Statistics Committee of Ukraine.
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Being a country with a transition economy, Ukraine experienced economic growth since 1999. The positive trend in industrial production including the food industry and was supported by a stable increase of disposable incomes of consumers (average increase 25% annually), a decrease of the (registered) unemployment rate – from 4.3% in 1999 to 2.3% in 2007 and, as the consequence, a significant growth of retail turnover – 23% per year in average.
Since 2004 the import of goods and services grew 20 – 35% each year. In 2007 the import of food products reached a total import value of USD 4.1 billion1 or 6.7%. The import structure is included in Attachment B.
The export of agricultural and food products has also grown: from USD 1.58 billion in 2000 to USD 6.25 billion in 2007. During only 2007 the growth was 33%. On the average the share of agricultural and food products in the total volume of Ukrainian export in 2000-2007 was 62%.
Figure 1. Foreign trade by agricultural and food products
7 6.25 6
5 4.71 4.31 4.11 4 3.47 3.17 2.73 2.68 3 2.39 USD, billion 2.17 1.82 1.91 2 1.13 1.11 1
0 2001 2002 2003 2004 2005 2006 2007
Export Import
Source: State Statistics Committee of Ukraine
The main export products from Ukraine are: oil seeds and vegetable oil, cereals, milk products, different kinds of drinks and chocolate based confectionery. The main import products to Ukraine are raw and processed fish and other seafood, tobacco, spreads, fruit and vegetables, alcoholic beverages and cocoa beans.
1 In the present Study 1 billion = 109
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Figure 2. Structure of foreign trade of agricultural and food products from Ukraine in 2007
Export Import
Cereals, Oil and fat, Fruit and Drinks (incl 12.2% 9.4% nuts, 7.1% alcoholic), Cocoa Oil seeds, 6.8% products, 10.7% 6.5% Oil and fat, Tobacco, 27.5% Milk and 10.1% Processed milk fruit and products, Fish and vegetables, 10.0% seafood 6.1% raw , 10.8% Drinks (incl Meat and alcoholic) , meat 8.3% products, 4.0% Fruit and Cocoa Other, vegetable products, Processed 21.7% Other, products, 5.6% fish and 36.1% 4.0% meat, 3.0%
Source: State Statistics Committee of Ukraine
Figure 3. Key macroeconomic developments and basic currencies exchange rates in Ukraine in 1996- 2008
28 9.00
23 8.00
7.00 18 6.00 13 5.00
% 8 4.00 3
3.00 exchange rate, UAH
-2 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Apr- May- 2008* 2.00 2008 2008 -7 1.00
-12 0.00
GDP change, % Consumer price index, % Exchange rate UAH/USD Exchange rate UAH/Eur * - forecast World Bank Source: State Statistics Committee
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The last few years, there was a noticeable increase of inflation in Ukraine. Among the factors affecting these high rates of inflation are: increased domestic demand, increased world prices, price for gas and fuel, increase of monetary reserves and inflationary expectations of the population. The rise in domestic demand was the result of increased social payments, a rapid boost in salaries that grew faster than labor productivity, high prices of imported energy resources and food products. Monetary reserves grew due to the considerable inflow of capital which, under the fixed exchange rate, increased money supply and which resulted in more loans.
Figure 4. Unit price growth for the basic food products in January-March 2008, % to December 2007
35 32.5 32.5 30 25 20 18.2 17.2 % 15 10.2 9.0 10 5.7 5 3.1 0 Fruit Sugar eggs Diary meat (incl. seafood Fish and Bakery products products, products Oil & Fats Oil Meat amd potatoes) and pastas Vegetables
Source: 'Kontrakty', No18, 5/05/08
Since 2004 Ukraine entered a period of political instability. The permanent ‘elections state’ (parliamentary elections in 2006 and 2007, regional elections in 2006, Kyiv major elections in 2006 and 2008) created a climate for the Government where it was difficult to take the necessary effective actions.
Considering the recent macroeconomic performance of Ukraine and its experience in economic policy development, it became possible to maintain a low inflation rate today with conditions for the leading political forces to support the necessary structural reforms.
1.5 Booming Retail Development
According to the Global Retail Development Index published by management consulting firm A.T. Kearney 2 last three years Ukraine provides exciting opportunities. Ukraine is now ranked as one of the top five of 30 emerging countries for retail development. GRDI identifies opportunities to help retailers make strategic investments in exciting new markets based on 25 macroeconomic and retail-specific variables.
2 www.atkearney.com
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Figure 5. GRDI ranking by A.T. Kearney
1995 2002 2003 2004 2005 2006 2007 1
3 5 7 9 India
11 Russia China 13 Vietnam 15 Ukraine 17 Chile GRDI Ranking by A.T. Kearney 19 Latvia
Source: A.T. Kearney
The Ukrainian retail sector has been rapidly developing since 2000. In 2007 the average retail growth rate in Ukraine was 25%, in some regions (Odessa, Kiev) it’s even 35%. While in 2004 the share of ‘new formats’ such as supermarkets and hypermarkets in total food retail in Ukraine was 11%, by 2007 it increased to 20%. In big cities like Kiev, Kharkov and Dnipropetrovsk it reached the level of 40% or more. Market operators estimated that in the next 6-10 years the share of super- and hypermarkets will grow by 10% annually (on average).
The value of the Ukrainian retail market is estimated to be USD 16 billion.
Leaders in value of turnover in Ukraine are such retail companies as ‘Fozzy Group’ (‘Silpo’, ‘Fora’, ‘Fozzy’), ‘Furshet’, ‘Metro Cash and Carry’, ‘Kviza Trade’ (‘Velyka Kyshenya’). Practically all of them are nationwide operators since they are presented in both Kiev and other regions in Ukraine. These operators are actively attracting new investments for development. For example in 2006 ‘Velyka Kyshenya’ received a loan of USD 100 million for a 5-7 years development term. The investment is assigned for development of their network, and includes opening 35 new outlets during 2006-2008.
Last years the competition between international network operators in Ukraine increased. In 2007 such well known companies as French ‘Aushan’ built its first hypermarket in Kiev and announced future plans for other regions in Ukraine. ‘Aushan’ is considered the main competitor of ‘Metro’. In Ukraine ‘Aushan’ has combined their efforts with the local retail operator – ‘Furshet’ and in the nearby future one can expect this operator in all big cities, where ‘Metro’ is already present. Some other international operators, like SPAR and BILLA announced their plans for further active development in Ukraine. The new big international player – ‘O’Key’ (Latvia- Luxemburg) made a quick start for penetration of the Ukrainian market. In 2007 three hypermarkets in Kyiv, Kryvyi Rig and Zaporizhzhya were opened. In the first half of 2008 five new hypermarkets – in Simferopil, Kharkiv, Mykolaiv, Mariupil and the second one in Kyiv are planned to be opened. The goal of the company is to achieve a 5-8% share of the Ukrainian retail market by 2011.
Existing market operators started to develop premium products formats. For example ‘Furshet’ has opened two supermarkets in shopping malls under the name ‘Furshet-Gourmand’, where mainly luxury products from ‘Furshet’ assortment are sold.
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2 Ukrainian food processing sector
The production of processed fruit and vegetables depends mainly on the availability of raw materials. For a number of sectors, like confectionery, vegetable production, oil and fat, the level of production were affected by the economic decline in Ukraine after gaining the independency, they suffered significant decline in the early 1990-s, but completely recovered and now in some cases, the production level is higher than in 1991.
During the last few years Ukrainian food processing gained a paramount position in the Ukrainian economy in terms of development and growth (average annual growth in 1999-2007 was about 14%, compared to 10% in 2007).
Key trends observed in the sector in recent years are as follows: consolidation and merger of enterprises; modernisation of equipment and introduction of new technologies; widening of the product range; improvement of products’ quality; development of the premium segment; introduction of new trademarks and national brands; wider use of marketing tools; achieved domination of local products in retail (90%); management optimization and investments in human resources development; successful experience of joint ventures operation in the local market; local saturation of some sectors (oil, confectionery, milk), expansion to and high level of dependence on foreign markets (Russia); achievement of limited local loan financing capacities and pro-active actions of key players to obtain external financing (including IPO market entering).
3 Financing of the sector
To start or to develop agriculture and food processing business, significant investments are required. The most common sources of external funds for these purposes are: - Ukrainian and foreign commercial banks - venture capital funds - international financial institutions
Ukrainian and foreign commercial banks can provide agricultural producers and food processors with the necessary financial resources. On average, the annual interest of local banks is 19% for loans in UAH and 10,5% for loans in USD.
Loans provided by international financial institutions such as the World Bank Group and the European Bank for Reconstruction and Development (EBRD) are another source of financing for the sector.
The EBRD - the largest investor in Ukraine - provides very diverse financing focused on financial institutions, agribusiness, real estate, power generation and transmission projects, infrastructure and the steel sector. Since 1995 the EBRD invested more than EUR 720 million in the agricultural sector of Ukraine.
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Examples of projects financed by the EBRD: - construction of new consumable oil plant for Bunge (consumable oil producer from USA) – EUR 48 million, 2006; - modernization and expansion of existing facilities of the consumable oil plant of Chumak (consumable oil and vegetable conservation producer financed with Swedish capital) – EUR 38 million, 2004-2005; - construction of grain warehouses for the storage of barley for subsequent processing into malt for Obolon (beer producer, national) – EUR 7,5 million, 2004; - acquisition, refurbishment and expansion of a malt plant, improvement of barley production and collection for Soufflet Slavuta (French beer producer) – EUR 21 million, 2004-2005; - investments in infrastructure for transport, storage and export of agricultural commodities, or sale and supply to leading local food processors - Toepfer Ukraine (grain trader, Germany ) – EUR 228 million.
In 2005 IFC (International Finance Corporation), a World Bank Group member, announced the allocation of a loan of USD 10 million for CJSC Rise - a leader in integrated agribusiness services including input for farms in Ukraine. Under a one-stop-shop concept, Rise distributes the full-range of agricultural inputs such as seeds, fertilizers, crop protection products and agricultural machinery/spare parts, which are provided in combination with value-added services such as agronomic consultancy, product off-take advice, and transportation, for more than 6,500 farms in Ukraine, Russia and Moldova. The project aims to strengthen the company’s balanced sheet by providing longer debt maturities in line with the expected payback from recently made investments through refinancing of the existing debt, which matured in 2006.
Another company that received a loan from IFC in amount of USD 80 million in 2005 was OJSC ‘Myronivsky Hliboproduct’ – a leader in vertically integrated poultry production. The project was undertaken to expand ‘Myronivsky Hliboproduct’ the poultry capacity from 126,000 tons of poultry per annum to 227,000 tons in 2008. In 2008 this company also attracted an investment of USD 320 million via IPO in the London Stock Exchange.
Venture capital funds provide the necessary funds for companies operating in the fastest growing sectors and also provide the necessary management tools to further evolve them from entrepreneurial ventures into professionally managed companies. Investments are made when a venture fund is likely to lead to significant return of capital commensurate with the inherent risks will be realized. Usually venture funds aim to realize capital gains on its investments in four to six years.
The biggest venture funds in Ukraine are the Western NIS Enterprise Fund (WNISEF, capitalization USD 150 million) and Sigma Bleyzer (more than USD 100 million). Other venture funds, such as Euroventures Ukraine and Emporiki Venture Capital operate with lower amounts – approximately USD 20-40 million each.
Examples of successful investments in the Ukrainian food processing sector done by venture funds are: WNISEF: AVK Confectionery Concern (second largest confectionary group in Ukraine), Ecoprod (agricultural producer, agricultural supply and equipment provider, grain trader and livestock producer), Shvydko (popular chain of quick-service restaurants) Sigma Bleyzer: Poltava Confectionery; Evroventures: Statinko Limited (condensed milk producer);
Recently Kernel Group, a Ukrainian company (via Kernel Holding S.A., Luxemburg) has attracted an investment of USD 218 million by IPO on the Warsaw Stock Exchange. In March 2008 an extra USD 84 million were attracted as a result of a 5,4 million stock floatation on the WSE. The realized funds are planned to be invested in a new oil-extraction plant in Mykolaiv region. The daily capacity of this plant is 1,500 tons of oil and rape seeds and 750 tons of soya beans.
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4 Investment opportunities
According to the State Statistics Committee of Ukraine, in 2007 the total of foreign direct investments (FDI) in the Ukrainian economy were as high as USD 8.3 billion and as of 1 January 2008 amounted to USD 29.5 billion. Investors believed in a prosperous Ukraine after the ‘orange revolution’ - in 2005 FDI reached USD 8 billion, which is twice as much as during the period 1991-2004. Since that time investments inflow remains at steady high level.
Figure 6. Foreign Direct Investments into Ukraine
35 29.5 30
25 21.2 20 16.4 15
USD, billion USD, 8.4 10 6.7 5.3 3.9 4.4 5 2.8 3.3 1.4 2.1 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: State Statistic Committee of Ukraine
In terms of FDI per capita, in 2007 Ukraine reached the level of USD 636 which is 4 times higher than in 2004, but it’s still less than in Russia and all other European countries with transition economies (for example in 2007 FDI stock per capita in Poland was estimated to be as high as USD 4,000)3.
Ukraine received investments from over 100 countries. The largest investments are from Cyprus and Germany (about 20% of total investments each). In 2007 The Netherlands took the third place with investments with a total value of USD 2.5 billion (8.5% of the total investment budget). The leader in investments in previous years was USA, but in 2007 the USA was on the seventh place with USD 1.4 billion (4.9% of total).
3 The Vienna Institute for International Economic Studies: http://www.wiiw.ac.at/pdf/fdi_may07_press_release.pdf
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Figure 7. Shares of leading countries - investors in total FDI into Ukrainian economy in 2007
Sw itzerland Other countries 2% 13% Cyprus 19% Poland 2% Sw eden 3% British Virgin Islands 4% France 4% USA Germany 5% 20%
Russian Federation 5% The UK 7% Austria The Netherlands 7% 9% Source: State Statistics Committee of Ukraine
Based on data of the State Statistic Committee, USD 1,947 million (6.6% of total FDI in Ukraine) was invested in the agricultural sector of Ukraine since 1992. USD 1,394 million of this amount was invested in food processing and USD 553 million – in agriculture (USD 370 million – the crop sector, USD 120 million – livestock, USD 63 million – services and landscaping). The remarkable growth in investments (27%), was observed in 2007.
The biggest investors in agro-industrial complex of Ukraine are: Cyprus, UK, Austria, Denmark, Germany (all EU members), these countries invested about 74% of the total FDI value. Other smaller investors are USA, Canada and CIS countries.
The most promising and at the same time profitable sectors for investments are: - The distribution infrastructure, especially in the development of, the retail sector, warehouses, cold storage facilities; - food processing companies, especially in the renovation and modernization of those who are involved in collection and storage of agricultural products; - in services accompanying financing of the sector (certification, audit, valuation, leasing, consulting).
The agriculture in Ukraine remains one of the sectors, where the investment potential is not yet completely realised.
The significant inflow of FDI is suppressed because expectant management of those investors, who already realize investment projects in Ukraine. They are waiting for a stable investment climate and for predictability of the agrarian policy. Especially land ownership questions and tax legislation are key issues here.
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5 Regulation of the food market and sales of foodstuffs
Recently the state’s attention was focused more on sectors manufacturing first-need products (like, for example, the bread baking sector) rather than the market development. The intervention of local authorities into key areas of food markets takes place mainly when the current situation requires intervention and is expressed by the following:
- price setting (e.g. limitation of sales margin);
- raw materials supply (e.g. from preferred producers or at set prices);
- restrictions or stimulation of crops and oil cultures harvest;
- introduction of quotas for manufacturing and sales of some products;
- certification and licensing.
VAT reimbursement issues continue to be a bottleneck for many companies. In case of late reimbursement of VAT the producer becomes an the object of double taxation.
General issues related to the import of agricultural products are regulated by the Law of Ukraine ‘On State Regulation of Agricultural Imports’ No. 468/97 of 17 July 1997 (with all amendments). At the same time, import duty rates for agricultural products and foodstuffs are set by the Law of Ukraine ‘On Customs Tariff of Ukraine’ No. 2371-III of 5 April 2001 (with all amendments).
Food sales are regulated by:
- The Order of the Ministry of Economy and European Integration of Ukraine ‘On rules of retail sales of foodstuffs’ No. 185 of 11 July 2003 that provides with requirements to the conditions and terms of storage and sale of food products in retail.
- Law of Ukraine ‘On protection of consumer rights’ No. 1023-XII of 12 May 1991 that regulates relations between consumers of goods and producers, establishes consumer rights and determines the mechanism of realization and state protection of these rights.
- Law of Ukraine ‘On quality and safety of food products and raw materials for food industry’ of No. 771/97 of 23 December 1997 that establishes legal principles for providing quality and health safe food products and raw materials for food industry, and regulates relations between executive authorities, producers, sellers (suppliers) and consumers during production, import, purchase, delivery, storage, transportation, consumption and utilization of food products and raw materials for the food industry.
One of the main requirements for retail is quality and safety of the products sold. According to the Law of Ukraine ‘On quality and safety of food products and raw materials for food industry’, food products, raw materials for food industry and related materials may not be imported into Ukraine or produced, supplied for sale, sold or used otherwise before their quality and safety have been approved by appropriate documents. These documents are:
- a declaration of conformity issued by the producer for every consignment of food products, raw materials for food industry and related materials; or alternatively;
- a certificate of conformity or a certificate of acceptance of a foreign certificate, issued by an accredited authority for food products intended for sale on a domestic market, or for domestically produced food products to be exported from Ukraine;
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- a positive conclusion of the State Sanitary - Epidemiological Expertise, a state registration certificate or a hygiene certificate;
- veterinary documents for food products of animal origin;
- a certificate of quality and a guarantee permit for grain, fruit and vegetables.
Suppliers of food products for Ukrainian retail are responsible for providing the above-mentioned documents.
6 Changes stipulated by Ukraine entering to WTO
On May 16th 2008 Ukraine became a full-pledged member of the WTO and joined the 151 countries which are already members. By entering the WTO Ukraine is opening up new opportunities for increased trade with the United States, European Union and the rest of the world. Ukraine’s admission to the World trade organization shows that the country is loyal to the ideals of economic freedom and democratic progress.
Countries who joined WTO have four definite advantages: 1) access to the market of agricultural and food products; 2) state support of agriculture; 3) sanitary and phyto-sanitary actions; 4) export competition in agriculture and food trade.
As a consequence of the negotiations preceding the admission the following agreements were reached:
- during the five year transition period Ukraine must harmonize its legislation with correspondent international legislation, specially where certification questions are concerned;
- the total value of state support for the agriculture after entering WTO is UAH 9,518 million (EUR 1,190 million at actual exchange rate), this value comprises of:
- direct cost support, or ‘yellow box’ programs, in the amount of UAH 3,043 million (EUR 380 million), that will not be a subject of reduction as was planned before;
- ‘green box programs’ with a total value of UAH 2,424 million (EUR 303 million);
- food and non-food support program ‘de minimis’ with a total value of UAH 4,051 million (EUR 506 million);
Internal support of the country: a WTO member is entitled to budgetary funds that local government renounced for the benefit of producers. They are divided on programs of ‘yellow’, ‘green’ and ‘blue’ boxes.
‘Yellow box programs’ are governmental supported programs that are a subject to a mandatory reduction during the transitional period. Direct cost support, compensation of interests on credit and export subsidies ‘yellow box programs’. Nowadays the following ‘yellow’ programs are used in Ukraine:
Production of 25 articles of agricultural production, directly subsidized by government; Support of the market price for sugar and sugar beet; Payments for hectares of sown area (compensation of expenditures on crops production); Additional payment per kg of live weight on young growth of cattle, pigs, birds that are sold to processing enterprises; Subsidies for accretion of ewes and young ewes elder than one year, and also for livestock
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population; Benefit of grain purchasing via deposit; Partial compensation of electricity, used for rice cultivation; Subsidies on milk and meat through zero VAT rate by their realization to processing enterprises; Partial compensation of cost for farming machines; Partial compensation of commercial bank interests on credit for preferential loans; VAT accumulation for purchasing materials and technical resources.
‘Green box’ are government supported programs that are not a subject to mandatory reduction and which can be increased. They are not affecting or rendering minimal influence on production and trade and except (and except) price support of commodity producers. The so called “green box” programmes relate to the following issues:
Execute Research studies; Services needed to create a better market infrastructure; Provide tools to fight plant and animal pests and diseases; Spreading of experience and consultancy services; Marketing services, including product promotion; Training, retraining, and professional development; Governmental fund raising to ensure food safety; Budget payments in case of natural disaster; Payments for environment protection programs etc.
‘Blue box’ programs are direct payments by programs of production limitation (for Ukraine these kind of programs are not set).
Program ‘de minimis’. This program allows government to subsidize the production of specific goods in amount not higher than 5% of the basic cost of its volume, produced in whole country during a year. This program is not included in the structure of “yellow box” and is not a subject to further curtailment.
Solutions on a set of questions on securing importers with free access to the Ukrainian market was settled during the negotiations. Ukraine was forced to abandon the specific and complex import duties that was normally used before. Specific duty is fixed in money terms per article. Complex duty is the combination of specific and ad valorem (percentage) tax. For example import duty for sugar was 50% of the price, but not less than EUR 300 per tonne. Since entering the WTO Ukraine can only charge ad valorum taxes.
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Figure 8. Average changes of customs duties on some foodstuffs after Ukraine entering to WTO
Customs rate before WTO entering 60 Customs rate after WTO entering 50 50 50
40 30
% 30 24.8 21.5 20 13.13 10.1 10 10
0 Dairy products Meat Sugar Sunflower-seed oil Source: Academy of Agrarian sciences
Prices on some food products (like milk, sunflower-seed oil, etc.) in Ukraine are higher than in neighbouring countries – WTO members. Subsidies for Ukrainian exporters was even not negotiated during the process of Ukraine accession to WTO, therefore experts forecast that the decrease in agricultural production in total will be 7% for a short term basis. It is expected that during the first year after entering to WTO, import of agricultural production will increase by 10% and share of domestic food products will drop from current 91% to 80%.
Figure 9. Competitiveness of Ukrainian food products on the eve of entering the WTO
bakery and confectionery
sunflower-seeds oil High sunflower- seeds vegetables chicken meat
dairy products fodder fruit wheat , Average barley pork
milk Level of competitiveness
Low beef sugar corn
Low Average High Volume of production
Added value : high average low
Source: Ukrainian Academy of Agrarian Sciences
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A downturn is mainly forecasted for meat, diary and sugar sectors. For example meat and diary production is concentrated mainly in private households, while effective competition with importers can be done only big integrated holdings.
Based on the positive experience of Central European countries who joined WTO on their way to EU, the membership of Ukraine in WTO is a driving factor for increasing direct foreign investments into Ukrainian economy. Finally it will guarantee the continuing increase of internal production, employment, external turnover, thus sterngthefying the socioeconomic development of Ukraine.
7 Expected developments in process of preparation to Euro’2012
The economic benefits of Ukraine generated by hosting UEFA 2012 can be divided into four broad groups, which are as follows:
1. Direct and indirect benefits generated from money spent by foreign tourists who visit Ukraine to watch or participate in the championship.
2. Direct and indirect benefits generated from money spent by foreign tourists who visit Ukraine after these countries are with awarded UEFA 2012 who would not have visited these countries if they did not host the championship.
3. Benefits generated by upgrades of transportation systems, and hotel and stadium infrastructure.
4. Psychic benefits accruing to Poles and Ukrainians from hosting a prestigious sporting event.
Arriving tourists will pay for hotel rooms, meals, drinks, transportation, tickets to the matches and other goods and services produced in the region.
An a priori cost-benefit an assessment of a sports-mega event like UEFA 2012 in a transition economy must be viewed as a highly speculative undertaking. Transition economies are difficult to forecast because of the potential for widespread changes in political and economic institutions and basic societal conditions.
In the current study the possible effect on food processing industry from finances of tourists who will visit Ukraine and effect from the development of HoReCa sector to serve the expected amount of tourists have been examined.
8 Equipment for food processing and packaging
With the sector development food producers pay more attention to re-equipment of the enterprises. At present, the following key factors influence the producers’ choice of equipment:
9 reliability and reparability of the equipment (frequency and easiness of repairs);
9 degree of automation (fully automated preferred);
9 capacity (higher capacity preferred);
9 energy saving features;
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9 environmental friendliness;
9 possibilities for easy readjustment for output of new type of product, multi-input.
The majority of Ukrainian enterprises presently feel the need for new equipment, the financial resources are however often not present. Thus, development of leasing services (presently not widely used) provided by the banks and specialised companies will contribute to food industry modernisation.
Opportunities for new equipment in each specific sector are described in the relevant chapters of the report.
9 Institutional organisation
The major institutional bodies for agriculture and food processing have been restructured in the late 1999’s and changed their names, though their functions remained practically the same. According to the Presidential Decree ‘On Changes in Structure of Executive Authorities’ (No. 1573/99 of 15 December 1999), the Ministry of Agrarian Policy was established on the basis of the Ministry of Agro-Industrial Complex, State Food Industry Committee, State Committee for Fish Industry and State Committee for Horticulture, Viniculture and Wineries that were liquidated.
According to the Regulation ‘On the Ministry of Agrarian Policy of Ukraine’ (approved by the Presidential Decree No. 772/2000 of 7 June 2000), the basic tasks of the Ministry of Agrarian Policy of Ukraine comprise of:
9 realization of the state agrarian policy;
9 organising, elaborating and implementation of measures on the guarantee of state food security; guaranteeing realization of state management in the spheres of agriculture, gardening, wine-growing, food industry, fish facilities; recycling of agricultural products (further – spheres of agro-industrial production);
9 formulating and providing implementation of agrarian reform, including monitoring;
9 working out and realizing means of structural evolution of agro-industrial spheres;
9 participating in the realization of the state policy in the sphere of enterprise;
9 participating in and formulating and implementing of social policies in a countryside;
9 coordinating the activities of executive power bodies on the issues of state agrarian policy realisation;
9 reform? of social policy in a countryside, ensuring food state security, carrying out agrarian reform.
The following organisations, institutions and enterprises are under the jurisdiction of the Ministry of Agrarian Policy:
Ö National association of sugar producers UKRTSUKOR
Ö Association UKROLIYAPROM
Ö State concern of alcohol and alcoholic beverages industry UKRSPYRT
Ö Ukrainian association of tobacco producers UKRTIUTIUN
Ö Ukrainian union of associations, organisations and enterprises manufacturing foodstuffs UKRPRODSPILKA
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Ö CJSC UKRCONDYTER
Ö Ukrainian branch company for production of beer, soft drinks and mineral waters JSC UKRPYVO
Ö Association of enterprises and organisations of salt-mining industry of Ukraine UKRSIL’
Ö National association of joint stock companies for production of canned milk UKRKONSERVMOLOKO
Ö Association for production of packaging materials and foodstuffs UPAK
Ö Union UKRKHLIBPROM
Ö Corporation of Ukrainian wine-makers UKRVINPROM
Ö Concern for horticulture, viticulture and wine-making UKRSADVINPROM
Ö Industrial complex KRYMSOVKHOZVINPROM
Ö Ukrainian voluntary association UKREPHIRPARFUMERPROM
Ö Industrial-agrarian union MASSANDRA
Ö Sevastopil based agroindustrial association ALKADAR
Contact details:
Ministry of Agrarian Policy 24, Khreschatyk St. [email protected] www.minagro.gov.ua Kyiv 01001, Ukraine Mr. Yury Melnik Minister Tel.: + 380 44 278-71-18, + 380 44 226 34 66 + 380 44 226 34 66
10 Regional division
The territory of Ukraine is divided into the following regions according to regional agricultural specification and climatic conditions: Polissia (Woodlands) Region, Forest-Steppe Region and Steppe Region.
The Polissia Region (North-Western Regions) includes Chernigiv, Zhytomyr, Rivne, Volyn’ (Lutsk), L’viv, and Ivano-Frankivsk. Production in the Polissia Region is characterized by cattle breeding, long-fiber flax, potatoes, grains, hop, meat and milk cattle and pig breeding.
The Forest-Steppe Region includes Vinnytsia, Kyiv, Cherkasy, Poltava, Kharkiv, Sumy, Khmelnytsky, Ternopil, Chernivtsi, and Zakarpattia regions. The Forest-Steppe Region mainly focuses on cattle breeding, sugar beets and grains along with pig breeding, poultry farming, fruit growing, potatoes and vegetables.
The Steppe Region includes the Autonomous Republic of Crimea and the following regions: Kirovograd, Dnipropetrovsk, Zaporizhia, Odessa, Mykolaiv, Kherson, Donetsk and Lugansk. The agricultural specialisation in the Steppe Region mainly focuses on grains and cattle breeding. Farms also produce poultry, sunflower seeds, vegetables and fruits including grapes, melons and gourds. Poultry farming, gardening and viniculture together with cattle breeding and vegetables are considered the traditional farm outputs of the Mountainous and Foothills regions of Crimea.
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Furthermore, the regions are grouped according to their development and industrial structure for the most appropriate analysis for investors. By this standard, they can also be divided into these three groups: 1. Regions with high concentrations of industry and population (Dnipropetrovsk, Donetsk, Zaporizhia, and Lugansk). 2. Industrially developed regions with concentrations of industry in regional centres and large cities (Kyiv, Kharkiv, Odessa, L’viv, and Poltava regions). 3. Regions with prevalence of industry of local significance include the remaining 15 regions, and the Republic of Crimea. The regions in group 1 and 2 are characterised by multi-area industrial specialisation. This is the majority of enterprises which produce for both domestic and international markets. Regions of the third group consist of small-and medium-size enterprises with local specialisations. These enterprises generally supply the local market (exceptions are: “Chumak” in Kherson region, “Sandora” in Mykolaiv region, “Torchin Product” Volyn region).
11 Useful links http://www.president.gov.ua/en/ - President of Ukraine (official web-site) http://www.kmu.gov.ua/control/en - Government of Ukraine http://me.kmu.gov.ua/control/en/index - Ministry of Economy of Ukraine http://www.ukrstat.gov.ua/ - State Statistics Committee of Ukraine http://www.bank.gov.ua/ - National Bank of Ukraine http://www.minagro.gov.ua/ - Ministry of Agrarian Policy of Ukraine http://www.dkrg.gov.ua/ - State Committee of Fish industry http://www.worldbank.org.ua/ - The World Bank office in Ukraine http://www.wnisefk.com/ - Western NIS Enterprise Fund (WNISEF) http://www.sigmableyzer.com/ - Sigma Bleyzer investment fund http://www.evu.kiev.ua/ - Euroventures Ukraine http://www.business.dp.ua/ - Internet resource ‘Business World Agency’ http://www.ukranews.com/rus/products/weekly.html - Ukrainian News http://a7d.com.ua/ - Agrarian Week Ukraine http://www.proagro.com.ua/ - ‘ProAgro’ – Agrarian consultancy, market researches, reports and forecasts http://proapk.com.ua/ - agrarian project of www.proua.com portal
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Attachment A Map of Ukraine
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Attachment B Structure of foreign trade by agricultural and food products in 2007
Customs code and product Export Import name in % to the in % to the in % to USD, in % to USD, thousand total total 2006 thousand 2006 volume volume Total 49,248,064 128.4 100.0 60,669,923 134.7 100.0
I. Animals; livestock products 747,156 188.5 1.5 771,410 118.9 1.3
01 Animals 3,688 66.8 0.0 51,490 131.4 0.1 02 Meat and and foodstuff by- 105,171 317.1 0.2 163,931 101.6 0.3 products 03 Fish and crustaceans 5,678 98.2 0.0 444,452 123.0 0.7 04 Milk, dairy products. Eggs; 622,660 182.9 1.3 99,755 131.2 0.2 honey 05 Other livestock products 9,959 85.6 0.0 11,783 104.9 0.0
II. Vegetative produce 1,726,383 88.5 3.5 860,523 128.1 1.4 06 Plants and floriculture 2,179 326.9 0.0 64,363 133.1 0.1 produce 07 Vegetables. Roots 70,692 81.6 0.1 27,730 105.1 0.0 08 Eadible fruits and nuts; 141,484 93.4 0.3 293,763 109.6 0.5 citrus plants 09 Coffee. Tea. Spicery 4,850 123.0 0.0 158,523 128.3 0.3
10 Grain crops 763,729 56.4 1.6 86,585 145.6 0.1 11 Produce of flourgrinding- 73,735 203.2 0.1 71,065 228.3 0.1 cereals industry 12 Seeds and fruits of oil 666,822 212.2 1.4 132,788 143.2 0.2 plants 13 Gums. Resins 344 140.1 0.0 24,960 116.7 0.0
14 Other vegetable produce 2,547 81.1 0.0 747 102.5 0.0 III. 15 Vegetable and animal 1,717,956 176.9 3.5 388,151 203.1 0.6 fats and oils IV. Ready foodstuff 2,056,224 147.5 4.2 2,090,922 126.4 3.4 16 Meat produce. Fish 34,848 146.1 0.1 123,049 102.9 0.2 produce 17 Sugar and cofectionery 155,669 137.2 0.3 32,723 108.9 0.1
18 Cocoa and its produce 351,648 135.3 0.7 268,453 120.4 0.4
19 Grain crops produce 166,639 145.1 0.3 109,691 146.4 0.2 20 Processed vegetables and 250,481 185.5 0.5 249,697 129.4 0.4 fruites 21 Different foodstuff 75,912 153.0 0.2 432,560 128.6 0.7 22 Alcoholic and soft drinks. 518,758 124.4 1.1 279,936 147.9 0.5 Vinegar 23 Remains and wastes of 338,614 199.1 0.7 177,615 114.1 0.3 food industry
Source: State Statistics Committee of Ukraine
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Attachment C Consumption of major foodstuffs in Ukraine kg per capita
Products 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 Meat and meat products (including fat 68 39 33 31 33 35 39 39 42 41.5 and sub products) Milk and dairy products 373 244 199 205 225 226 226 226 235 220 Eggs, in pieces 272 171 166 180 209 214 220 238 251(228)* 252* Fish and fish products 17.5 3.6 8.4 11.0 11.9 12.0 12.3 14.4 14.1 15 Sugar 50 32 37 40 36 36 38 38 40 40*** Oil 11.6 8.2 9.4 10.0 10.7 11.3 13.0 13.5 13.6 14,5*** Potato 131 124 135 140 133 138 141 136 134 143,5** Vegetables, ground plantations 102 97 102 105 108 114 115 120 127 147 Fruits, berries and grapes (without 47 33 29 26 29 33 34 37 35 32 processing on wine) Bread, macaroni products, flour, groats, 141 128 125 130 131 125 126 124 120 101**** beans Source: State Statistics Committee of Ukraine *According to the data of "Ukrptahprom" Source: http://www.nrcu.gov.ua/index.php?id=4&listid=58869, 18.01.08 **Source: http://www.potato2008.org/en/world/index.html 6659000000(consumption year 2007)/463727000(UA population stated on 01.01.08) ***Source: http://me.kmu.gov.ua/control/uk/publish/printable_article?art_id=116926 ****Source:http://www.agroprofi.com.ua/content/view/53/40/
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Attachment D Ukraine’s Top retailers list
Amount Average Turnover in Turnover in Type of Managing company Retail networks of retail trade area in 2006, USD 2007, USD network spots sq.m. million million Fozzy Group: 1,200 1,500 Supermarkets"Silpo" domestic 144 1,200 Discount shops"Fora" domestic 120 400 Hypermarkets "Fozzy" domestic 4 7,800 Metro Cash&Carry 720 1,232 Hypermarkets "Metro" foreign 18 9,000-10,000
Furshet 481 835 Supermarkets "Furshet" domestic 92 3,010 "ATB-market' 400 800 Supermarkets "ATB" regional 235 545 Kviza-Trade: 440 660 Supermarkets "Velyka domestic 33 1,200-3,500 kyshenya" Hypermarkets "Velyka domestic 11 3,500 kyshenya" Discount shops "Velyka domestic 4 kyshenya" "Lia LTD" Ltd Supermarkets "Absolut" regional 20 555 "Amstor" 250 554 Hypermarkets "Amstor" regional 19 "Tavria-V" Ltd. 400 Supermarkets "Tavria- regional 16 V" Hypermarkets "Tavria- regional 6 V" Corporation 170 235 "PAKKO": Supermarkets "Vopak" regional 73 Hypermarkets "PAKKO" regional 9 "Eko" Ltd. 220 Supermarkets "Eko- regional 47 Market" "Intermarket": 151 211 Supermarkets "Arsen" regional 7 Discount shops regional 4 "Barvinok" Self-servicer shops regional 24 "Intermarket" Source: 'Business', No 20, 19.05.08
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Table of contents Page
1 Introduction 2
2 General overview of the branch 2 2.1 Current situation in livestock and poultry sectors in Ukraine 2 2.2 Main trends in meat processing industry 6 2.3 Types and assortment of final products 6 2.4 Main problems of the industry 7
3 Branch structure 8
4 Sales system 9
5 Meat market and production analysis 10 5.1 Meat consumption and demand 10 5.2 Domestic production and key players 12
6 Raw materials and packaging 15 6.1 Raw materials 15 6.2 Packaging 16
7 Foreign trade 18
8 Foreign presence in the Ukrainian meat market 20
9 Price survey 20
10 Equipment 21
11 SWOT analysis 22
12 Conclusion and forecast 23
13 Opportunities for Dutch technology and equipment 23
Attachments: 1. Productive livestock in Ukraine by type of farm 2. Organizational structure of the branch 3. Leading Meat Processing Enterprises
Market Study Food Sector in Ukraine – Part A: Meat Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.A-R Revision: 1 Date: 26 May 2008 Page: 2 of 29
1 Introduction
Recent developments in the meat processing sector of Ukraine for last years can be described as follows:
9 Meat production volumes (ups and downs)
9 Wide range of meat products offered to consumers
9 Low level of meat products’ consumption compared to other European countries
One of the specific characteristics of the Ukrainian meat market till recent was its highly speculative character. The margins of some retailers reached level of 100%.
The most stable enterprises are integrated complexes, comprising of animal feed farming and manufacturing and sales of final products. Such companies as Mironivskij Hleboprodukt and Cherkasy Food Company (TOP companies in this field) are typical examples.
In the current research the following definitions have been used:
9 private husbandries and farms with livestock amounted 1-10 heads are hereinafter referred to as ‘small farms’
9 farms with livestock more than 10 heads are referred to as ‘big farms’
2 General overview of the branch 2.1 Current situation in livestock and poultry sectors in Ukraine
In 1990-2007 livestock and meat production in Ukraine had a stable negative tendency as a result of the recession in the Ukrainian economy in general and agriculture in particular, especially where it concerned cattle. As can be seen in Table 1, in 2007 the number of cattle and pigs amounts to about 22-36% of livestock in 1990 (the number of cows – 36%). The percentage of poultry decreased as well, but it has a slight tendency to grow. Livestock population categorized by the type of enterprise can be found in Attachment 1.
Table 1. Actual number of productive livestock As of the 1st of January, thousand heads 2008 1990 1996 2000 2004 2005 2006 2007 2008 as % 2007 Cattle 25,195 17,557 10,626 7,712 6,903 6,514 6,175 5,530 89.6%
including cows 8,528 7,531 5,431 4,284 3,926 3,635 3,347 3,090 92.3%
Pigs 19,947 13,144 10,073 7,322 6,466 7,053 8,055 6,747 83.8%
Sheep and goats 9,003 4,099 1,885 1,859 1,755 1,630 1,617 1,711 105.8%
Poultry, million heads 255.1 149.8 126.1 142.4 152.8 162.0 166.5 161.1 96.8%
Source: State Statistics Committee of Ukraine, Ministry of Agrarian Policy
In order to prevent a sharp decrease in livestock the government of Ukraine developed a special program to support cattle breeding. According to the program, livestock farms can receive the following extra payments for
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cow breeding. Each year the level of subsidy grows. In 2008 the subvention is up to UAH 3 thousand for each new cow (reproduced or bought).
The decline in production of all types of meat during the period from 1990 to 2003 and further growth in 2002- 2007 is shown in Table 2.
Table 2. Meat production categorized by all farms, in slaughter weight, thousand tons
2008 2008 Description 1990 2000 2004 2005 2006 2007 as (forecast) %2007 Meat, total 4,358 1,663 1,600 1,597 1,723 1,905 2,030 106,6% including: beef and veal 1,986 754 618 561.8 532 548 548 100,0% pork 1,576 676 558.8 493.7 555 590 605 102,5% poultry meat 708 193 375.5 496.6 600 700 837 119,6% mutton and 46 17 17 16 15 goat meat rabbit meat 30 14 14 13 13 67 40 59.7% horse meat 12 9 17 15 13
Source: State Statistics Committee of Ukraine
Production of beef still has negative tendency. Although the pork meat production value in 2007 is just a one-third of the level of 1990, it shows some stability. The growth of poultry meat production can be explained by the increase in domestic demand for this type of meat because of low prices (lower then other meat). Another explaination is that it’s highly profitable when for instance compared to the short-term poultry production. The poultry production growth is stable at 20-30% per year.
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Figure 1. Structure of meat production in 2007, by category, in slaughter weight
pork 29%
poultry meat 41%
beef and veal 27% other (horse, rabbit, mutton and goat) meat 3%
Source: State Statistics Committee of Ukraine
The distribution of meat production in different types of agricultural producers is presented in Figure 2. As shown in the figure, a growth in meat production is observed in all categories of enterprises. The share of big farms slightly increased since the year 2000.
Figure 2. Output structure, by category of enterprises, in slaughter weight, thousand tons
100% 1259 80% 1187 987 389 368 1195 1086 1009 60% 1225 1165 1201
40% 3099 1114 761 285 328 20% 525 602 446 359 456 542 0% 1990 1995 2000 2001 2002 2003 2004 2005 2006 1st Q 1st Q Big farms Small f arms 2007 2008
Source: State Statistics Committee
The data for the 1st quarters of 2007 and 2008 shows a slight increase in the share of small farms in the structure of total meat production, this is caused mainly because of the increase of the share of cattle.
As shown in Figure 3, since 1990 the structure of meat sales has changed significantly. After a sharp drop from 95% in 1991 down to 21.6% in 2000 the share of meat sold for further processing shows a slight increase and reached a level of 35.2% in 2006. The share of meat sold directly to the population (through the market places)
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decreases continuously. The share increase of sales channels is rather remarkable they were underdeveloped or even absent in the beginning of 1990-s (including retail networks).
Figure 3. Structure of meat sales
0.1 100% 3.3 11.3 8.1 1.8 19.8 16.4 34.4 39.6 80% 45.6 45.5 31.9 52.7 21.8 60% 26.2 15.4 11.7 7 4.5 94.8 27.1 3 40% 38.4 22.2 19.6 18.2 19.1 9.1
20% 46.1 31.3 29.1 29.2 30.9 35.2 21.6 28.0 0% 1990 1995 2000 2001 2002 2003 2004 2005 2006 Meat processing plants Market Population Other channels
Source: State Statistics Committee of Ukraine
In order to stimulate sales of cattle and poultry for further processing, the Cabinet of Ministers of Ukraine introudced additional payments for cattle, pigs and poultry sold for processing for year 2008 as follows (USD 1=UAH 4.85):
9 cattle – UAH 1.90 per 1 kg of live weight (UAH 1.30 in 2007);
9 pigs – UAH 1.40 per 1 kg of live weight (UAH 1.05 in 2007);
9 broilers – UAH 0.65 per 1 kg of live weight (UAH 0.5 in 2007).
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Figure 4. Meat balance in Ukraine, 2007
2500 2,113 1,968 2000 Exported Not processed 1500 1,360 meat Meat of UA origin 1000 Meat of
thousand tons UA origin Processed meat 500
Imported Imported 0 Input Processed Consumed
Source: Tebodin Ukraine on the base of open sources data
An analysis of the meat balance shows that in 2007 import amounted to about 10% of meat input and about 15% of processed meat. The major share in imported meat structure consists of raw materials for further processing. The export share was only 2% of the volume of final products for consumption.
2.2 Main trends in meat processing industry
The following trends were observed in the meat sector during the last years:
Continuous increase of poultry meat production;
processing is being developed by the raw meat producers;
the quality has been improved, strict quality control has been introduced at many enterprises;
assortment of the major producers is growing;
increase of meat import in 2004-2007;
output of meat products has increased;
decrease in beef production, relatively stable production of pork;
extensive use of imported raw materials.
2.3 Types and assortment of final products
The types of meat products manufactured by Ukrainian enterprises for the market can be divided into the following groups.
Products received after cattle slaughtering (sold for further processing) are: meat;
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1st category by-products: tongue, liver, heart, cattle and poultry brain; 2nd category by-products: kidneys, spleen, lungs, cattle and poultry legs; blood, bones, horns, etc.
The main types of meat products are: meat (beef, veal, pork, poultry meat, mutton, etc.), including meat in small packs (0.5-1 kg); sausages/frankfurters (cooked sausages, semi- and hard-smoked sausages, polony1, smoked products, etc.); semi meat -products; canned meat (including canned meat with vegetables, various pastes); baby food.
Main types of poultry products include: smoked hen, baked and fried hen; chicken sausages; pastes and meat loafs; canned meat; delicates group: goose meat and “foie gras” (new product on the market - since July 2005)
Nowadays meat producers pay special attention not only to the product’s quality but also to the range of the assortment: large meat and meat processing plants manufacture more than 200 kinds of products, including European-style products (foie gras, frankfurters). Small- and medium-sized enterprises usually have an assortment of up to 50 kinds of meat products. Food shops (even small) prefer to sell products of big, well known manufactures.
2.4 Main problems of the industry
Presently, the Ukrainian meat industry faces the following problems: 9 decrease of cattle population due to low efficiency, based on outdated technology; 9 about 65% of number of cattle that can be used for meat production is concentrated in small farms; 9 insufficient working capital (needed for expansion of production or modernisation of equipment); 9 locally produced raw materials can’t compete with relatively cheap imported; 9 decrease in rural population.
The intensive control of sanitary, veterinary and environmental authorities remains one of the specific features of the meat sector.
1 Polony – cooked and then smoked pork sausage
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3 Branch structure
The structure of the meat industry is quite complicated because of the large number of regulating bodies, which are briefly described below. A complete overview of the branch structure is shown in Attachment 2. Data on the leading companies active in the sector is presented in Attachment 3.
There are four main organisations that co-ordinate the activities of the meat sector: UkrM’yaso UkrM’yasoProduct Tvarynprom UkrPtakhoProm
Founded in 1995, UkrM’yaso, the National association of meat producers and processors, consists of more than 25 % of all enterprises and organisations present in the sector.
As declared in the Statute of the association, the main functions of UkrM’yaso are: To encourage growth of the meat and meat products manufacturing, stabilisation and development of the market in and outside Ukraine and competition development; representation and protection of interests of enterprises-members of the association; assistance in creation of legislative base (laws and regulations, standards and other norms) for the sector’s market expansion.
The association has no right to interfere in production and commercial activity of its members and actually plays a role in providing information and consultancy for the meat sector.
The non-governmental All-Ukrainian Association ‘UkrM’yasoProduct’ was founded in 2007. It comprises of 43 enterprises within the meat-processing agricultural producing sectors. All members of the association are ISO – 2001 certified. The association has developed target programs on import to Ukraine of pedigree cattle from Australia and Canada and on development of farms of Australian and Canadian type in Ukraine during 2008- 2017.
Tvarynprom, the Ukrainian corporation for industrial meat production (former UkrM’yasProm), consists of 43 farms-members from 19 regions of Ukraine. At the moment the corporation also works on uniting a few big pig- breeding complexes. Its share of pig farming in the Ukrainian market is about 19%. The main tasks of the corporation are joining (or uniting?) and co-ordination of efforts of member enterprises on the livestock to raise manufacturing and sales of agricultural products (primarily, meat), effective use of animal feed and improvement of the livestock feeding technologies.
UkrPtakhoProm, Production and scientific association of poultry farming, was established in 1989. The main goals of its activities are Ukrainian poultry farming development, representation and co-ordination of founder enterprises and assistance in their activities.
UkrPtakhoProm unites 680 poultry farms, of which 323 are of industrial type (including 150 farms that are specialised in eggs production, 80 – in meat production, 102 – in breeding). Besides, 195 inter-farm enterprises and 143 incubators are members of UkrPtakhoProm. In these enterprises there are 683 workshops for processing of poultry products, utilisation of biological waste and production of grass flour.
In April 2003 leading poultry producers established Poultry breeders’ union association for the purpose of further development of the poultry market and protection of national poultry breeders’ interests. By the volume of production companies-members control 83% of broiler meat market and 78% of chicken eggs of Ukraine.
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Association unites around 200 leading enterprises specialised on growing and processing of poultry, production and processing of eggs.
Contact details:
UkrM’yaso (Ukrainian meat) National association 1, Grinchenko St. 01001 Kyiv, Ukraine Mr. Volodymyr Popov Chairman of the Board Tel.: +380 44 226 2962, +380 44 229 6413
UkrM’yasoProduct Non-governmental All-Ukrainian association of meat producers 7/9, Schorsa Str. 03150 Kyiv, Ukraine Mrs. Galyna Vasylyk Head of association Website: http://ukrmeatproduct.com Tel.: +31 044 593 2858
Ukrainian corporation for meat production on the industrial basis TvarynProm (Industrial livestock) 28, Panasa Myrnogo str. 01011 Kyiv, Ukraine Mr. Sergey Gnatyuk General Director Tel.: +380 44 280 1129 +380 44 280 3193
Production and scientific association of poultry farming UkrPtakhoProm (Ukrainian poultry farming) 28, Panasa Myrnogo St. 01011 Kyiv, Ukraine Mr. Volodymyr Frolov General Director Tel.: +380 44 280 2221
Poultry breeders’ union association 13 Pymonenka St., office 6A-23 (Forum Business City) 04050 Kyiv, Ukraine Mr. Alexander Bakumenko Chairman of the Directors’ Board Tel.: +380 44 494 4930
4 Sales system
Sales policy of producers is mainly oriented to direct sales; at the same time opportunities for the cooperation with professional distributing companies are not fully used. Often small and medium sized meat producing companies try to enter retail outlets directly or through regional representations omitting distributors. For the retail the direct cooperation with such producers is not effective enough because small and medium producers can not
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always efficiently correspond to the market requirements. The only way for small meat producing companies to represent their products on the regional level is to sale products through small retails and through street markets.
Large meat producing companies develop own distribution channels and trade houses. They take an active part in promotion of their products in supermarkets (merchandising, promo-actions, tasting). Nevertheless, in parallel large producers hold counters in bazaars and even sale products through the ‘shops on the wheels’.
The Ukrainian meat processing industry is rather conservative in regards to marketing technologies. As usual marketing policy of meat processing companies is limited by advertising in regional mass media and billboards. But there are exceptions. Thus ‘Mironivskij Hleboprodukt’ actively promotes its poultry products under TM ‘Nasha Ryaba’ on TV.
5 Meat market and production analysis 5.1 Meat consumption and demand
Meat and meat products are considered to be the most important types of foodstuffs. In the nutrition structure of developed countries, meat products amount to 34-37% in terms of calorie consumption and 63-69% in terms of protein consumption. After the drop at the beginning of 1990’s meat consumption started to grow slowly from the beginning of 2000’s and reached in 2007 41.5 kg per capita, what is still lower than the recommended by the Ministry of Health of Ukraine level of 45 kg per capita and lower than meat consumption in European states and in the USA (Poland – 63.5 kg, Germany – 83.2 kg, USA – 119.7 kg, Hungary –62.9 kg, Brazil – 79.4 kg, Czech – 108.1 kg, Russia – 48.7 kg, etc. According to the forecasts of UN Food and Agriculture Organization (FAO), average annual consumption of meat in the world will be increased to 41.7 kg per capita. The growth of consumption of meat in Ukraine directly depends on the growth of population’s incomes; at the same time, growing inflation prevents people from eating the recommended amount of meat, fish and other food products. The growth of meat consumption over the recent years is supported by the growth of poultry meat consumption.
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Figure 5. Annual consumption of meat products, per capita, by countries
140 120 120 110
100 92 83 80 80 64 63 60 49 50 45
kg per kgper capita 41.5 40
20
0
USA 2006 Brazil 2006 Czech 2006 Poland 2006 Russia 2006 Ukraine 2007 Germany 2006 Hungary 2006 Ukraine 2010fRecommended
The Netherlands 2006
Source: FAO
The consumption of meat products varies depending on the region. Thus, the highest consumption is registered in Kyiv.
Since 1990 the structure of meat consumption was changed cardinally: in 1990 the consumption of pork held the first place with 48%, on the second place were beef and veal – 45%, poultry meat had only 7%. In 2007 the share of poultry consumption reached 43%, pork descended to 28%, beef and veal – 29%.
Figure 6. Meat consumption structure in Ukraine, 1991-20072
80.0 48% 50% 43% 70.0 45% 45% 40% 60.0 35% 30.6 50.0 29% 28% 30% 40.0 25% 12.5 12.0 12.3 12.2 20% 30.0 12.4
kg capita per 12.2 11.9 11.9 12.6 11.5 15% 20.0 32.3 12.8 12.8 13.3 10% 7% 14.6 14.1 12.9 10.0 shareconsumption total in 13.6 13.9 16.8 18.0 5% 6.0 6.4 7.9 9.1 0.0 5.1 0% 1991 2000 2001 2002 2003 2004 2005 2006 2007
Poultry Pork Beef Share of poultry Share of pork Share of beef
Source: State Statistics Committee; http://w w w .meatmilk.kiev.ua/passport/
2 - Basic meat products. The consumption of other meat (goat, sheep, rabbit, etc) decreased from 1.6 kg per capita in 1990 to 0.9-1 kg per capita in 2000-
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5.2 Domestic production and key players
In 2007 Ukrainian meat processors covered around 90% of domestic market needs. The biggest meat producers are located in the following regions: Dnepropetrovsk (8% of Ukrainian production volume), Donetsk (5.9%), Kyiv (11.3%), Cherkasy (6.6%) and Crimea (7%). The largest meat processing plants are members of UkrM’yaso and they are controlling of about 75% of the market. Among the companies the leaders of the sector are Mironivskij Hleboprodukt (Kiev region), Yubileyny Meat processing plant (Dnepropetrovsk region), Cherkasy Food Company (Cherkasy region).
Meat processing industry had stable decreasing trend in 1990-2001. Crisis was stipulated by the recession in the Ukrainian economy. Since 2002 the meat production in Ukrainian had stable growth (see Table 4).
Table 4. Output of meat products in Ukraine, thousand tons
2007 as % Products 1990 1995 2001 2002 2003 2004 2005 2006 2007 2006 Meat including 1st category by-products 2,763 957 332 457 568 541 639 784 893 113.9% Sausage products 900 277 167 209 290 331 309 301 317 105.3% Meat semi-products (without catering 294 39 27 54 83 220 146 149 175 117.5% enterprises) Canned meat, mcu3 247 159 35 42 38 24 35 30 30 100.0%
Source: State Statistics Committee of Ukraine, Institute of Agrarian Science
The growth is especially noticeable in pork and poultry meat production. As it was mentioned before, to a certain extent meat production growth was reached on expense of the livestock cutting. Last years meat processors meet the deficit of domestic raw material. This circumstance lead to price increase and subsequent import growth.
Figure 7. Structure of meat production in Ukraine, 2007
Poultry fresh Poultry frozen Beef and veal Semi-ready 26.2% 7.8% products (incl. products and poultry) conserves 12.0% 1.0% Pork products and conserves Sausages 0.4% 24.3% Poultry Pork frozen Beef and veal Beef and veal products and 2.1% Pork fresh frozen fresh conserves 10.3% 2.9% 12.5% 0.3%
Source: State Statistics Committee
2007 (2.7-3% of total consumption) 3 - Million conventional units; 1 conventional unit is 400 gram
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The highest growth rate in 2007, 9% on the average, is detected in segments of frozen semi-ready products and sausages.
Figure 8. Sausages production in Ukraine, 2000 - 2007
350 332 309 317 291 300 271
250 209 200 175 167 150
thousand tons 100
50
0 2000 2001 2002 2003 2004 2005 2006 2007
Source: State Statistics Committee
Table 5. Structure of sausages production in Ukraine in 2006-2007, thousand tons
2007 2006 2007:2006
Sausages, total 317 291 109%
including:
cooked sausages 203 185.6 109%
semismoked 52.9 52.3 101%
cooked and smoked, 31.1 26.6 117% semidry
baked smoked 6.8 5.3 128%
liver sausage 8 6.4 125%
Source: State Statistics Committee
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Figure 9. Structure of sausages production in Ukraine, 2007
Baked Liver Other smoked sausage 5% 2% 3% Cooked and smoked, semidry 10%
Semismoked 17% Cooked sausages 63%
Source: State Statistics Committee of Ukraine
In January – March 2008 the output of meat products (including 1st category by-products) has grown by 16% compared to the same period of 2007 and reached 231,315 tons. The leading positions among the meat producers are kept by CJSC ‘Complex Agromars’ (Kiev region), CJSC ‘Mironovsk battery farm’ (Cherkassy region) and CJSC ‘Druzhba Narodov – Nova’ (Crimea). They are followed by CJSCFI ‘Orel-Leader’ (Dnepropetrovsk region), CJSC ‘Poultry meat processing plant ‘Dneprovsky’ (Dnepropetrovsk region), ‘Ruby Rose Agricol Co., Ltd’ (Kyiv region), ‘Peremoga-Nova’ subsidiary of CJSC ‘Mironivskij Hleboprodukt’ (Cherkasy region) and LLCFI ‘Kurgansky Broiler’ (Kharkov region).
Output of sausages for the same period was 74,871 tons. Compared to the 69,991 tons in January-March of 2007 the growth is about 7%. The following were TOP-5 manufacturers of sausages in Ukraine at the beginning of 2008: ‘Meat processing plant ‘Yubileyny’ Ltd., ‘Meat factory ‘Favoryt’ Ltd. (Dnepropetrovsk region), OJSC ‘Meat processing plant ‘Yatran’ (Kirovograd), CJSC ‘Lugansky meat processing plant’ (Lugansk),and ‘Ideks Ltd.’ (Kiev region).
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Table 6. Ranking of sausages producers, 2007
Production volume, tons per year Company name Region
Meat processing plant ‘Yubileyny’ Ltd Dnipropetrovsk 15 – 30 thousand and higher Meat factory ‘Favoryt’ Ltd Dnipropetrovsk Meat processing plant ‘Yatran’ Kirovograd CJSC ‘Lugansky meat processing plant’ Lugansk 10 – 15 thousand ‘Ideks’ Ltd Kyiv ‘SMP’ Ltd Volyn ‘Globynsky meat processing plant’ Ltd Poltava JSC ‘Kremenchugm’yaso’ Poltava CJSC ‘Gorlovsky meat processing plant’ Donetsk ‘Europroduct’ Ltd Donetsk ‘Vovchansky meat processing plant’ Ltd Kharkiv 5 – 10 thousand Private company ‘Kolos’ Chernivtsy ‘Saltovsky meat processing plant’ Kharkiv JV ‘Druzhba narodov’ Ltd Crymea ‘Vekka’ Ltd Odesa CJSC ‘Kyivsky meat processing plant’ Kyiv Source: ‘Food and Drinks’, No3, 2008
6 Raw materials and packaging 6.1 Raw materials
The basic raw materials for meat production are animal and poultry meat. The main suppliers of cattle and poultry are located in Kyiv, Dnipropetrovsk, Kharkiv, Donetsk, Poltava regions and Crimea.
In 2007 Ukrainian meat processing companies have bought 454.83 thousand tons of meat (in live weight), including cattle - 176.73 thousand tons, pigs – 201.58 thousand tons, poultry – 75.61 thousand tons. The average purchase price processing companies paid to producers was (in live weight): for cattle – UAH 6,583.8 per ton (USD 1,304), for pigs – UAH 7,967.8 per kg (USD 1,578), for poultry – UAH 6,591.5 per kg (USD 1,305).
By the preliminary data of State Statistics Committee of Ukraine in 2007 the loss ratio of meat-type cattle farming came to 40.8%, pig farming – 27.8%, sheeps and goats – 47.9%. The total loss of livestock farming companies that supply about 30% of total raw meat made UAH 1.4 billion4 (USD 277 million). Production of livestock remains unprofitable and without support of the State, producers will be forced to decrease the livestock and clampdown the development. That is why Ministry of Agrarian Policy has developed a proposal aimed in fixation of minimal accepted price level for livestock, that will be used as the basis for the calculation of state-financed support. It is proposed to fix the following minimal price level:
Cattle alive– UAH 13,700 per ton;
Pigs alive – UAH 13,900 per ton;
4 In present study 1 billion = 109
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Poultry alive – UAH 9,500 per ton
Import of raw materials is regulated by customs duties presented in Table 7
Table 7. Customs duties for livestock in Ukraine
Import duty After WTO entering Code Article rates (% of Bound Bound customs value) accession final 0102, 0103, 0104 Breeding animals (cattle, pigs, sheeps, goats) 0 5 0102 Live animals (cattle) 5 5 0103 91 Pigs ( 50 kg) 5 17 15 (2010) 0103 92 Pigs (> 50 kg) 8 15 0104 Sheeps and goats 2 5, 10 0105 11 Hens (Gallus domesticus) 185 g 0 5 0105 12, 0105 19 Turkeys, gooses, ducks ( 185 g) 2 10 0105 92 Hens (Gallus domesticus) 2000 g 0 10 Hens (Gallus domesticus) > 2000 g, turkeys, 0105 93, 0105 99 10 10 gooses, ducks Source: Customs Tariff of Ukraine
6.2 Packaging
The market of packaging materials for meat products has been developed rapidly. Unpacked meat is sold mainly at the street markets. The consumption culture is being changed and improved, and more people prefer to buy meat and meat products in supermarkets. For the moment, major part of meat products sold in retail is packed. All meat products manufacturers try to offer their own handy package. Sausage is packed in the cut kind packaging that provides the possibility of rapid consumption of product, freshness of products is here saved.
The following types of individual packaging of meat and meat products are used: polystyrene trays and polymeric film (fresh meat). polymeric films for vacuum packing (processed and fresh meat, sausages); special sausage casing
Both polymeric films and polystyrene trays are produced in Ukraine.
The share of sausage products in special sausage casing is estimated at the moment as little as 5% of total production volume, but have the growing trend5. Among all sausage casings, the share of natural products is 15- 25%, synthetic – 75-85%.
5 ‘Food and Drinks’, No3, 2008
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Figure 10. Structure of the Ukrainian market of sausage casings, 2007
Special Cellulose 5% 7% Collagenic Fibroseous 30% 10%
Natural 20%
Polyamide 28% Source: 'Food and Drinks', No3, 2008
At the moment the most used casing is collagenic one. With about 30 % of total casing market it holds 65% of cooked and smoked and semi-smoked sausages sector. In the year of 2007 the sausage producers paid special interest to fibroseous casing, due to its good moistness-keeping and at the same time high smoking penetration ability. By the estimation of producers, fibroseous casing holds the 35-40% share of casing segment for smoked sausages. The annual demand for fibroseous casing is estimated in amount of 16-20 million meters
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7 Foreign trade
The latest data on export/ import of meat is presented in Table 8.
Table 8. Foreign trade by meat in Ukraine in slaughter weight 2006-2007
Produc- Consump- Export, tons Import, tons tion, tons tion, tons 2007:2006, 2007:2006, Products 2006 2007 2006 2007 2007 2007 % % Beef (fresh 2,182 346.1 15.9% 1.5 0.9 60.2% and chilled) 548,000 557,588 Beef (frozen) 12,038 34,375 285.6% 19,271 9,069 47.1%
Pork (fresh and chilled or 519 0.05 0.01% 47,196 62,322 132.1% 605,000 534,356 frozen) Sub-products (fresh and 195 98.6 50.5% 4,224 4,910 116.2% chilled or frozen)
Poultry 251 5,048 20 times 151,860 131,493 86.6% 837,000 836,383
Total 15,185 39,868 262.6% 222,552 207,795 93.4% 1,990,000 1,928,327
Source: State Statistics Committee of Ukraine
In the year of 2008 about 200 thousand tons of meat is forecasted to be imported (150 thousand tons of beef, and 50 – of pork).
Figure 11. The structure of foreign trade by meat in 2007 (in slaughter weight)
Import Export
Poultry Beef 13% (frozen) Pork (fresh 4% and chilled or frozen) Beef (fresh 30% and chilled) 1% Sub- products (fresh and chilled or Poultry Beef frozen) 64% (frozen) 2% 86%
Source: State Statistics Committee of Ukraine
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The main importer of Ukrainian meat and meat products are Russia and other CIS countries. Russian companies prefer to import raw meat such as frozen beef and pork for further processing.
The demand for canned meat and sausages is insignificant. The foreign trade turnover in 2007 was only 7.8 thousand tons in volume and USD 11.8 million in money terms.
Table 9. Foreign trade by sausages, 2000-2007
Product 2000 2006 2007 2007:2006, % Export thousand tons 1.4 0.15 0.16 107% 1601 - sausages USD million 4.2 0.5 0.53 106% Import thousand tons 0.9 11.5 7.6 66% 1601 - sausages USD million 0.8 16.1 11.2 70% Source: ‘Food and Drinks’, No3, 2008
About 98% of foreign trade by sausage falls on import. The cooked sausages prevail both in the structures of export and import. The main importing country for Ukrainian sausages is Moldova, the main exporter to Ukraine – Belorussia.
The leading importers of frozen beef in 2007 were: ‘Ivano-Frankivski kovbasy’ Subsidiary, OJSC ‘Ivano- Frankivskiy meat processing plant’, JSC ‘Prodcontract’ (Kiev), JSC ‘Etalonmolproduct’ (Kiev), JSC ‘Visit’ (Kiev region). Approximate export prices (EXW) were around USD 2,800 – USD 3,050 per ton.
The main exporting to Ukfraine countries are Brazil and Argentina.
Before 2005 the major part of products were imported through ‘free economic zones’ (FEZ) and ‘territories of priority development‘ (TPD) with zero import duty. Such kind of import made problems for Ukrainian meat producers. In the year of 2005 government has closed this import channel. In 2007 by the decision of the court FEZ system was restored. The following actions of government aimed to protect the Ukrainian producer and to restrict the import didn’t succeed. By the estimation of association UkrM’yasoProduct6 the implementation of WTO requirements will lead to the further increase of import and decrease of local production.
All imported meat and meat products are the subject of mandatory certification, veterinary and phyto-sanitary control. With the entering to WTO Ukraine is committed to harmonize its certification standards with international before the end of 2009.
6 ‘Chistaya Pribil’ No5, 7-13 April 2008
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Table 10. Customs duties for meat and meat products in Ukraine
Customs duty before WTO Customs duty Code Article entering after WTO % of customs entering (bound EUR / 1 gross kg value accession) not less than 0201, 0202 Beef (fresh, chilled or frozen) 10 15 EUR 0.6 not less than 0203 Pork (fresh, chilled or frozen) 10 15 EUR 0.6 Mutton or goat meat (fresh, chilled or not less than 0204 10 10 frozen) EUR 0.6 not less than 0205 Horse meat 10 12 EUR 0.6 0206 Sub-products - EUR 0.5 10, 12, 15 Poultry meat and sub-products (fresh, not less than 0207 10 10, 12, 15 chilled or frozen) EUR 0.4 Chicken halves or quarters (fresh or 0207 13 20 EUR 0.7 12 chilled) 0207 13 30, Chicken wings, backs, briskets (fresh or not less than 0207 13 40, 30 12 chilled) EUR 1.5 0207 13 50, not less than 0207 14 Chicken parts (frozen) 10 10 EUR 0.4 Meat and sub-products (salted, dried or 0210 - 0.5 10, 15, 20 smoked) not less than 1601 Sausages and similar products, 30 15 EUR 0.8 not less than 1602 Other prepared or preserved meat 30 10, 15, 20 EUR 0.8 Source: Customs Tariff of Ukraine
8 Foreign presence in the Ukrainian meat market
The major part of Ukrainian meat processing plants is owned by Ukrainians., The investments are mostly directed into buying new equipment (made abroad). The following companies may be shown as examples: poultry farm ‘Orel-Leader’, ‘Snyatin goose farm’ – both are parts of holding CJSC ‘Mironovskij Hleboprodukt’ (Dnepropetrovsk region), ‘Ruby Rose Agricol Co.’, Ltd. (Kiev region), CFI ‘Rusanovka meat plant Ltd.’ (Kiev region), CFI ‘Kurgansky Broiler Ltd.’ (Kharkov region) and other.
Cooperation with foreign partners for importing of their meat products remains an actual issue. Among the most active exporters of meat products to Ukraine are COOPERATIVA CENTRAL OESTE CATARINENSE, PERDIGAO AGROINDUSTRIAL. S. A., SEARA ALIMENTOS S/A, SERTANEJO ALIMENTOS S/A (Brazil), PILGRIMS PRIDE CORPOTATION, TYSON FOOD INC, SANDERSON FARMS,INC (USA).
9 Price survey
During the last years prices for all meat products had the growing tendency due to the prices increase for energy resources and raw materials. Traditionally the pork was the most popular meat in Ukraine. Nevertheless the consumption of poultry meat increased last years because of lower price.
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Figure 12. Average retail prices for meat products, UAH/kg (USD 1=UAH 5.05)
50
40
30 UAH
20
10
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 01-Apr-08
Beef Pork Poultry
Source: State Statistics Committee of Ukraine, market data
In the first quarter of 2008 the price for pork and beef has been increased by 100% (from UAH 25.33 to UAH 50 per kg), and for poultry – by 44% (from UAH 13.86 to UAH 20 per kg). The reasons were the following: increased market price for animal feed, POL and energy supply, the increase of the minimal level of salary, meat shortage. The structure of retail price is the following: 40-50% fall on extra charges of producers, mediators and retailers, 30-40% on animal feed, 5% on POL and energy supply, 7% - salary, 8% - other production costs.
10 Equipment
The most of Ukrainian meat processing enterprises prefer to use equipment of foreign origin. The major part of the meat milling and mixing, sausage stuffing and thermal processing equipment installed at Ukrainian meat processing plants is originating from Germany, sausage lines come from the Netherlands, refrigerators - from Germany and Czech Republic. Equipment of Convenience Food Systems, TOWNSEND Engineering Company, Otto Schweissing GmbH, Big Dutchman International GmbH, Cobb Breeding are widely presented in the Ukrainian market.
At CJSC ‘Orel-Leader’ a new Incubator, made by Pas Reform Hatchery Technologies and automatic slaughtering line of MEYN Food Processing Technology (The Netherlands) are installed.
‘Snyatin goose farm’, a complete cycle factory for breeding of geese and production of meat, by-products and pate of goose liver is equipped by the modern equipment from Poland (P.P.H.U. Dromasz), Hungary, France.
At CFI ‘Kurgansky Broiler Ltd.’ the equipment for poultry growing and slaughtering was replaced in 2001-2007 by the new modern and more productive. Now 63 shops for poultry growing are provided with Big Dutchman
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International equipment. Also the company uses a slaughtering line produced by Stork Townsend (The Netherlands), refrigerating equipment of Autoterm (Germany).
Private company ‘Ukrainian bacon’ (sausages, pork and poultry) is equipped by: Tipper Tie Alpina (Switzerland), Ness & Co, Maurer Atmos, Bitzer, Guntner (Germany),Garos (Sweden), Stork Townsend (The Netherlands), Fincoil (Finland).
In order to satisfy the growing demand for meat products, Ukrainian producers are interested in purchase of the high-productive equipment.
It should be mentioned that during the last years Ukrainian machine-building plants became serious competitors to foreign equipment producers. Thus, Tronka-Agrotech (Kyiv) offers to the market a complex equipment for preparation of meat semi-products. Company Twin-DM (Dnipropetrovsk) is specialised on equipment for the production of sausages. Last years TechnoVerest LLC and Mega Tech LLC in Khemlnitskaya oblast are offering complex solutions for the meat processing farms – from slaughtering to the final product release.
There are two main trends in the market of equipment:
growth of demand for complex equipment for production of wide range of meat products;
growth of demand for separate units of mini-plants for meat processing.
The best sales of equipment fall on summer and autumn period that can be explained by preparation for mass slaughtering of livestock.
11 SWOT analysis
Strengths
Large meat producers operate own distribution networks
Strengthening of cooperation of the livestock farms and meat processing enterprises
High market orientation of meat processing enterprises
Weaknesses
Continued decrease in cattle and pig population
Negative profitability of livestock breeding as a result of ineffective production organization.
Dependence of prices for animal feed on the quality and quantity of grain crop (there is a threat of drastic reduction of livestock population)
Opportunities
Growth of meat consumption with increase in the population incomes and decrease of price on account of cheaper imported raw materials
Development of new products of meat processing, increase product range, including premium segment products
Further improvement of products’ and packaging quality
Free niche for establishment of production facilities for canned meat for babies
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Diversification of the assortment.
Threats
Critical dependence of meat world prices as a result of big decrease of own livestock.
12 Conclusion and forecast
According to forecast of the UkrM’yasoProduct association the entering of Ukraine into WTO will give an immediate effect in drop of local meat production and meat import growth by 10-15%7. Meat processing industry will receive enough quantity of cheaper raw materials, which can lead to the decrease of price for final products and increase of the meat products consumption.
But also the entering into WTO will require the improvement of the quality of local meat products, as a result small enterprises will join to big companies, certified by ISO 9000-2001, or will look for additional investments to renew their equipment.
13 Opportunities for Dutch technology and equipment
The opportunities for Dutch business in meat processing sector of Ukraine, remain as follows:
Supply of high-capacity equipment, especially for production of wide range of products;
Supply of new technologies for production of ’premium segment‘ meat products, including products non- traditional for Ukrainian market (ostrich meat etc.).
7 http://economic-ua.com/preview/31196
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Attachment 1 Productive livestock in Ukraine by type of farm
As of 1st January, thousand heads 1991 1996 2001 2002 2003 2004 2005 2006 2007 2008*
Total Cattle 24,623 17,557 9,424 9,421 9,108 7,712 6,903 6,514 6,175 5,530 including cows 8,387 7,531 4,958 4,918 4,716 4,284 3,926 3,635 3,347 3,090 Pigs 19,427 13,144 7,652 8,370 9,204 7,322 6,466 7,053 8,055 6,747 Sheep and goats 8,419 4,099 1,875 1,965 1,984 1,859 1,755 1,630 1,617 1,711 Poultry, mn 246.1 149.8 123.7 136.8 147.4 142.4 152.8 162.0 166.5 161.1
Big farms Cattle 21,083 13,728 5,139 4,780 4,314 3,271 2,794 2,602 2,406 1,916 including cows 6,192 4,611 1,887 1,715 1,440 1,136 986 904 802 674 Pigs 14,071 7,192 2,468 2,977 3,492 2,361 2,180 2,752 3,489 2,805 Sheep and goats 7,166 2,444 419 398 374 319 298 304 326 321 Poultry 133.0 54.4 25.4 35.4 42.1 42.6 51.0 67.7 73.3 100.4
Small Farms Cattle 3,540 3,856 4,387 4,758 4,914 4,547 4,212 4,022 3,881 3,614 including cows 2,186 2,936 3,107 3,243 3,314 3,184 2,976 2,769 2,583 2,416 Pigs 5,356 5,992 5,238 5,463 5,813 5,049 4,368 4,451 4,798 3,942 Sheep and goats 1,253 1,675 1,462 1,575 1,622 1,558 1,484 1,359 1,334 1,390 Poultry 113.1 95.7 98.4 101.6 105.7 100.1 102.2 95.4 94.3 82.3
* as of 1st February Source: State Statistics Committee of Ukraine, Ministry for Agrarian Policy of Ukraine
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Attachment 2 Organizational structure of the branch
MAP
National Association Ukrainian Corporation Association for Ukrm'yaso of meat processors for meat production poultry farming Product UkrM'yaso TvarynProm UkrPtakhoProm
Independent Regional Regional Regional meat plants meat plants sub-associations Integrated sub-associations Production Complexes
Poultry Breeders' Poultry Union Slaughtering plants association facilities
Poultry farms Fatten farms Fatten farms /eggs oriented/ /meat oriented/ /meat oriented/ with slaughter and processing Meat-processing Poultry farms Meat plants facilities plants /meat oriented/
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Attachment 3 Leading Meat Processing Enterprises
Description of Telepho Contact No. Company name General information Address Trade Mark Fax e-mail Web-site production ne person 044/ The plant is established in Broiler chicken carcasses 3, 5734692 Mr. Aleksey Komplex 1999. One of the most and parts, chicken meat Pozharskogo GAVRYLIVSK 044/ www.agromars.co Marchenko, 1 Agromars LLC modern poultry plant in and fillet, subproducts, str., Kyiv, I KURCHATA 5734649 m General Ukraine. minced meat 02094 044/ Director 5734636 NASHA Unites enterprises which RIABA, Broiler chicken carcasses 7, 044/ 044/ Mr. Yuriy produce groats, feeds, grow LEGKO, CJSC Mironovskij and parts, chicken meat V.Vasilevskoy 5375700 5375700 sell@mirohl www.mirohleb.kiev. Kosyuk, 2 poultry and cattle, produce FUAGRA, Hleboprodukt and fillet, beef meat, goose str., Kyiv, 044/ 044/ eb.kiev.ua ua Chairman of meat subproducts and sell SERTIFICIRO liver, subproducts 03055 5375727 5375727 the Board grain and meat products. VANY ANGUS
CAE Dniprovske - Dniprovsky The plant started in 1979 as a Broiler Poultry part of Nikopolsky agro- 32 Plant; Pedigree industrial complex, that later Pedigree poultry; broiler Electrometalur Farm; Food 05662/ transferred into CAE chicken carcasses and gov str., Company (deep 32902 3 Dniprovske. The complex is parts, chicken meat and Nikopol', NIKOPOL processing, 05662/ full circle enterprise: from fillet, subproducts; tinned Dnipropetrovs tinned meat 34219 pedigree farming and animal poultry meat; animal feed k region, production); Agro- feed production to deep 53221 Trade House poultry meat processing. (procurement and sales)
Mr. El One of the largest broiler 044/ Husseyn meat producers in Ukraine 9, Sadova str., 5593763 044/ Cassam - Ruby Rose founded in 1999 on the basis Morozivka, MOROZIVSKI 04476/ 4514838 agricol@ukr General 4 Poultry meat - 100 t/shift. Agricol Co. Ltd of Morozivka poultry farm. Kyiv region, KURCHATA 52351, 04476/ .net Director Has equipment of Hatch Tech 07526 04476/ 51878 Mr. Sergey and Stork. 25237 Zabelin - Director
Market Study Food Sector in Ukraine – Part A: Meat Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.A-R Revision: 1 Date: 26 May 2008 Page: 27 of 29
Description of Telepho No. Company name General information Address Trade Mark Fax e-mail Web-site Contact person production ne
The plant belongs to 05749/ Sodruzhestvo company. 26, Pobedy Frozen broiler chicken 61225 OJSC Established on the basis of str., Mr. Sergey carcasses and parts, KURGANSKY 05749/ 5 Kurgansky Poultry plant 'Kurganskaya' in Pyatigorskoe, Gorodnych chicken meat and fillet, BROILER 61242 Broiler 2000. One of the most Kharkiv Director subproducts, minced meat 05749/ powerful producer of the region, 64252 61148 broiler meat.
Produces a wide range of the meat products. Among 5, Michurina KLASSIKA, The plant is one of the largest them are sausages, mku@mku. str., PETROVICH, meat processing enterprises ravioli, cooked, semi- and dp.ua Yubileyny Meat Yubileyne, YUBILEYNY 0562/ 0562/347 6 in Dnipropetrovsk region. hard-smoked sausages, [email protected] www.mku.dp.ua processing plant Dnipropetrovs REMIUM, 7254012 147 Supplies products to the most frankfurters, smoked meat p.ua k region, DOBRIY regions of Ukraine. products, pate 52005 SMAK sausagesmeat semi- finished products
Produces a wide range of The plant started in 2004. the meat products. Among 67a DOBROV, Now it is one of the largest them are sausages, Voycehovycha MYASNAYA Meat factory meat processing enterprises 056/ 770- office@mffa 7 cooked, semi- and hard- str., LAVKA, "Favoryt Ltd." in Ukraine with own offices 39-03 vorit.dp.ua smoked sausages, Dnepropet- KOLBASNY and distributors in many frankfurters, smoked meat rovsk 49101 RYAD regions in Ukraine. products etc.
Established in 1928. Production of the pork, Produces more than 140 beef and boiler meat 82 OJSC kinds of the meat products. products; cooked, smoked, Bratislavskaya YATRAN, Mrs. Natalia 0522/ 0522/ yatran@sht 8 Ptakhokombinat Supplies products to many and semi-smoked str., YATRANCHY www.yatran.com Artemenko, 345312 345299 orm.com "Yatran" regions of Ukraine and sausages, frankfurters, Kirovograd, K Chief Manager Russia. ISO 9001:2000 smoked meat products; 25005 sertified. subproducts.
Market Study Food Sector in Ukraine – Part A: Meat Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.A-R Revision: 1 Date: 26 May 2008 Page: 28 of 29
Description of Telepho No. Company name General information Address Trade Mark Fax e-mail Web-site Contact person production ne
Produces cooked, smoked 119 0642/ Established in 1937. Supply a “Lugansky meat and semi-smoked Luginskaya LUGANSKIE 555849 0642/ ldreklama@ 9 wide range of meat products www.lmk.lg.ua processing plant” sausages, smoked meat str., Lugansk DELIKATESY 0642/ 555863 yandex.ru to many regions of Ukraine. and meat subproducts. 91020 531106
Established in 1995. Produces more than 50 Production is organised at different kinds of cooked, 55 Yagotyn Meat Plant (Kyiv [email protected] Mr. Oleg semi- and hard-smoked Yaroslavskaya 044/ 044/ 10 Ideks LLC region). Supplies products IDEKS iev.ua www.idex.kiev.ua Tanchyk sausages, frankfurters, str., Kyiv, 2054600 2054618 mostly to Kyiv region. Director smoked meat products, 04071 Produce around 70 t of pate sausages products daily.
One of the largest meat producers in Poltava region. OJSC 48, Geroiv Has own trade network in Production of 220 kinds of 0536 / 0536 / Kremenchukm'y Bresta lane, Kremenchuk and in Kyiv. The various meat products; 796799 796799 office@krm. 11 aso Kremenchuk, FARRO www.krm.com.ua quality of products is meat capacity - 50 t/shift 0536 / 0536 / com.ua (Kremenchuk Poltava guaranteed by registered and sausages 30 t/shift. 770675 770675 Meat Plant) region, 39601 research laboaratory of the plant. 0372/ The plant is a leading meat info@kolos. Produces many kinds of 574138 processing enterprises in 41 ua the meat products: 0372/ 0372/ Western Ukrain. Supplies Bukovinskaya CHERNOVIT marketing Kolos Meat sausages, cooked, semi- 574139 574138 12 products to the most regions str., SKY @kolos.ua http://kolos.com.ua processing plant and hard-smoked 03740/ 0372/ of Ukraine. It is well-known as Chernovtsy, KOVBASY sausages, frankfurters, 37240 574139 a producer of the smoked 58000 torg@kolos. smoked meat products 03740/ meat products. ua 37241
Market Study Food Sector in Ukraine – Part A: Meat Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.A-R Revision: 1 Date: 26 May 2008 Page: 29 of 29
Description of Telepho No. Company name General information Address Trade Mark Fax e-mail Web-site Contact person production ne
The plant organised recently Wide range of semi- 114, 044/ on the basis of Hudson- smoked sausages and rusanko@c Mr. Igor Rusanovka Meat Sagaydaka RUSANKO 2392082, 044/ 13 Dnipro Ukraine Ltd. The plan frankfurters in vacuum arrier.kiev.u www.rusanco.ua Aizenshtadt, Plant str., Kyiv, KOLYADA 044/ 5176837 is to produce up to 80 t of packing (more then 90 a Director 02002 5165747 sausage products daily. kinds).
More than 100 kinds of The plant started in 1976 as a 04498/ 5- products:sausage / state owned company; in 9, Promyslova 02-56 processed meat Mr. Volodymyr OJSC Kyiv Meat 1995 became an open joint str., Vyshneve 04498/ 5- 14 production; meat semi- Gak, General Processing Plant stock company. The installed town, Kyiv 08-88 finished products; meat in Director capacity allows to produce up region, 08132 04498/ 5- package production; to 100 t. 19-91 animal folder production.
Established on the basis of Cherkasy Meat Plant (built in 1928) in 1996 by NaftaEnergo Concern (CFC More than 300 kinds of 122/1, Mr. Alexander Cherkasy Food is the part of Concern). The products: sausage; packed Smilianska 0472/ 0472/ chpk@chpk www.chpk.routec.n 15 Sokorenko, Company (CFC) plant has modern equipment meat; meat semi-products; str., Cherkasy, 544258 630728 .routec.net et Chief Manager (both local and imported); has tinned meat. 18008 own trade network in Cherkasy. Products are also sold in Kyiv, Mykolayiv
1, Industrial One of the leading Ukrainian str., Ostrov producers of sausages. The More than 150 kinds of village, market@do Mr. Valery Dobroslav- plants of the industrial group various meat products, 0352/ 0352/ www.dobroslav.co 16 Ternopil DOBROSLAV broslav.com Volkov, Ternopil LLC employ 1500 people, and including sausages, 521140 521140 m.ua district, .ua Director annually produce more than frankfurters and delicacies Ternopil 10,000 tons of meat products. region 47728
Market Study Food Sector in Ukraine – Part A: Meat Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 1 of 36
Table of contents Page
1 Introduction 2
2 General overview of the branch 2 2.2 Main trends of the branch 5 2.3 Assortment of the final products 6 2.4 Main problems of the industry 6
3 Branch structure 7 3.1 Branch governing authorities 7 3.2 Key players 8
4 Sales system 8
5 Capacities and their utilization 9
6 Market of oil and fat products and production analysis 9
7 Market demand and consumption 18 8.1 Raw materials 19 8.2 Packaging 20
9 Foreign trade 20 9.1 Export 20 9.2 Import 22 9.3 Regulations on import 22
10 Foreign presence in the Ukrainian oil and fat industry 24
11 Equipment 24
12 SWOT analysis 24
13 Conclusions and forecast 25
14 WTO membership consequences 25
15 Opportunities for Dutch technology and equipment 26
Attachments: 1. Gross harvest of sunflower seeds in Ukraine, by regions 2. Organizational structure of the branch 3. List of leading companies of the branch 4. Foreign trade data
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 2 of 36
1 Introduction
Ukrainian oil and fat sector keeps on strengthening positions as powerful producer and exporter of plant oils. Ukraine’s oil and fat sector is one of the few, which has doubled its capacity comparing to 1990 – the year of the highest development of Ukrainian economy.
Ukraine’s positions as producer of seeds for technical use (e.g. seeds for bio fuel) have entrenched significantly as well during past three years. Ukraine is stably in the list of top five producers and exporters of seeds and oils, along with Argentina, Canada, USA and Brazil.
Strong agricultural specialization of Ukraine, biggest in Europe areas of highly fertile soils, export orientation of the sector, strategically unique geographical position help to attract local and foreign investments in the sector and gain export markets.
Today oil and fat industry in Ukraine presents a strong agro-industrial complex, which involves seed producers and processors. The most developed is the sector of sunflower seed oil and products production. Rape seed and soy beans production branches are developing. Local enterprises produce also mustard, linseed, saffron seed, castor and maize oils in limited volume. Oil and fat market is also presented by mayonnaise and margarine sectors, which have strong positions on internal market.
2 General overview of the branch 2.1 General situation in the oil and fat industry of Ukraine
In 2007 Ukrainian oil crops producers have collected 5.95 million tons of the product that is 14.7% lower than in 2006. The harvest decrease was determined partly by lower yields and partly by redistribution of sowing areas in favour of rape.
Oil crops have been planted on the area of 4.76 million hectares in 2007, which is about 2.5% more than in 2006.
Data on the main cultivated oil seed are given below.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 3 of 36
Figure 1. Sown areas (thousand ha) and gross crop (thousand tons) of basic oil plants in Ukraine
6000
5000
4000
3000
2000
1000
0 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008f
Sunflow er croppage Rapeseed croppage Soybean croppage Sunflow er sow n area Rapeseed sow n area
Source: State Statistics Committee, Association Ukroliyaprom
Sunflower
Sunflower is traditionally cultivated crop in Ukraine. Due to favourable climatic conditions ithis crop is widely planted and harvested in all Central, Southern and Eastern regions of the country (Dnipropetrovsk, Kirovograd, Zaporizhzhia, Donetsk, Mykolaiv, Odesa, Kharkiv, Poltava and Lugansk). Small sowing areas of sunflower also present in all other regions, except Polissia and Western regions (for details see Attachment 1).
In 2007 Ukraine collected about 4.2 million tons of sunflower seed (19% from worlds’ crop), that is 21.6% lower than in 2006. Sunflower planted on the area of 3.360 million hectares and yield was 1.22 ton per hectare.
The sunflower seeds harvest decline in 2007 that was determined both by cutting of sowing areas for sunflower by 12.8% and lower yield (-10% comparing to 2006).
In 2007 share of the sunflower seeds in the structure of oil crops harvested and processed was 70% and 86% correspondingly. Due to application of 16% export duty for sunflower seeds and prohibition of the sunflower seeds export through give-and-take operations, oil extraction plants were supplied with sufficient quantity of raw materials.
Present oil seed and sunflower market in Ukraine faces number of challenges, like as follows: Saturation of internal sunflower oil market High level of governmental influence in market regulation Competition with rapeseed and soy towards sowing areas Dependence on world agricultural market prices.
Despite all difficulties, profitability of the sunflower oil market is estimated to be 20-25% for local market oil oriented producers and 40-45% for export oriented oil producers.
Ukraine consumes 550 thousand tons of sunflower oil annually, while the remaining output is being exported.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 4 of 36
Rape
During the last few years Ukraine faces emerging rates of growth of the rape seed production. Ukraine has sown 800 thousand hectares with rape seed in 2007. In 2008 Ukraine took the first place in Europe by the rape sown area - 1.7 million hectares1 (for the comparison, rape sown area in France is 1.65 million hectares, in Germany – 1.59 million hectares). Interest to the rape seed cultivation was stimulated by the reasons as follows:
High demand of the rapeseed on international market, especially from the EU side (bio diesel production needs)
High prices for rape seed on international markets
Low expenditures to grow rape seed comparing to sunflower and soy bean
Demand of the rape seed oil from local margarine, mayonnaise and mixed souses producers.
Crop yield of rape growing in Ukraine is much less than in European countries (1.3 and 3 tons per hectare respectively).
In December 2006 government have adopted the rape seed and bio diesel production program, which envisages increasing of the sowing areas for rape up to the 3 million hectares and reaching the output of the rape seed 7.5- 8.5 million tons before 2010. The program stipulates that harvested rape seed should be processed in Ukraine, either for production of biodiesel or for production of rapeseed oil. The volume of produced biodiesel should reach 3 million tons before 2015. To reach such ambitious results the rapeseed selection base should be developed in Ukraine and rape seed processing plants should be constructed.
At the same time, experts warn against chaotic increase of the rape arable area. Absence of the culture of rape cultivation amongst Ukrainian farmers causes low productivity and soil depletion.
Now 85% of the rape seed are exported to EU countries and Turkey and only 15% are processed on the local factories into rape oil. Rape oil is used mainly for production of margarines, mayonnaises and confectionary in Ukraine, while householders traditionally prefer consuming sunflower oil.
As for production of the bio ethanol in Ukraine, there’s still no big volumes are being produced. However, few big investment projects of construction of the bio ethanol plants have started in Dnipropetrovs’k, Crimea and in Western Ukraine.
Prices of rapeseeds are at the high level. At present domestic price for edible rapeseed is USD 250-300 per ton. Export price is USD 350-450 per ton.
Soy
There are good prospects for soy cultivation in Ukraine. Cattle breeding, fast developing poultry farming and fish- breeding industries create demand for this reach by protein product. At present, many branches of Ukrainian food industry widely use products of soy processing.
However, after 10 years of stable growth the market of soybean production declined by 20% in 2007 compared to 2006. It was caused both by bad yield and, especially, by the decrease of the sown land under soy in favour of rape.
1 Data of association ‘Ukrainian Club of Agrarian Business’, available at: http://www.ukrbusiness.com/news/apk/43269.html
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 5 of 36
The average soy crop yield was 1.31 tons per hectare in 2007 that is 17% lower than in 2006. The crop yield is much less than that in European countries. The introduction of the up-to-date cultivating technologies will allow to use the segment potential more efficiently.
Based on Ukroliyaprom information, in 2007 about 60% of the harvested soy were consumed in Ukraine. The prices for soybean in Ukraine are presented in the table below.
Table 1. Average prices for soy at the local market
Season Average price, USD 2005 / 2006 267 2006 / 2007 337 2007 / 2008 1,584 Source: www.proagro.com.ua
Figure 2. Balance of oil crop in Ukraine, 2007
4,170,000 tons 1,053,000 tons 721,000 tons 100% 90% Processed 80% 70% Processed 60% Processed 50% 40% Exported 30% 20% Exported 10% Exported 0% Sunflow er seeds Rapeseeds Soy beans
Source: State Statistics Committee, Association Ukroliyaprom
The comparative analysis of oil crop data shows that there are quite attractive possibilities for the development of rapeseed processing in Ukraine.
2.2 Main trends of the branch
The Ukrainian oil and fat sector during the past few years is characterized by:
the decrease (stable in medium-term) of the sunflower seeds supply at the domestic market due to decrease of sowing area and due to increase of export;
the decrease of the sunflower seeds export in favour of sunflower oil export;
redistribution of the sowing areas from soy and sunflower towards rape;
growth of foreign and local investments into oil processing industry (introduction of technologies that allow multi-seed oil production);
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 6 of 36
saturation of the internal oil, margarine and mayonnaise market;
the increase of the share of the packed sunflower oil in the total output on the internal market;
monopolisation (80%) of the retail market by four trade marks owned by two producers;
appearance of the Private labels on the packed oil market in Ukrainian retail sector;
concentration of the vegetable oil production at the 8-10 largest enterprises;
more frequent use of tropical oils (especially palm oil) for margarine and cooking fats production;
the development of new customer taste (vegetable and non-sunflower oils) and increasing of healthy products consumption.
2.3 Assortment of the final products
Oil and fat industry manufactures a wide range of products. Final products of oil crops processing can be divided into the following groups:
1. Products of the primary processing: - Vegetable oil (non-refined, hydrated, refined) - Cake
2. Products of the secondary processing: - Margarine - Mayonnaise - Combined sauces - Mustard - Cooking oil / fat - Soap (household, toilet) - Olein, stearin, candles and natural drying oil
3. Products of the deep processing: - Kernel crumb - Sunflower seed meal and soy meal - Protein acids
2.4 Main problems of the industry
In spite of all perspectives of the oil and fat industry its main problems can be described as follows:
9 Due to the demand increase for sunflower products in the world markets last years, Ukrainian producers increased export of sunflower seed. This caused a shortage of raw materials in local market and growth of local price on sunflower oil. After the government put restrictions on export of raw materials, the main market players started to process sunflower seeds into oil and to export the oil. As the result the local prices on sunflower seeds and oil increased several times and became equal to world prices.
During last three years a lot of strongly export oriented companies was established. These companies neither have oil bottling not even enough storage facilities. In order to protect the local market, Ukrainian government approved the export quota on sunflower oil in March 2008. This measure as expected will force a lot of exclusively-export oriented companies to close the production, while some of them will start
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 7 of 36
to re-orient on internal market, to invest in bottling equipment, etc.
9 There is a high demand of investments into the bio ethanol production industry.
Bio ethanol production industry is very poor developed in Ukraine. As it was mentioned above, the country is the raw appendage for European bio fuel industry now. Main reasons of this situation is undeveloped bio fuel production sector because the existing state monopoly for bio ethanol production.
9 The low culture of seeds and vegetable farming leads to soil depletion, challenge for introduction up-to- date sowing, harvesting and processing technologies in oil and fat industry.
3 Branch structure 3.1 Branch governing authorities
General structure of the branch governing authorities stayed without essential changes:
- Ministry of Agrarian Policy
- Ukroliyaprom Association
The Ukroliyaprom Association has been established in 1998 and includes now 32 privately owned oil and fat enterprises, Ukrainian scientific-research institute for oils and fat, information agency APK-inform. These enterprises produce 74% of vegetable oils, 86% of margarines and 30% of mayonnaises in Ukraine.
The purpose of Association is coordination of activities of oil and fat enterprises on increasing production volumes, protection and representation of their interests in the state and other bodies on economic, industrial, commercial and other issues, assistance in financing, wide research and development work.
Contact details: Ukraine Agrarian Confederation 53/80 Saksaganskogo St., office 807, Kyiv 01033 Mr. Leonid Kosachenko President Tel./fax: +380 44 284 3238, 287 6566, 289 9721 www.agroconf.org [email protected] Ukroliyaprom Association 1, Grynchenka St., Kyiv 01001 Mr. Stepan Kapshuk Director General Tel.: + 380 44 279-63-56 Fax: +38 0 44 279-82-45 (68-89) www.ukroilprom.org.ua [email protected]
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 8 of 36
3.2 Key players
Oil and fat industry of Ukraine is formed by three main groups of enterprises: x Large-scale producers of vegetable oil, margarine and mayonnaise: oil and fat industrial complexes and oil extraction plants. x Small-scale vegetable oil producers, for which oil production is not the core activity. They manufacture vegetable oil (usually, non-refined) in small lots for consumption of rural population mainly x Small-scale producers specialized in manufacturing of margarine, mayonnaise and soap
Big oil producers also tend to expand their business by means of leasing of arable lands and creating of own crop growing enterprises. This way they insure themselves against unpredictable price growth and lack of raw materials for their processing facilities. Ukrainian market includes local and international seeds and oil producers and traders. Some companies in sunflower branch are oriented only to export and some operate both export and internal retail sector.
Table 2. Main sunflower oil producers in Ukraine ranked by market share
Name Production facilities Production location Trade Mark Dnipropetrovskiy Oil 1. Bunge Ukraine (‘Suntrade’) Dnipropetrivsk region ‘Oleina’, ‘Zolota kraplina’ Extraction Plant Poltavsky OEP Poltava region Melivsky Plant of Refined ‘Schedryi dar’, ‘Stozhar’, Lugansk region 2. Kernel Group Oil ‘Striletsky step’ ‘Chumak Zolota’, ‘Chumak Prikolotniansky OEP Domashnya’ Kharkiv region Vovchansky OEP 3. CJSC ‘Pologivskyi OEP’ ‘Pologivskyi OEP’ Zaporizhzhya region ‘Slaviya’ 4. CJSC ‘Slavoliya’ Slaviansky OEP Donetsk region ‘Slavoliya’ 5. CJSC ‘Melitopolskyi OEP’ Melitopolskyi OEP Zaporizhzhya region ‘Olkom’ CJSC ‘Odesskiy Oil-and-Fat 6. Odesskiy Oil-and-Fat Plant Odesa ‘Sonyachna dolyna’ Plant’ 7. CJSC ‘Creative’ Kirovohrad region ‘Divnoye’, ‘Sonola’ Source: Tebodin Ukraine
4 Sales system
There are few typical distribution channels of oil seeds: sales to oil and fat plants for further processing, trade at the commodity exchanges, sales through own shops, sales through distributors.
Ukrainian internal market of plant oil has annual capacity of 550 thousand tons, while Ukrainian enterprises produce in average 2 million tons of oil annually. Thus, internal market is saturated and highly competitive.
About 60% of consumed plant oils are distributed though retail networks and open markets to the households. Remained 40% are being wholesaled to producers of mayonnaises, margarines and mixed souses.
70% of oils sold to the households are distributed in bottled state. Share of unbottled oil decreases gradually year by year.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 9 of 36
5 Capacities and their utilization
The total processing capacity of the Ukrainian oil extraction plants exceeds 4 million tons per year. However, it is not utilized in full scale because of seasonal lack of raw materials and standby condition of some old enterprises.
20 large plants and 4,000 small oil mills produce vegetable oil. Large oil extraction plants produce about 90% of the total output of the vegetable oil in Ukraine.
The average production capacity of the oil extraction plant for sunflower seed processing is 500 – 1,000 tons per day.
Market payers constantly invest in the reconstruction and expansion of production. The following recently realized investment projects can be mentioned: 9 Bunge Ukraine in 2004-2005 performed modernization of Dnipropetrovsk oil extraction plant. Investments amounted to EUR 11 million; 9 Kernel Group in 2007 has built a new oil extraction plant ’Bandurski Elevator‘ in Mikolaiv region with the production capacity of 2,250 tons of oil a day and the possibility to process sunflower, soy or rape seed. 9 Glencore acquired 50% of shares of Odessa oil and fat plant. In 2005 the production capacity of the plant was increased; 9 CJSC ‘Creative’ in 2004 performed a reconstruction of oil and fat manufacturing plant in Kirovograd. Production capacity was extended up to 2,000 tons of sunflower oil and 1,000 tons of margarines per month.
Some companies have announced their investment plans for the nearest future:
9 WJ Group plans to construct the oil extraction plant in Kherson oblast;
9 Allseeds Ukraine is planning the construction of the OEP and elevator in Mykolayiv. Planned processing capacity is 2,000 tons of seeds per day and capacity of the terminal is 500 thousand tons per year.
9 RISOIL S.A. is planning the construction of the OEP for sunflower, rape and soy processing with the capacity of 500,000 tons per year. Start of the first stage is planned for September 2009.
9 Kakhovka Prom-Agro is building a new OEP with the capacity of 700 tons per day and elevator with the storage capacity of 40 thousand tons. Planned start of operations - June 2008.
6 Market of oil and fat products and production analysis
The general data on the volumes of production of oil and fat products are presented in Table 3. Mayonnaise and margarine production show a stable growth during the last ten years, although last two years the growth rate decreased till 2.6-3%. Vegetable oil production is growing even faster with the small decrease in 2007, following its main component – sunflower oil.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 10 of 36
Table 3. Output of oil and fat products in Ukraine, thousand tons
Product 1990 1995 2000 2003 2004 2005 2006 2007
Vegetable oil, total 1,070 696 973 1,340 1,450 1,600 2,240 2,230
% to previous year 8.2% 10.3% 40.0% -0.4%
Margarine products 289 109 162 240 277 301 301 310
% to previous year 15.4% 8.7% 0.0% 3.0%
Mayonnaise n/a n/a 79.5 115 142.7 170.5 175.6 180.2
% to previous year 24.1% 19.5% 3.0% 2.6%
Source: State Statistics Committee of Ukraine, MAP
Figure 3. Structure of oil and fat production in Ukraine, 2007
Soft margarines Mayonnaise 7% 1%
Hard margarines 2% Other 11% Vegetable oil, total 81% Margarine monoliths for industry 9%
Source: State Statistics Committee, Ministry of Agrarian Policy
Vegetable oil
According to State Statistics Committee of Ukraine, 2.23 million tons of vegetable oil was produced in 2007. Ukrainian market is saturated with the domestic product (except for olive and palm oil).
Domestic market of the vegetable oil possesses the following features: 9 Domination of sunflower oil in the total consumption (about 95% in households and 60% in confectionary industry) 9 Insignificant imports: due to high prices for imported products (high import duty rates) 9 Oversaturated and highly competitive retail market 9 The retail market of bottled oils is mainly shared by 5 trademarks: 'Oleina' (Bunge), 'Chumak', 'Shchedry Dar', 'Slavia', 'Stozhar' (all - Kernel). 9 The share of the bottled vegetable oil on retail market is constantly growing (in 2007 it reached almost 70%).
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 11 of 36
As for the regional specifics, 80% of the vegetable oil is produced in 6 regions, namely Donetsk, Zaporizhzhia, Dnipropetrovsk, Kharkiv, Kirovograd and Odessa.
The main share in the vegetable oil production in Ukraine belongs to the sunflower oil (produced 2.1 of 2.23 million tons in 2007, or 94%). Besides that, large oil extraction plants produce rapeseed, soy, maize, palm, mustard, saffron, flax, castor, kernel and pumpkin-seed oil.
Figure 4. Sunflower oil production in Ukraine
2.5 2.10 2.02 2.00 2.0
1.5 1.34 1.38 1.26 1.07 0.97 1.0 million tons 0.70
0.5
0.0 1990 1995 2000 2003 2004 2005 2006 2007 2008f
Source: State Statistics Committee of Ukraine
Domestic consumption of the sunflower oil includes: - consumption by the population; - consumption by the food industry; - consumption by other industries.
In the food industry sunflower oil is used for the production of margarine, mayonnaise, and confectionery products. In other industries sunflower oil is used for the production of paints, drying oil, glycerine and household soap (about 2% of the total consumption).
The leading position in the retail market is occupied by sunflower refined oil in 1 litre bottles. Customers’ demand for unbottled sunflower oil is constantly decreasing.
The domestic market of sunflower oil is saturated and occupied by 4 biggest trademarks. Further production increase will be aimed mainly at foreign markets.
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Figure 5. Distribution of sunflower oil production in Ukraine
Dnipropetrovsky OEP** Odessky OFP
15.5 13.6 Pologivsky OEP Melitopolsky OEP Kirovohradolia 5.25 2.9 Cargill
4.73 Creative Group 7.15 Vinnitsky OEP
4.6 Illichivsky OEP Vovchansky OEP* 7.02 Mironovsky OEP 6.7 Prikolotnyansky OEP* 2.92 Slovyanskky OEP 7.35 2.77 Poltav s ky OEP* 2.03 Melivsky ORP* 2.13 2.75 12.6 Others
Note: OEP – oil extraction plant, OFP – oil and fat plant, ORP – oil refining plant * - owned by Kernel Group, ** - owned by Bunge Ukraine Source: State Statistics Committee of Ukraine
Figure 6. Distribution of bottled sunflower oil production in 2007
Poltavsky OEP ('Shchedryi Dar') 3
Odessky OEP ('Sonyachna Dolyna') 3.5
Slovyanskky OEP ('Slavolia') 6.9
Pologivsky OEP ('Slavia') 24
Prikolotnyansky OEP ('Stozhar') 53.4
TM 'Chumak' 55
Dniepropetrovsky OEP ('Oleina') 149
0 20 40 60 80 100 120 140 160 thousand tons
Source: ‘Food & Drinks’ magazine
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The significant price increase for the sunflower oil in Ukraine took place in 2007-2008. It was caused by the increase of price for sunflower oil in world markets. A lot of sunflower seeds have been bought by export oriented oil-extraction plants thus leading to a shortage of raw materials inside Ukraine.
Figure 7. Sunflower oil retail prices index, % to previous year
180 170.4 160 142.6 140 116.6 120 125.9 100 102
% 95 97.4 80
60
40
20
0 2002 2003 2004 2005 2006 2007 1st Q. 2008
Source: 'Food & Drinks' magazine
The average margin of producers decreased from 35% in 2004 to about 17% in 2007, while the margin of traders grown from 10% to 17%.
Figure 8. Price structure for sunflower oil in 2004-2007
50 45 40
35 Producer 30 Intermediaries&retailers 25 % Total extra charge 20 15 10 5 0 2004 2005 2006 2007
Sources: 'Kontrakty' No18, 5.05.08, open sources
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Operators of the sunflower oil market can be conventionally divided into three groups:
1. Financial and industrial groups and processing plants, operating at the seed and oil extraction markets: Cargill, Bunge Ukraine, Kernel Group, Evrotek (acquired by Kernel Group in the end of 2006), Zernotorgovaya compania. 80-90% of their products are exported. This group has a good operational experience at the foreign markets, settled contacts and partners.
2. Financial and industrial groups and plants, which compete at the market of bottled sunflower oil: Kernel Group, Dnipropetrovsk oil extraction plant (Bunge), Slavoliya, Odesa OEP, etc.
3. Enterprises producing margarine, mayonnaises and mixed souses: Volynholding (Torchyn), Veres, Kama, Chumak, etc.
4. Major grain traders and trading companies: Toepfer, WJ Group, Louis Dreyfus. After 16% export duty application, trading companies turned to market of sunflower oil.
Nowadays the number of Ukrainian trademarks exceeds 50. The leading brands and trade marks here are: ‘Oleyna’, ‘Chumak’, ‘Shchedry dar’, TM ‘Stozhar’, ‘Slavoliya’, ‘Slavia’, `Dykan`ka`, `Lyubon`ka`, `Mriya`, `Mayola`, `Olis`, `Smak oliya`.
Many enterprises start producing vegetable oil with additives. For example, Kharkiv fat plant manufacture refined sunflower oil with spices: ‘Pryane’, ‘Pikantne’, ‘Gostre’.
It should be noted that vegetable oils other than sunflower oil have minor share in the Ukrainian market (less than 6%). Ukrainians traditionally prefer sunflower oil, recognise olive oil, however considering it as a delicacy, and don’t recognise rape and soy oils. Attempts of some middle-sized producer to introduce soy and rape oils failed in Ukraine.
Rapeseed oil accounts for 1-2% of the total vegetable oil production in Ukraine. About 85% of the rapeseed harvest is being exported mainly in EU countries aiming to produce bio ethanol. In general rapeseed oil is produced during the ‘sunflower low season’ (late July – early September).
Eventually, rapeseed oil is used as a raw material for margarine and mayonnaise production in Ukraine.
Local vegetable oil producers began to show an interest in rapeseed processing in the last few years. Based on Ukroliyaprom information, main rapeseed processing plants are Illichivsk, Vinnytsya and Chernivtsi oil and fat plants.
Before 1999 soy processing was not developed in Ukraine. During the last few years with the increase of soy production soy processing was developed as well. Soybean oil is used in Ukrainian confectionery industry and also is exported.
Main Ukrainian producers of soy oil are Illichivsk OEP, Chernivtsi oil and fat plant and Pology oil extraction plant.
Mustard processing in Ukraine is aimed to produce mainly edible mustard paste. The mustard paste is a traditional spice in Ukraine, however Ukrainians prefer to eat rather strong mustard paste than it is used in Europe. The retail market was saturated in 2005-2006 and reached the level of 7,500 tons annually.
There are two main producers of mustard in Ukraine, namely Volynholding (owned by Nestle) and Agroekoproduct (TM ‘Veres’). These enterprises are located in Volyn and Cherkasy regions correspondingly, proving these regions by leadership in mustard production while mustard itself is being grown mainly in Kherson and Zaporizhzhya regions.
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Figure 9. Leading mustard producers
8 1.2 1.3 Volynholding 1.6 3 Veres 3.4 Vynnytsya food factory 49.5 Mirgorod 'Kalynka' 'Chuguyiv Produkt' 'Yasen' 'Viki' Others 32
Source: 'Food and Drinks'
Figure 10. Distribution of mustard production by region
5.5 2.4 2.5 3.7 Volyn 4.4 Cherkasy
Poltava
49.5 Vinnitsa
Kharkiv
Donetsk
32 Others
Source: 'Food and Drinks'
The mustard market can also be characterized by tough competition and high saturation. About 98% of mustard consumed by Ukrainians is of local production. About 95% of exported mustard (about 1,000 tons) is exported by ‘Veres’ and ‘Volynholding’ to CIS countries.
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Margarine
Margarine production is concentrated in Odessa, Zaporizhzhia, Lviv, Kirovohrad, Vinnitsa and Kyiv regions, where the largest plants are located. Zaporizhzhia and Odessa oil and fat plants, with 23% and 18% shares of the market correspondingly, keep the leadership.
Figure 11. Leading margarine producers
4 4 4 23 Zaporizhzhya OFP 6 Odesa OFP Kreativ Lviv FP 11 Kyiv butter plant Kharkiv FP Vinnitsa FP 8 18 'Avis' Novovolynsk OFP Others 10 12
Sourtce: 'Food and Drinks'
Figure 12. Regional distribution of margarine production Ukraine
0.73 0.93 0.53 2.57 Zaporizhzhya 0.49 Odesa 8.63 24.3 Kirovohrad Kharkiv Lviv 9.5 Kyiv City Vinitsa Volyn 9.9 Cherkasy Mykolayiv 18.5 Dnipropetrovsk Others 11.36 12.56 Source: 'Food and Drinks'
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Figure 13. Structure of margarine market
6.7
16.2 Soft margarines
Hard margarines
Monolit for industry
77.1
Source: 'Food and Drinks'
The total margarine production reached 302 thousand tons in 2005 and was at the same level during past years. The retail market of margarine lost about 15% of its volume in 2007, but the growth of demand from confectionery producers has equalized the situation.
Mayonnaise
In Ukraine mayonnaise production is growing by 1-2% last 2 years. The market is saturated. There are about 85 mayonnaise producers in Ukraine, however TOP-10 produce about 75% of the total volume.
The production volume in 2007 was about 215 thousand tons, including mayonnaise that is present in mixed souses. About 98% of consumed mayonnaise was of local production. The leader among imported trademarks is ‘Calve’ by Unilever.
Ukrainian mayonnaise producers can be divided into the following groups:
1. Large oil and fat plants, which have been operating since former Soviet Union times;
2. New producers with aggressive marketing policy;
3. Small regional producers, which have not own trade marks.
Despite the gradual redistribution of the market towards smaller producers, there are three leading enterprises on the market, who provides about 47% of total volume: Volynholding (Volyn region), Lviv fat plant (Lviv region), Slavoliya (Donetsk region).
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Figure 14. Main producers of mayonnaise in Ukraine in 2006
Volynholding ('Torchyn produkt')
20.1 Lviv fat plant ('Schedro')
31 Slavoliya Prime-produkt 3.1 Chumak 3.2 Odesa fat plant 3.8 Olis (Zaporizhzhya) 4 PE 'Best' (Kyiv) 4.5 10.7 Kyiv fat plant ('Olkom') 5 8.5 6.1 Agroprodukt ('Veres') Others
Source: 'Food & Drinks'
During the last years mayonnaise assortment is significantly extended. Many companies started to produce sauces with additives: olive, maize-based, spicy, mushroom, etc. New trend in mayonnaise production is manufacturing of ‘dressings’ (sauces with vegetable bits) and mixed sauces with ketchup. It should be also noticed that five years ago Ukrainian producers mainly manufactured the classic mayonnaise ‘Provansal’ with 67.3% fat content, while now mayonnaise with higher fat content (72%) is more popular in Ukraine.
As for mayonnaise popularity in terms of packaging type, Ukrainians prefer 200-300 g soft packs.
Sales of mayonnaise usually grow before holidays; in autumn and winter population prefers mayonnaise with high fat content, while in spring and summer – light sauces.
Mayonnaise market is quite flexible and mobile. However, it is approaching to stability. Experts consider that annual growth rate of mayonnaise production will not exceed 1%, and this increase will be reached due to introduction of new specialized mayonnaise niches.
7 Market demand and consumption The domestic market demand for vegetable oil is estimated in 550 thousand tons per year. During the last five years consumption of vegetable oil grew from 8.2 kg per capita in 1995 to 14.4 kg in 2007.
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Table 4. Annual consumption of vegetable oil, per capita, kg
Description Norm* 1990 1995 2000 2003 2004 2005 2006 2007
Vegetable oil, total 13.0 11.6 8.2 9.4 11.0 11.3 11.6 13.6 14.4
Source: State Statistics Committee of Ukraine * - rational norm according to the Health Ministry
In spite of the fact that sunflower oil takes only 6.4 % in world oil consumption, this product remains the most popular among the other oils in Ukraine. During the last few years Ukrainians started to use olive, soybean, corn, and maize oils, but their share in the total oil consumption is still rather low.
Soy and rapeseed oils take 26% and 9.9% correspondently in world oil consumption. Nevertheless the culture of consumption of the mentioned products is not developed in Ukraine at all. These types of vegetable oil are used mainly in food industry, for margarine and mayonnaise production.
The popularization of healthy life-style led to the increase of demand and consumption of light margarines instead of butter and light mayonnaises.
The domestic production of vegetable oil covers the domestic consumption fully. Production of margarine and mayonnaise is growing due to both private consumers’ and industrial demand growth.
Table 5. Output of oil and fat products in Ukraine per capita, kg
Product 1990 1995 2000 2003 2004 2005 2006 2007 2008f
Vegetable oil, total 20.6 13.5 19.8 27.9 28.5 29.6 43.5 41.7 43.5
% to previous year 2.2% 3.9% 47.0% -4.1% 4.3%
Margarine products 5.6 2.1 3.3 4.9 5.3 5.4 5.5 5.5 5.5
% to previous year 8.2% 1.9% 1.9% 0.0% 0.0%
Source: State Statistics Committee of Ukraine, MAP
8 Raw materials and packaging 8.1 Raw materials
In 2007 the production of oil crops decreased by 14.7% compared to 2006. In spite of growing interest to rapeseed and soy, sunflower seed remains the main raw material for oil and fat industry of Ukraine. Growing volumes of rapeseed production were exported and only 15% were processed internally. The share of the sunflower seed processing in Ukraine reached 94% in 2007.
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8.2 Packaging
Packaging market is developing in parallel with oil and fat industry. The peak of investments in the development of the packaging lines took place in the period of 2000-2005. At that time main oil, margarine and mayonnaise producers, have completed their (re)construction projects.
Sunflower oil is packed in PET bottles of 0.5, 1, 2, 3 and 5 litres. Majority of PET bottles have flat bottom and sides with stiffening ribs. Bottle cap has special dispenser. Some sunflower oil producers use bottles of the special recognizable form. Population prefers 1, 2 and 3 litres PET bottles.
Hard margarine is produced in 0.25 kg bricks and packed in foil or parchment paper. Soft margarine is packed in 0.25, 0.45 and 0.5 plastic containers with plastic lids.
For mayonnaise and other sauces the following packaging is currently used: twist-off glass jars with metal or plastic lids, glass bottles (for white sauces), polymeric film, plastic containers (jars and buckets), plastic bottles and aluminium tubes (for mustard), old-fashioned 250 g glass jars with tin lids and 1-2 kg plastic jars for mayonnaise.
9 Foreign trade 9.1 Export
Since give-and-take schemes in export of sunflower seeds have been banned in 2001, the export flows moved from sunflower seed to sunflower oil. With the limitations in the raw material export Ukrainian enterprises gained the opportunity to process more seeds in Ukraine and to increase the offer of final products in the foreign markets.
These change did not refer to rape and soy export. At that time there was no need in export duty for rapeseed and soybeans as volumes of their production where relatively small. Nowadays Ukraine became the raw materials market for European bio ethanol producers.
As for the soybean and soybean oil markets, they are rather saturated and competitive all over the world and that is why soybean production has not developed in Ukraine in such a big deal as rapeseed.
The Ukrainian government developed a program aimed in production of 7 million tons of rapeseed annually and processing of the major part of volume into biodiesel in Ukraine and for internal needs.
As far as there are no export duties for rapeseed and soy, their export volumes are constantly increasing. Thus, in 2007/2008 marketing year Ukraine will export about 825 thousand tons of rapeseed, while 162 thousand tons will be processed in Ukraine.
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Table 6. Export of oil crops, thousand tons
Description January- January- November November 2006 2007 Sunflower seeds 340 340.1
Soya seeds 210 268.5
Rapeseed 525 886.9
Maize - 953.8
Source: State Customs Committee of Ukraine
Table 7. Export of oil and fat products, thousand tons
Description January-November 2007 Sunflower oil 1,728.5
Soy oil 8.7
Rape oil 191
Palm oil 141
Margarine & mayonnaise 22.8
Source: State Customs Committee of Ukraine
Table 8. Main importers of Ukrainian sunflower oil in 2007
Volume, Country thousand % of total tons Netherlands 137.0 7.6%
Turkey 115.0 6.4%
France 90.2 5.0%
Spain 81.0 4.5%
Italy 79.0 4.4%
Egypt 75.5 4.2%
UK 48.5 2.7%
Russia 38.8 2.2%
Source: ‘Kontrakty’, No19, 12.05.08
The export of sunflower oil is more profitable than export of sunflower seeds. Ukraine exports sunflower oil in bottles and in bulk. Ukraine is one of the four leading sunflower oil exporters in the world. The volume of sunflower oil export has reached 1.8 million tons in 2007, including 110 thousand tons of bottled oil. The main importer of the Ukrainian bottled sunflower oil is Russia. The most popular exported trademarks of sunflower oil are ‘Oleyna’, ‘Schedry dar’ and `Chumak`. Export volumes of other kinds of vegetable oils are much less.
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In 2007 as little as 4% of the total volume of margarine produced in Ukraine were exported. The leader in export of margarine is Odessa oil and fat integrated plant.
The leading exporters of Ukrainian mayonnaise are Volynholding (TM ‘Torchyn Product’), Kernel (TM ‘Chumak’ – leased from Chumak), Odessa oil and fat integrated plant (TM ‘Soniachna Dolyna’). The major export directions for mayonnaise are Russia and Moldova.
9.2 Import
The import of sunflower and soy oils is insignificant and strictly limited by high import duties.
A considerable import of palm oil is stipulated by the growing demand from the food industry, namely margarine and confectionery sectors. The same concerns coconut oil, demand for which remains stable and high.
Also Ukraine imports more than ten other oil kinds such as olive, maize, linseed, castor, cotton-seed, sesame oils, etc., almost all of them are used in pharmaceutical and perfumery industries. The main exporting countries of these oils to Ukraine are Russia, Germany, India and Switzerland.
The major part of imported margarine is used for technical purposes. In 2007 the share of packed soft margarine was 3.1% of the total import volume (1,007 tons). Main exporter of soft margarine to Ukraine is Unilever (TM ‘Rama’).
Import of mayonnaises is limited by the high import duties. The countries-exporters, Austria, Germany, the Netherlands and Russia supply products with the middle and high fat content.
Table 9. Import of oil and fat products, thousand tons
January-November Description 2007 Sunflower oil 0.27
Soya oil 0.1
Rapeseed oil 0.05
Palm oil 291.5
Olive oil 1.3
Margarines & mayonnaise 45.2
Source: State Customs Committee of Ukraine
9.3 Regulations on import
Customs duties for the products of oil and fat industry are presented in Table 10. The mandatory certification and phyto-sanitary control are applied to all oil and fat products.
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Table 10. Customs duties for oil and fat products in Ukraine
Customs duties before WTO Customs duties entering after WTO entering (bound Code Article accession) % of customs EUR / 1 kg % value
1201 Soybean 0 0 12040010, 12050010, Linseed, rapeseed, sunflower seed for sowing 0 0 12060010 12040090 Linseed, other 5 5 12050090 Rapeseed, other 5 0 1206009 Sunflower seed, other 15 10 1207 Other oil seeds 20 5 1208 Flour from oil seeds (except for mustard flour) 5 5 15071010, Soy oil, fresh, refined or not refined for industrial or 5 5 15079010 technical use (not in food production) 15071090, Soy oil, fresh, refined or not refined, other 10 10 15079090 Peanut oil, for industrial or technical use (not in food 1508 5, 10 20 production) 1509, 1510 Olive oil 10 10 1511 Palm oil 0 0 15121110, Sunflower oil, fresh, refined or not refined for 10 8 15121910 industrial or technical use (not in food production) 15121191, Sunflower oil, fresh, refined or not refined other 20 0.8 20 1512199010 Sunflower-seed oil other 30 0.8 30 1513 Coconut oil 0 5 1514 Rapeseed oil 5 5 151511 Linseed oil, fresh 20 20 Linseed oil, other for industrial or technical use (not 15151910 5 5 in food production) Maize oil, fresh for industrial or technical use (not in 15152110 20 20 food production) and other Maize oil, other for industrial or technical use (not in 15152910 5 20 food production) 15152990 Maize oil, other 15 20 1516 Vegetable oils and their mixtures 20 10, 20 1517 Margarine and other food fat mixtures 1 5, 10, 15 1517909910 Mixtures of oils for food production 0 0 2103 Soy sauce, mustard, mustard power, mayonnaise 15 10, 12, 15 Source: Customs Tariff of Ukraine, ‘Agrosphera’, No10(309), 17 March 2008, No11(310), 24 March
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10 Foreign presence in the Ukrainian oil and fat industry
Thanks to unique raw material base the plant oil business in Ukraine is very attractive for foreign investors. Ukraine is the only one country in Northern hemisphere, which has stable and fair yield of the sunflower seeds. Besides, Ukraine has no regulations for cultivation area structure.
Presently, a lot of joint ventures with global oil processors and oil and seeds traders are operating in Ukrainian market. The following companies are to be mentioned here: Bunge Ukraine, Cargill, WJ Group, Archer Daniels Midland, Risoil S.A., Delmar Pte Limited Unilever, Chumak, Toepfer. They totally control about 60% of internal oil market and about 70% of oil and seeds export volumes.
During 17 years of Ukrainian independence the oil and fat sector have got about USD 220 million of FDI. With the entering to WTO Ukraine has got a good chance to strengthen its position of a key-player in the international market. A lot of investments projects in oil extraction sector are expected, so in next 10 years the total Ukrainian oil extraction capacity may reach 10 million tons annually.
11 Equipment
Ukrainian growers and processors prefer to import equipment for harvesting and for processing of oil seeds from Great Britain, Germany, the Netherlands and Sweden due to its high quality and technical characteristics.
However, some companies order specific equipment from Ukrainian manufacturers. For example, by request of Chumak, Prodmash plant (Odessa) has designed a conveyer for sunflower seeds pulping, which has no analogues in Ukraine.
The equipment of the following international producers is installed and operating in Ukraine: BioDiesel International, Schmidt-Seeger, Cimbria-Unigrain, Europa Crown Ltd., SIG Corpoplast and Holder Topse can be named.
12 SWOT analysis
Strengths
Ukraine is one of the largest suppliers of sunflower-seeds oil (around 19% of the world production). After entering to WTO Ukraine may become a price legislator on this raw material
Soils and climate in Ukraine are favourable to grow all types of oil cultures and supply of raw materials for processing in sufficient quantities
Availability of locally produced chemical fertilizers
Availability of powerful oil processing enterprises with modern equipment
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Weaknesses
The lack of state regulation regarding cultivated areas under oil crops
The lack of culture of soybean and rapeseed cultivation
Absence of technical regulations for products quality
Opportunities
Strengthening of the leading positions as the world plant oil exporter
Increasing of oil production and, therefore, increase of export incomes
Implementation of up-to-date cultivation technologies and improvement of land productivity (up to 100%)
Introduction of new kinds of products (oils, sauces, etc.) to the market
Rising attractiveness of rapeseed and soy for agricultural producers and processors
Threats
Possible sunflower seed shortage at the local market
13 Conclusions and forecast
The markets of traditional products in Ukraine like sunflower oil, margarine and mayonnaise are highly saturated. In these sectors an appearance of new players is not expected, while the existing operators will develop their activities and hardly compete with each other. The slight internal market redistribution towards high price/quality products can take place.
The internal market growth is expected in a very small deal (up to 3%). The Ukrainians will stay devoted to sunflower oil, so olive, soy and rape oil will bear very small market share.
While the internal oil market has stabilized in volumes, its monetary capacity will go on rising in next two years until prices will reach the level of the world plant oil prices. According to forecasts in 2008 the price growth for sunflower seed and sunflower oil will amount 50% and 20% correspondingly.
Import of oil and fat products to Ukraine will stay insignificant (except for palm oil for food industry), while export will go on rising. Eventually, any production increase in Ukraine will be totally dedicated to exports as the local market is saturated.
14 WTO membership consequences After gaining the membership in WTO Ukrainian oil and fat industry will face big challenges as the government have assumed obligations to: - decrease sunflower seed customs duty from 15% to 10%; - decline the agricultural sector financing to 3.04 billion UAH annually and refunding in amount 5% of the agricultural production; - abandon of import quotations for the plant oils;
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Following the above said, oil and fat sector may face: ¾ a lack of raw materials for oil production in the local market; ¾ a strong competition from the side of cheap soy raw materials from other countries; ¾ a lack of oil on internal market and intervention of foreign trademarks to Ukrainian retail market. From the other side, in case of implementation of up-to-date cultivation technologies aiming to reach average world productivity, Ukraine will greatly benefit on international markets.
15 Opportunities for Dutch technology and equipment
Ukraine lacks the seed fund for growing of rapeseed and soybeans
Ukraine lacks modern growing techniques. Investments are especially required in western regions of Ukraine where rapeseed can be successfully cultivated and processed at the existing facilities
Ukrainian oil extraction companies go on reconstructions and investment projects for modernization and extension. That is why the quality seed and oil storage, oil processing and packaging equipment suppliers could find their market in Ukraine
The bio fuel production from rapeseed boom is not far off. So correspondent equipment and technology suppliers will have good opportunities in this segment.
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Attachment 1 Gross harvest of sunflower seeds in Ukraine, by regions
Region 1990 1995 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Ukraine, total 2 571 2 860 2 266 2 794 3 457 2 251 3 271 4 254 3 050 4 706 5 324 4 174 Republic of Crimea 43 37 41 49 38 13 15 24 30 26 37 2 Vinnytsia 67 69 23 39 67 40 66 92 64 87 113 99 Volyn 0 0 0 0 0 0 0 0 0 0 0 0 Dnipropetrovsk 310 390 340 363 452 334 491 609 359 613 762 618 Donetsk 302 361 251 320 462 319 460 430 349 473 552 492 Zhytomyr 0 0 1 1 0 0 1 3 2 6 3 3 Zakarpattia 1 2 1 1 1 1 2 2 2 2 2 2 Zaporizhia 284 354 306 387 444 309 450 479 464 735 801 514 Ivano-Frankivsk 0 0 0 0 1 0 1 1 1 1 0 0 Kyiv 6 8 10 18 25 11 19 44 25 47 47 41 Kirovograd 253 239 166 223 305 185 326 510 270 525 508 398 Lugansk 219 258 155 209 238 154 222 259 216 312 376 402 Lviv 0 0 0 0 0 0 0 0 0 0 1 0 Mykolaiv 220 219 183 196 251 157 232 412 259 427 499 260 Odessa 236 195 252 297 311 208 266 388 278 340 368 112 Poltava 174 186 121 168 201 109 177 273 159 288 292 347 Rivne 0 0 0 0 0 0 0 0 0 0 1 0 Sumy 27 39 22 28 40 16 27 35 14 27 34 55 Ternopil 0 0 0 1 1 1 1 1 1 1 4 3 Kharkiv 248 293 207 260 342 243 312 336 216 301 377 490 Kherson 96 115 130 145 155 91 102 173 216 289 352 147 Khmelnitsky 0 1 2 4 3 2 2 5 5 3 4 6 Cherkasy 82 86 50 76 107 48 85 158 103 181 171 152 Chernivtsi 1 6 3 3 6 6 8 8 11 10 7 5 Chernigiv 2 2 2 6 7 4 6 12 6 12 13 13
Source: State Statistics Committee of Ukraine
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Attachment 2 Organizational structure of the branch
M A P
Regional agricultural Association Ukroliyaprom UCoopSpilka departments
Sunflower growers/ Vegetable oil Margarine Mayonnaise Food production Soap producers Independent plants producers producers producers producers plants
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Attachment 3 List of leading companies of the branch
No. Company General information Description of Trademark Address Telephone Fax e-mail web-site Contact person name production 1 CJSC One of the key suppliers of the Purified OLEYNA 46, 056/7784185 056/ www.oleina.com Mr. Igor Bilinsky, Dnipropetrovsk high quality sunflower oil to sunflower oil Leningradska 2387210 www.bunge.com General Director oil extraction Ukrainian market (13% of the str., plant market in 2003 and 12% of Dnipropetrovsk Ukrainian capacities). The plant is 49038 a JV and since 2002 belongs to Bunge Group, one of the world's largest agroholdings. Certified according to ISO 9001:2000; presently introduces ISO 14001 and HACCP. 2 CJSC One of the largest enterprises of Sunflower, rape SLAVOLIYA 85, Svobody 06262/ 06262/ www.slavoliya.dn.ua Mr. Yuriy Slovyanskoliya the branch in the Eastern Ukraine. and soy oil, fat str., Slovyansk, 95222 26887 Odekolonov, The plant founded in 1949; Daily bulk for 84122 06262/ General Director processing capacity - 800 t margarine and 95206 sunflower ssed, 500 tons of soap soybeans and 480 tons of production, raoeseed. technical glycerin, technical soap
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No. Company name General information Description of Trademark Address Phone Fax e-mail web-site Contact person production 3 CJSC Pology oil The plant operates since Sunflower and soya oil SLAVIA 36 Lomonosova 06165/ 06165/ [email protected] www.mezpology.zp.u Mr. Valery extraction plant 1974 and is one of the purified and non-non- str., Pology 23123 23220 p.ua a Ostroushko, largest oil processing purified, mayonnaise (4 town, Zaporizhia 06165/ 06165/ Direct or plant in Ukraine and types), phosphate region 70601 23722 22050 CIS. It is a single concentrate, sunflower complex of the cake workshops and service departments with developed infrastructure for processing of 1,250 t of sunflower seeds per day. Production capacity is 450-460 t of sunflower oil and 400-410 t of sunflower cake per day. 4 Zernotorgovaya The plant is owned by Sunflower purified and BLAGO 30, Urozhayna 0522/ 39- 0522/ [email protected] http://www.grain- Mr. Vladimir Compania Zernotorgova non-purified oil str., Kirovograd 01-22, 24597 tc.com/ Umrikhin, First Holding companiya (70% of 25000 8 Deputy OJSC shares). With the Chairman of the Kirovogradoliya purchase of new Board equipment in 2004, processing capacities of the plant will grow to 600,000 t per year. 5 CJSC Zaporizhia The leading producer of Light margarine, hard OLLI, 3, Pischevaya 0612/ 0612/ Mr. Alexander oil and fat plant margarines and fats. In margarine and cooking ZAPORIZK str., Zaporizhia 653037 65223 Mykhalyuk, 2003 the plant produced fat for household and Y, 69014 7 Chairman of the 23,500 t of packed industrial use, sunflower KULINAR Board margarine, and 88,700 oil and cake tof sunflower oil; processed 198,100 t of sunflower seeds.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 31 of 36
No. Company name General information Description of Trademark Address Phone Fax e-mail web-site Contact person production 6 Kernel Group - Owns Poltava OEP, Sunflower oil, Shchedryi 16, 044/ 044/ http://www.kerne www.kernel.ua Mr. Vladimir Poltava oil Prykolotne OEP, sunflower cake, DAR, Stozhar, Nemirovicha- 4618801, 4618864 l.ua/contacts/ Nazarenko, Chairman extraction plant Volchansk OEP and a sunflower bulk for Chumak Danchenko 4618804 of the Board number of auxiliary export Domashnya, street, Kyiv, enterprises. Occupies Chumak Ukraine, 35% of sunflower oil Zolota, 01133 retail market. Lease TM Lyubonka 'Chumak' from Chumak. Processes about 15% of Ukrainian sunflower harvest 6a CJSC Poltava Part of Kernel Group 17, Marshala 0532 0532/ Crushing plant Biryuzova /509007 509110 street, Poltava, Ukraine,36007 6b OJSC Volchansk Part of Kernel Group 1, Engelsa 05741/ 05741/ Crashing plant street, 42239 42239 Volchansk, 62501 6c CJSC Prykolotne Part of Kernel Group STOZHAR 45, Lenina 05752/ 05752/ Crashing plant str., urban 53102 52334 village Prikolotnoe, Kharkiv oblast, 62630 7 CJSC Kharkiv fat Plant founded in 1932. Margarine, purified SCHEDRO 120 Illicha 0572/ 0572/ [email protected]. www.hgk.com.ua Mr. Vasyl Bartash, integrated plant One of the largest sunflower oil, ave., Kharkiv, 546510 546511 ua, General Director mayonnaise and mayonnaise, cooking Ukraine 61019 [email protected] margarine producers in fats .ua Eastern Ukraine. 8 CJSC Lviv fat- One of the leader of Soft and hard SCHEDRO 132, 0322/ 0322/ [email protected] www.lgk.com.ua Mr. Mykola making plant mayonnaise production. margarines, Gorodotska 419045 390166 Ponomariov, Director Produces mayonnaise mayonnaise, cooking str., Lviv and margarine products. fats 79015 Daily capacity of the enterprise: margarine - 200 t, mayonnaise - 70 t. Storying capacitites for oil - 6,500 t
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 32 of 36
Description Contact No. Company name General information Trademark Address Telephone Fax e-mail web-site of production person 9 OJSC Odessa oil One of the largest oil Sunflower oil, SONIACHNA 16, 0482/ 0482/ [email protected] www.maslo.com.ua Mr. Dmitriy and fat integrated and fat manufacturers in mayonnaise, DOLYNA Srednefontanska 345009 347117 Markovsky, plant the Southern Ukraine. soft and hard str., Odessa 0482/ Director Recently acquired by margarine 65023 341733 Glencore (50% of shares). The plant processes sunflower seeds and rapeseed. Capacities extension is planned for 2005. 10 OJSC Kyiv The plant has more than Soft and hard OLKOM 3, Nauki ave., 044/ 044/ [email protected] www.olkom.ua Mrs. Vera margarine plant 50 year history and is a margarines, Kyiv 03039 5250177 5250198 Butenko, leading producers of mayonnaise, Chairman of mayonnaise and mustard the Board magragines. Production capacity of the plant - 36,000 t of margarine and 12,000 t of mayonnaise per year. 11 OJSC Melitopol Part of OLKOM holding. Sunflower oil OLKOM 31, Frunze str., 0619/ 0619/ [email protected] OEP Processes 250 tons of for bulk, Melitopol, 422038 424410 sunflower seeds per day margarine and Zaporizhzhya mayonnaise region, 72312 production 12 AVIS The company founded Sunflower oil, MASLIANA 150, Pirogova 0432/ [email protected] www.avis.ua Mr. Vladimir in 1992 in Vinnytsia. mayonnaise KORIVKA, str., Vinnytsia 351487 Vasilyev, Presently, it unites 3 and Selyanka, 0432/ Director plants with more than mayonnaise- Sckvarochka, 353795 600 employees: oil based sauces, Doyarochka, 0432/ extraction plant, soft soft Maskyanyi 326870 drinks plant and margarine, Snidanok, 0432/ polymeric packaging mustard Toplene 536840 plant. Maselce 0432/ 536826 13 OJSC One of the leading Mayonnaise, TORCHYN 4, Franka str., 0332/ [email protected] www.torprod.com Mr. Anatoly VOLYNHOLDING manufacturers of ketchup, PRODUCT Torchyn, Lutsk 770516 www.nestle.ua Petryk, mayonnaise and mustard district, Volyn' Director sauces; founded in region 45612 1994. In 2003 the company was acquired by Nestle.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 33 of 36
Company Description of Contact No. General information Trademark Address Telephone Fax e-mail web-site name production person Established in 2001 on the Light basis of Lutsk Foodstuffs OJSC margarine, Mr. Mykhailo Plant. One of the leading 150 Kovelska 0332/ 14 LUTSK margarine for RUNA [email protected] Maksymuk, producers of light str., Lutsk 774343 FOODS baking, Direct or margarine and tomato- ketchup based sauces.
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 34 of 36
Attachment 4 Export / import volumes of plant oil from / to Ukraine in January-November 2007, thousand tons Export Import Sunflower oil 1,728.50 0.27 Soybean oil 8.74 0.10 Rapeseed oil 19.10 0.05 Sunflower seed 340.10 5.98 Soybean 268.50 0.42 Rapeseed 886.92 2.70
Destinations of sunflower oil export from Ukraine, January- Importers of sunflower oil to Ukraine, January-November November 2007 2007 Moldova Bilorus Great Britain Israel USA Others Russia 2% 1% 13% Others 3% 3% 2% 6% Russia 17% Spain 3% 9% Latvia Italy 4% 5% Netherlands Egypt 4% 11% Netherlands Germany 11% 2% Algeria 7% Portugal Turkey 2% Great Britain 3% UAE Poland Iran 7% 2% India France 66% 7% 2% 8%
Destinations of soybean oil export from Ukraine, January- Importers of soybean oil to Ukraine, January-November November 2007 2007
Bilorus USA 13% 13% Germany 4%
Netherlands Armenia 8% 20%
Poland 64% Usbekistan 3% Belgium 75%
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.B-R Revision: 1 Date: 29 May 2008 Page: 35 of 36
Destinations of rapeseed export from Ukraine, January- Importers of rapeseed to Ukraine, January-November November 2007 2007
Others Belgium Spain Czech Others Moldova 9% 3% 4% Netherlands Republic 2% 2% 11% 7% Turkey 15% Portugal 8%
France 32% France 15% Pakistan Germany Israel 27% UAE 57% 2% 6%
Destinations of sunflower seed export from Ukraine, January- Importers of sunflower seed to Ukraine, January- November 2007 November 2007
Others Moldova Bulgaria Others Georgia Chile 4% 9% 4% 6% 3% Turkey 5% Spain 12% 2% Spain 28% Serbia 3% Pakistan USA 9% 28% France Israel 20% 2% France 7% Italy 8% Argentina 2% Portugal Netherlands 11% Germany Turkey 3% 11% 23%
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Destinations of soybean export from Ukraine, January- Importers of soybean to Ukraine, January-November 2007 November 2007
Others Kazakhstan 5% 8% Moldova 8% USA Serbia 27% 30% Uzbekistan Turkey 5% 34%
Greece 18% Czech Republic 5% Hungary Spain 4% Italy 3% Canada 15% 38%
Market Study of Food Sectors in Ukraine – Part B: Oil and Fat Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 1 of 34
Table of contents Page
1 Introduction 2
2 General overview of the branch 3 2.1 General situation in the Ukrainian horticulture 3 2.2 Main trends in the fruit and vegetable processing industry 5 2.3 Types and assortment of final products 6
3 Branch structure 7
4 Sales system 7
5 Market of processed fruit and vegetables and production analysis 8 5.1 Market size 8 5.2 Consumption 8 5.2.1 Target consumers 9 5.3 Canned Fruit and Vegetables 10 5.4 Frozen vegetables, fruit and berries 12 5.5 Dried fruit and berries 13
6 Foreign trade 15 6.1 Export / import 15 6.2 Regulations on import 19
7 Competitive analysis 21
8 Foreign presence in the Ukrainian fruit and vegetables market 23
9 Price survey 24
10 Equipment and packaging 25
11 SWOT analysis 26
12 Conclusions and forecast 27
13 Opportunities for Dutch technology and equipment 27
Attachments: 1. Gross harvest of vegetables, fruit and berries by region 2. Leading fruit and vegetables processing companies 3. Organizational structure of the branch
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 2 of 34
1 Introduction
During the last years the following processes determined the development of the Ukrainian fruit and vegetables processing sector:
enterprise restructuring, capital consolidation;
improvement in the raw material base due to the increase in the number of farms and their expansion as well as use of modern growing technologies;
an increase in production of fruit and vegetables concentrates and semi-products (including frozen) for further processing in winter;
modernization of processing lines, use of new technologies, opportunities resulting from the extension of packaging materials assortment;
introduction of premium products made of high-quality local and imported raw materials;
extension of canned and frozen fruit and vegetables assortment;
strengthening of the role of marketing activities;
expansion to foreign markets;
changes in consumers’ habits in regard to canned and frozen fruit and vegetables
increased interest from international players and their entrance to Ukraine
The characteristic features of the market are: 9 the market is not fully saturated yet;
9 the market segments of juices and tomato sauces have been shaped, while the markets for other processed fruit and processed vegetables are still highly fragmented;
9 the majority of agricultural production (98.8% of potato, 70% of fruit and vegetables) is located in small farms, that are not as efficient as big ones and this can be a critical for the sector after Ukraine entering to WTO;
9 the quality of Ukrainian is often far from international standards;
9 due to low level of competitiveness of Ukrainian fruit and vegetables it is forecasted 30% drop in horticulture production caused by Ukraine entering to WTO.
The latest essential information on the sector development is presented further in this chapter. When preparing this review, the official data of State Statistics Committee of Ukraine were analysed. Opinions of industry experts as well as other available information from the various public sources were also taken into account.
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 3 of 34
2 General overview of the branch 2.1 General situation in the Ukrainian horticulture
The production of processed fruit and vegetables depends on the availability of raw materials. As presented in Table 1, the harvest of vegetables in 2003 has reached the level of 1990 and during the following years it always exceeded this level. In the period from 2004 to 2006 the production of vegetables increased annually by 5-10% and only in 2007 decreased by 15%. At the same time, the fruit and berries crops fell down from around 3 million tons in 1990 to 766 thousand tons in 1999 and since then could rich only 1.47 million tons in 2007, with risings and falls in between. A different situation is observed in the production of potato. The production drop was not so significant, has exceeded the 1990 year level already in 2000, during the last years was characterised by stable increase and is now on the level of 19 up to 20 million tons per year.
Table 1. Production of fruit and vegetables, by category, by all farms and enterprises in Ukraine, thousand tons
Description 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 Vegetables 6,666 5,880 5,821 5,907 5,827 6,538 6,964 7,295 8,058 6,835 Fruit and berries 2,902 1,897 1,453 1,106 1,211 1,696 1,635 1,690 1,114 1,470 Potato 16,732 14,729 19,838 17,344 16,619 18,453 20,755 19,462 19,467 19,102
Source: State Statistics Committee of Ukraine
As for the productivity, starting from the beginning of 2000-s the level of 1990 has been reached and growth is continuing, that can be explained by the implementing of modern growing methods.
Table 2. Productivity on fruit and vegetables in Ukraine, tons per hectare
Description 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007
Vegetables 14.9 12.0 11.2 12.3 12.4 13.9 14.9 15.7 17.1 15.2 Fruit and berries 4.27 2.98 3.84 3.03 3.65 5.6 5.81 6.37 4.5 6.17 Potato 11.7 9.6 12.2 10.8 10.4 11.6 13.3 12.8 13.3 13.1 Source: State Statistics Committee of Ukraine
At the same time the sown area for vegetables and fruits and berries is constantly decreasing and only for potato it is slightly stable.
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 4 of 34
Table 3. Sown area on fruit and vegetables in Ukraine 2000 – 2005, thousand ha
Description 2000 2001 2002 2003 2004 2005 2007
Vegetables 518.6 479.4 471 469.5 468.2 464.3 448.84 Fruit and berries 378 363 332,2 303,2 281,4 263,2 n/a Potato 1,631 1,604.7 1,529.3 1,586.9 1,556.4 1,515.9 1,453.3 Source: State Statistics Committee of Ukraine
In the sector structure are present, from one side, 14,300 big and medium size agriculture enterprises with the average area of 2,388 hectares, and from the other side 5.9 million small farms with the average area of 0.84 hectares. The first group produces 38% of the total product on 76% of the total sown area of the country. The second group produces 58% of total product on 15% of the total sown area. At the same time there are farmer enterprises with the average area of 76 hectares, which produce 9% of the total product and plays secondary role in the agriculture of Ukraine.
The output structure of the sector of fruit and vegetables has changed significantly since 1990. Fruit and vegetables are grown mainly in small farms. In 2007 small farms has supplied more than 89% of fruit and vegetables for processing and sale (59.6% and 26.9% in 1990 respectively) and almost 99% of potato (in 1990 – 71.4%). In the sector of fruit and berries, this co-relation (89% of small farms compared to 11% of big farms) remains practically unchanged since 1990.
Figure 1. Output structure of vegetables, melons and gourds by category of farms
100.00 26.35 80.00 37.05
60.00 86.02 85.89 86.45 88.96 89.29 89.56 % 40.00 73.65 62.95 20.00 13.98 14.11 13.55 11.04 10.71 10.44 0.00 1990 2000 2001 2002 2003 2004 2005 2007
Big f arms Small f arms
Source: State Statistics Committee of Ukraine
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 5 of 34
Figure 2. Profitability of agriculture production in Ukraine
50
40
30
20
10
0
profitability, % profitability, 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 -10
-20
-30
-40 agriculture poduction, total potato vegetables
Source: State Statistics Committee
The profitability of agriculture production is very unstable due to a lot of factors affect on it, such as weather conditions, economic conditions, situation with import.
The profitability of potatoes growing is quite high in comparison other agriculture production in Ukraine. In some years, the average profitability of agriculture production in Ukraine was below zero level, namely in such years as 1996-2001, and in 2004 for such categories as potato and vegetables. Nevertheless, high potential of agriculture production makes this sector more and more attractive for investors, both for production of raw materials, and for their processing.
2.2 Main trends in the fruit and vegetable processing industry
The Ukrainian market of processed fruit and vegetables depends very much on raw materials supply. Thus, the annual incremental growth of production with the rate 25-30% before 2006 was replaced by 30% drop in 2007.
Presently, the Ukrainian market of canned fruit and vegetables can be characterized as follows:
> About 80 - 90% of products are manufactured during July – October, while 70 - 80% of it is sold during October – April.
> The average profitability of the Ukrainian canneries in 2007 was declared at the level of 7 - 10% (data of State Statistics Committee), while some companies declared the profitability of 10 - 25%.
> There are several key players in the market, owners of ‘Veres’, ‘Chumak’ and ‘Torchin Product’ brands being in the lead.
> Almost all producers pay special attention to the promotion of their products
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 6 of 34
> There is a shortage of professional agriculture enterprises producing vegetables and fruits
> A shortage of new production and storage technologies, storage capacities
> The increasing quality demand from retail market
> A keen necessity in long term credits for agriculture production enterprises
The local producers of processed vegetables and fruit mainly use the local raw materials. Big and middle size companies make significant investments into the development of their own raw materials production, which makes them less dependent on the raw materials shortage.
2.3 Types and assortment of final products
The assortment of processed fruit and vegetable products is determined by available raw materials of domestic origin: grape, cherries, apples, plumps, apricots, peaches, strawberry, raspberry, blueberry, black currant, gherkins, cabbage, marrow, eggplants, pepper, tomatoes, bean, green peas etc., and last times, sweet corn and mushrooms. The most popular canned vegetables in Ukraine are green peas, sweet corn, tomato paste, canned tomatoes and gherkins, marrow paste etc.
The traditional product mix of Ukrainian fruit and vegetables processing industry includes:
9 canned vegetables (preserved cucumbers and tomatoes, pickles, vegetable salads and pastes, green peas);
9 canned fruit (stewed fruit, fruit pastes and jams, fruit preserves);
9 juices (of local raw products - apple, grape, pear, peach, tomato, birch sap);
9 Tomato paste, tomato-based and other sauces.
There is a significant production growth of natural canned vegetables, including vegetable paste, green peas, gherkins, salads, tomatoes products, and fruit jam. During the last years the incremental increase of production of canned gherkins and tomato by 40% was shown.
The assortment of canned products was constantly extended. Among new products introduced to the market it can be mentioned: carrot in spicy marinade, marrow cut and in pieces, sauerkraut with different additives (apples, cranberries, mushrooms) etc.
In spite of stable habit to a householder canned production, Ukrainian customer with great pleasure accepts innovations of producers, especially when this production is of good quality and demonstrates an attractive appearance. Over the last decade such products as canned sweet corn and mushrooms, ketchups and juices made of imported concentrates (orange, pineapple, banana and other exotic fruit) have been added to the traditional assortment.
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 7 of 34
3 Branch structure
The leading enterprises of the sector are independent companies (like Sandora LLC, CJSC Chumak) or form a part of the large food processing and distribution holdings (like Gaysin Cannery, CJSC Agroekoproduct). Some of the companies of fruit and vegetable processing industry are still subordinated to such structures as Ministry of Agrarian Policy (MAP), Ukrovochkartopleprom Corporation or Ucoopspilka, however the links between companies and coordinating sector authorities are slackening.
The number of companies operating in fruit and vegetable processing sector of Ukraine is estimated as, approximately, 600. The number of large and well known producers is close to 35-45. The financial possibilities of small companies don’t allow them to guarantee a stable supply of raw materials, so every year about 10% of them is leaving the business.
The leading enterprises of the fruit and vegetable processing industry are listed in Attachment 2.
Present branch structure is shown in Attachment 3.
The supply of seed, production, procurement and distribution of vegetable is coordinated by the Department for markets of horticulture and seed farming development of the ministry of Agrarian Policy of Ukraine.
The role of associations like Ukrsortnasinniaovoch, Ukrovochkartopleprom, Teplitsy Ukrainy is minor, or their functions were taken over by the mentioned department of MAP.
Contact details:
Department for markets of horticulture and seed farming development, MAP 24, Khreschatyk St. Kyiv 01001, Ukraine Mr. Alexander Demidov Head of Department Tel.: + 380 44 226 2651
4 Sales system
The main sales channels for processed fruit and vegetables include retail outlets (groceries, pavilions, supermarkets), agricultural and street markets.
Since 2003 to 2007 the Ukrainian market of vegetables and fruits has grown more than three times in money terms. Five years ago the annual turnover in consumer prices amounted USD 2.2 billion1, in 2006 – already USD 4.8 billion. In 2007 the market size in money terms reached USD 7.8 billion due to the price jump for the majority of vegetables products. In volume terms the market is estimated in approximately 4 – 5 million tons. More than 70% of the total volume is provided by several thousand of small farms.
Following the development of retail market, the turnover of fruits and vegetables via ‘new retail formats’ has grown. The market share of supermarkets grown by 2% annually and is presently estimated in about 8%-10%. The street markets and traditional grocery stores still have the strong position.
1 1 billion = 109
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 8 of 34
Canned and frozen products can be also sold via HoReCa sector (restaurants, hotels, café, etc.). Canned and frozen fruit and vegetables in restaurants and cafes are used mostly as raw materials for further cooking.
The distribution of processed fruit and vegetables is characterized by insufficient development of wholesale trade in this product group and a lack of large wholesale intermediaries in the regions.
In the distribution of canned fruit and vegetables mainly indirect schemes are used. Products under the well- known brands enjoy special popularity (and demand) among the distribution companies. That is why large producers like Chumak (TM ‘Chumak’) and ‘Agroekoproduct’ (TM ‘Veres’) already established contacts with distributors in all regions of Ukraine.
At the same time, the direct distribution (from the factory to retail) is used when supplying to so-called VIP-clients (e.g. large retail chains, etc.).
5 Market of processed fruit and vegetables and production analysis 5.1 Market size
In 2005 the size of the Ukrainian market of canned fruit and vegetables was estimated in 260-280 thousand tons2 in volume terms or about USD 200 million3, in money terms. At the same time, the total perspective market size of canned fruit and vegetables estimated by other experts in 500 thousand tons4. About 45% of this volume consists of canned sweet corn and green peas – the products, which are traditionally not included to household canned products, but has a stable consumption level.
The market of processed fruit and vegetables has a seasonal character. A stable peak of consumption falls on December-February. The sales in this period are traditionally 1,5-2 times higher than the average level.
5.2 Consumption
According to data of the Ukrainian Ministry of Health, the norm of consumption of fruit and vegetables is considered to be higher than 100 kg per capita per year. For instance, in 1990 the average consumption of vegetables in Ukraine was about 128 kg per capita. The consumption experienced a significant fall till 1995. Starting with this year the consumption level was growing steadily till 2006 with the average rate of 6%. In 2007 due to consumer price increase the consumption dropped by 9%.
2 Bizpro report 2006, available at www.bizpro.org.ua 3 For the reference: the capacity of the similar market in Russia is estimated by ‘Konservprom’ Association in about USD 800 million a year. 4 Tebodin report 2003
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Figure 3. Consumption of vegetables, fruits and berries in Ukraine
200
180 172
160 147 149 147 137 140 128 121 121 114 118 120
100 80 kg capita per 56 60 37 35 35 36 40 30 32 23 25 24 20 0 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007
Vegetables Fruits and berries
Source: State Statistics Committee of Ukraine
The consumption level and its structure to a high extent depend on the level of population income. At the end of the reviewed period, Ukraine experienced growth of the disposable incomes of consumers. Public wages and pensions increased dramatically in 2005, and continued their rise over 2007. In 2006, real consumer salaries increased by 21%. The 2005 increase was more dynamic: it increased by 39%. The rising of real consumer incomes tempted Ukrainians to spend more on food in 2007, especially in cities where salaries were usually higher than in rural areas. As a result, high inflation rates (16.6% in 2007) and respective unit price growth affected consumer spending power in spite of the witnessed salary growth. This resulted in low per capita consumption of a number of products.
The share of canned fruit and vegetables in the total consumption is rather low – 2.3 kg per capita (of the total 32 kg) for fruit and berries and 2.9 kg per capita (of the total 147 kg) for vegetables.
It should be emphasized that some canned vegetables are characterized by higher consumption than others. Canned sweet corn and green peas enjoy popularity with different groups of population because it is very difficult to preserve these vegetables at home. Thus, almost 70% of urban population eats canned sweet corn on a regular basis, while more than 80% uses canned green peas in usual ration.
The other group of popular products is represented by canned cucumbers and tomatoes. In spite of the fact that these products are the part of traditional consumption of Ukrainian people, factory-made products are associated more with festive dinner than with everyday consumption. That is why the frequency of their consumption is rather low.
5.2.1 Target consumers
The consumption of canned and frozen food have regional differences. The consumptions in urban and rural areas differ from each other. As the habit of preserving fruit and vegetables at home is still quite strong, rural
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 10 of 34
population fully meets its need in canned food with homemade products (they mainly process fruit and vegetables grown in their household plots). Thus, major part of fruit and vegetables commercially processed is consumed in the urban area, especially in large industrial cities.
The portrait of the target group of consumers of canned and frozen fruit and vegetables can be outlined as follows: working men and women of 25 - 55 years old who live in urban areas and have high and middle income (more than USD 400 per family member monthly). Because of busy schedule, they usually do not preserve fruit and vegetables at home.
5.3 Canned Fruit and Vegetables
The capacities for processing of fruit and vegetables are mainly located in regions where fruit and vegetables grow, thus reducing significantly the share of transportation costs in the price structure of final product. Taking into account the current shortage of storage capacities and old storage technology, one can conclude that the regional distribution of raw materials will continue to prevail in the nearest future.
The main processing capacities for vegetables are located in central and southern regions of Ukraine. Kherson and Odessa regions produce more then 1/3 of tomato crop and supply about 80% of it to the other regions. Cherkassy region is the biggest supplier of gherkins and its share in vegetables processing is about 20%. In this region the major producers of canned gherkins like ‘Veres’, ‘Chumak’ (branch), ‘Agrospecproekt’” (TM ‘Babusin product’), Chigirinskyi cannery, Uman Cannery and others are located.
Figure 4. Regional capacities in vegetables processing
40,000
35,000 34,388
30,000
25,000 23,963 24,025 22,549 21,198
20,000 19,460 17,406 15,860 15,860 15,149 15,000 14,496 thousand tons thousand 12,428
10,000 4,554 4,338
5,000 3,795
0 Zaporizhia Mykolaiv Odessa Kherson Cherkassy
2003 2004 2005
Source: State Statistics Committee of Ukraine
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Figure 5. Producers of canned vegetables and mushrooms by regions
Vinnitsa 8% Zakarpattia Other 10% 29%
Zaporizhia 11%
Odesa 4% Kherson 13% Cherkasy 25%
Source: State Statistics Committee
Thus, mainly five or six regions produce about 70-80% of the total volume of canned vegetables in Ukraine.
Table 4. Output of canned vegetables in Ukraine, 2003-2007, tons
2003 2004 2005 2006 2007
Canned vegetables (w/o 92,852 101,979 129,351 158,220 90,989 vinegar)
Canned vegetables and 40,102 33,418 46,711 69,678 46,185 mushrooms with vinegar
Total 132,954 135,397 176,062 227,898 137,174
Source: State Statistics Committee
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Figure 6. Output of canned vegetables and fruits in Ukraine, 2003-2007
200 227.9
150 176.1 137.2 135.4
100 133.0 thousand tons thousand 50 80.5 73.5 76.1 70.5 64.8
0 2003 2004 2005 2006 2007 Canned f ruits and berries Canned vegetables
Source: State Statistics Committee of Ukraine
5.4 Frozen vegetables, fruit and berries
By data of RBK Ukraine5, Ukrainian market of deep frozen products has grown by 15% in 2007 in spite of local production decrease. It is expected that in 2008 the growth will be 25%.
Table 5. Production of frozen fruit and vegetables in Ukraine, tons
Description 2006 2007 Frozen vegetables and mushrooms 10,193 7,136 (w/o potatoes) 2006 - 2007
Fruits and berries 5,597 4,571
Total 15,790 11,707
Source: ‘Marketing.Online System’6
The consumption is also growing by 20-25% annually. A dynamic development of this market is determined by changes in consumption ration, growth of the number of working women, an acceleration of rhythm of living and increasing of purchasing power.
The market of frozen food is, from one side, a very young and in stage of development and is not saturated yet. From the other side, it is a very narrow and specific.
5 Available at: http://www.rosinvest.com/news/391074/ 6 http://www.marketing.vc
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The characteristic features of the market are: 9 a very expressed seasonal factor; 9 a shortage of storage facilities, cooling and freezing equipment; 9 expensive equipment, long return on investment period; 9 a limited space for cooling and freezing equipment in retail sector; 9 a low consumption culture of frozen product among local population, which is based on traditional way of household processing of agriculture products.
The assortment of production is growing very quickly and now includes such products as cauliflower and Brussels sprouts, cabbage, green peas, string beans, corncob, spinach, carrot, vegetable mix for soups and roast, asparagus and other vegetables.
Only 5-7 years ago approximately 85-90% of packed frozen products were imported. The main countries- exporters to Ukraine were: Poland (TM ‘Hortex’ and ‘Poltino’), France (TM ‘Bonduelle’), Belgium (TM ‘Dujardian’), Russia (ɌɆ ‘Ledovo’, ‘Elcom’, ‘Four seasons’). Ukrainian producers were presented by Kharkiv based enterprise ‘Arctika’, and Ukrainian-Poland JV working under TM ‘Frozen’.
Since then the situation changed significantly. The Ukrainian producers’ share on the market grown to about 35- 40% and has a potential to further growth. Among the local leaders the following companies should be mentioned: ‘Arctika’ (Kharkov), ‘EuroDnepr’ (Dneporpetrovsk), ‘Dinastia Ukraine’ (Kryvoyi Rog), ‘Olvita’ (Kiev region), ‘Ternopil fast frozen product factory’ (TM ‘SimSim’). A new player recently appeared on Ukrainian market of frozen product – ‘Khersonimpexproduct’ with the registered TM ‘Chippolino’. The retail group Fozzy has registered its own trade mark ‘Premium’, and sales different types of products, including frozen vegetables and fruits through the retail network ‘Silpo’.
The most popular frozen product is potato. The other products are ranked as follows: vegetables, mushrooms, berries and fruit. It should be mentioned that segment of frozen fruit of domestic origin is almost not developed. It is stipulated by the fact that majority of potential consumers prefer to use self-prepared frozen fruit and berries.
5.5 Dried fruit and berries
The segment of dried fruit in Ukraine is under dynamic development. Dried fruits are presented in all types of shops and markets. The range of products can satisfy different tests of customers.
Unfortunately since 2006 the profound market study of this sector was not done, that is why the reliable up to date data are absent.
According to the information provided by internet resource ‘proAgro’7, in 2005 due to the change of import duties from EUR 0.5-1 per kg to 15-20% per kg and even to 0% for some kind of products the import has grown by 15% and reached 25,000 tons or USD 13.3 million in money terms.
The leading positions were occupied by raisins (16.7% of the market), dried apricots (14.8%) and prunes (10.8%).
7 http://proapk.com.ua/apk/2006/09/13/110432.html
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Figure 7. Dried fruits and nuts in Ukraine. Market structure
Raisins, 17% Exzotic fruits and nuts (fig, dates,candied fruits etc.) , 48% Dried apricot, 15%
Prunes, 11%
Fruit-nuts mix, Compot mix, 4% 6%
Source: 'proAPK'
About 95% of the total volume of dried fruit and vegetables presented in Ukrainian market were imported from 17 countries (including CIS). The biggest suppliers were Turkey and Iran (mostly raisins and prunes).
Dried onions and carrots were imported from Uzbekistan, although dried vegetables are not yet practically known in Ukraine.
Taking into account the fact that the died fruit consumption in Ukraine was about 1 kg per capita what is 3-4 times less than worldwide accepted consumption level, the sector has good perspective for the growth. The development of the sector is supported also by the development of basic consumers – confectioneries, diary plants, snacks producing plants (bulk sales).
There are about 50 manufacturers in Ukraine. The local production volume is rather small compared to import, because prime cost of drying process in Ukraine is almost the same as wholesale prices on import. The range of local products is presented by dried vegetables, onions, mushrooms and fruit, which used mostly as semi-product for foodstuffs production. According to equipment suppliers and traders, the profitability of dried fruit and vegetable production varies around 5-10%.
Only several producers of dried products, namely ‘Kriokon’ and ‘Laura’, use modern drying technologies. In addition to regular assortment they produce flavourings and dried soups.
The leading Ukrainian companies produce packaged products from imported row materials under own trade names: ‘SantaVita’, ‘AMRA’, ‘Aromiks’, ‘GoodFood’, ‘Gasmin’.
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6 Foreign trade 6.1 Export / import
The volumes of imported canned fruit and vegetables have been growing during the last years. In 2005 the volume of import became equal to the volume of export and in the following years exceeded it. In 2006 - 2007 import and export felt down slightly. Main reason for import decrease in 2007 was consumer price growth, while for the export decrease was caused by the bad harvest 2007.
Figure 9. Foreign trade by canned fruit and vegetables
140
120
100
80
60
thousand tons 40
20
0 2000 2002 2006 2007 Export Import
Source: State Statistics Committee of Ukraine
Figure 10. Balance of canned fruit and vegetables in 2007
160
140
120
100
80 export, 75.9 import, 70.9 import,
60 import, 49.9 import, thousand tons thousand 40 consumption, 132.2 consumption, 20 export, 20.8 137.2 production, consumption, 105.1 consumption, production, 76.1 production, 0 Canned fruit and berries Canned vegetables
Source: State Statistics Committee of Ukraine
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The structure of foreign trade by canned fruit and vegetables is shown in Table 6.
Table 6. Exports / imports of canned fruit and vegetables, tons
2000 2002 2006 2007 Code Description export import export import export import export import Canned vegetables 2001 6,218 332 10,141 164 2,379 9,367 43,820 8,408 (with vinegar) Canned tomatoes 2002 1,802 678 1,162 12,655 39,288 25,344 5,599 10,009 (incl. tomato paste) Other preserved 2005 vegetables (w/o 6,767 1,767 8,517 952 29,188 41,299 3,832 46,985 vinegar) Fruit jam, jelly, puree, 2007 7,794 277 3,414 1,638 3,068 17,400 3,832 22,143 paste Other canned or 2008 1,580 507 8,159 1,067 13,688 23,728 16,999 27,721 preserved fruit Ketchup and tomato 210320 3,352 427 9,345 1,096 13,241 2,035 1,482 3,000 sauces Canned gherkins and 200111 3,382 51 4,716 25 6,435 4,036 21,125 2,494 cucumbers* Total 30,899 4,042 45,458 17,600 107,291 123,213 96,693 120,764
Source: State Statistics Committee of Ukraine
The leading places in export belong to the canned vegetables with vinegar (44%) and canned gherkins and cucumbers (22%). The main country-importer from Ukraine was Russia with the share of more then 85% of the total export volume.
Figure 11. Export structure of canned fruit and vegetables in 2007
Export structure by country Export structure by product category Israel,
USA CIS Canned Canned Europe 1% 8% gherkins and vegetables 6% cucumbers* (w ith 22% vinegar) Ketchup and 44% tomato sauces 2%
Other canned or preserved Other Canned fruit preserved Fruit jam, tomatoes 18% vegetables jelly, puree, (incl. tomato (w /o paste paste) vinegar) 4% 6% Russia 4% 85%
Source: State Statistics Committee of Ukraine
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At the same time, the structure of import has changed significantly during the last three yeas. Namely, the leaders in import in 2007 are preserved vegetables without vinegar (excluding cucumbers and tomato, 40%) canned or preserved fruit (23%), fruit jam, jelly, puree and past (18%).
Figure 12. Import structure of canned fruit and vegetables in 2007
Import structure by country Import structure by product category Canned Others CIS tomatoes Other 6% 16% Canned (incl. tomato preserved Asia vegetables paste) vegetables (India, (w ith 8% (w /o China) vinegar) vinegar) 39% 7% 40% Canned gherkins and cucumbers Europe 2% Other 39% Fruit jam, Ketchup and canned or jelly, puree, tomato preserved paste sauces fruit 18% 2% 23%
Source: State Statistics Committee of Ukraine
In 2007 compared to 2002 there is a serious change in import structure of such product as canned tomato incl. tomato paste. Tomato paste was the ultimate leader among imported products in 2002 with about 73% of the total import of canned fruit and vegetables. It was related to the fact that that time only limited number of local canneries produced tomato paste and it was mainly imported from Moldova, Uzbekistan and Armenia. With the increasing the local production volumes, the import of the mentioned product by 2007 dropped to 8%.
The foreign trade in canned fruit and vegetables varies depending on the season of the year. Export is high in August – December with the peak in September – October.
Import sharply increases in April – June, and it covers the lack of domestic supply before the start of the harvest collection/processing season. The reason for import growth at the end of the year is high demand for delicious products for the New Year and Christmas.
As for the frozen fruits and vegetables, the leading share of import in money terms belongs to frozen potato (65- 70%)8. About 85% of the frozen potato is imported from Poland. Dutch companies provide the rest 15% of the frozen potato import.
8 ‘Kievsky telegraf’, available at: http://telegrafua.com/327/economics/6224/print
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Imported frozen vegetables are on the second place in the structure of import. About 90% of them are imported from Poland (Hortex, Hortino) and France (Bonduelle, Dujardin).
Export from Ukraine is presented mainly by raw materials (forest berries).
As it was mentioned, in 2005 about 25 thousand tons of dried fruit was imported to Ukraine (USD 13.3 million in money terms). Since than, by different estimations, market grown by 10-15% annually.
As for the specific types of dried fruits, there were priorities between countries-suppliers. For instance, prunes were mainly supplied from France (34,4% of import), USA (18,8%), Chilly (12,5%), Moldova and Iran (9,4% per each), others countries, such as Argentina, Tajikistan, Uzbekistan shared the remaining 15,5%.
Practically, half of raisin import came from Iran (48,9%). Approximately 65% of dried apricot were imported from Turkey, and 25% - from Iran. Figs were supplied mainly from three countries: Iran (58%), Turkey (27,4%) and Syria (11,3%). More than 80% of dates were imported from Iran, the rest – from Algeria and Tunisia.
Figure 8. Structure of import of prunes and dry apricots by countries in 2005
Prunes Apricots
France, Others, 34.4% 10% Others, 15.5%
Iran, 25%
Iran, 9.4%
USA, 18.8% Moldova, Turkey, 9.4% 65% Chile, 12.5%
Source: 'proAPK'
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6.2 Regulations on import
The customs duties for the imported processed fruit and vegetables are shown in Table 7.
Table 7. Customs duties for fruit and vegetables products in Ukraine, 2007
Import duty before Import duty after WTO WTO entering entering (Bound Code Article Accession) % of customs value % of customs value 2001 Vegetables and fruit canned or cooked 17 10, 17 2002 Tomatoes canned or cooked 15 8, 12 2003 Mushrooms canned or cooked 10 10 2004-2005 Other vegetables canned, frozen or not frozen 20 5, 7, 10, 12, 15 2006 Fruit, fruit peels canned in sugar 20 20 2007 Jams, fruit jellies, marmalades, purees, pastes 0.5 Eur/kg 10 Jams, fruit jellies, fruit purees and pastes with 2007 1010 15 10 sugar content more than 13% of weight Jams, fruit jellies, marmalades, fruit purees and 2007 91, pastes, other, of tropical fruit and nuts; puree of 2 10, 15 2007 99 bananas (net weight over 190 kg) 2008 Other canned fruit 10 10 2008 20, Pineapples and citrus fruit, without sugar in 15 15, 20 2008 30 packaging of 4.5 kg and over 2009 Fruit and vegetable juices 2 2, 5, 10 2103 20 Sauces, ketchup and other tomato sauces 15 10, 12, 15 Source: Customs Tariff of Ukraine (with changes introduced by the Law No. 1893-IV of 24/06/2004), ‘Agrosphere’ N11(310), 17 March 2008
Customs duties for fruit and vegetables that are imported for further processing are presented in Table 8. Apart from paying import duty, the importer has to cover the costs of customs procedures, phyto-sanitary control certificate, product certification at relevant Ukrainian authorities, etc.
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Table 8. Customs duties on some raw materials used in fruit and vegetables processing
Import duties before Duties after WTO WTO entering entering (Bound Code Article Accession) % of customs % of customs value EUR / kg value 0701 Potato fresh or chilled 20 0.2 2(seeds), 10 0702; 0707 Tomatoes and cucumbers fresh or chilled 0.3 10 0703 Onions, garlic, cabbage, lettuce, 0.2 10, 20 (leek) 0706 Carrots, beets, radish fresh or chilled 0.2 20 0708-0709 Leguminous and other vegetables fresh or chilled 20 0.3 20, 17 (Of the genus Capsicum, for the
manufacture of capsicin or capsicum oleoresin dyes) 0710 8085 Asparagus 15 0.6 7 0711 Preserved vegetables (not for final consumption) 20 20 0712 Dried vegetables and legumes 5 0.6 10, 15, 20 0714 Edible root (incl. sweet potato) 20 0 0803 Bananas 3 0 0805 Citrus fruit 3 0 0806 Grape fresh 10 0, 10 0808 Apple, pear and quince fresh 0.5 0, 10 (season) 0809 Apricots, cherries, peaches, plums fresh 0.5 5 0810 10 Strawberries 20 17 0810 20 Raspberries 0.6 20 0810 30, Black-, white-or redcurrants and gooseberries; 20 20 0810 40 Cranberries, bilberries and other fruits of the genus Vaccinium; 0810 50 Kiwifruit 0 0 0810 60, Durians; 10 10 0810 90 Tamarinds, cashew apples, lychees, jackfruit, plums, etc 0811 Fresh, boiled or frozen fruit and berries 10 10 0812 Preserved fruit and berries (not for final consumption) 20 20 0813 10 Dried apricots 0 10 0813 20 Dried prunes 0 10 0813 30 Dried apples 20 20 0813 40 Other fruit dried (peaches, pears, papaws, tamarinds, etc.) 12 12 0813 50 Mixtures of nuts or dried fruits 5 10 2002 90 Tomato paste 1 12 Source: Customs Tariff of Ukraine, ‘Agrosphere’ N10(309), 17 March 2008
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7 Competitive analysis
The leaders of Ukrainian canned fruit and vegetables market among more than 550 operating canneries, are CJSC ‘Chumak’ (TM ‘Chumak’) and CJSC ‘Agroekoproduct’ (TM ‘Veres’). These companies have established a strong presence in the key market sectors (canned vegetables, tomato products, canned sweet corn and green peas, canned mushrooms) and introduced recognizable brands to the market. Companies like AIC ‘Polesie’ (TM ‘Nezhyn’), CJSC ‘Kraft’ (TM ‘Zlatodar’), ‘Ukrinterprodukt’ (TM ‘Gaysin’ and ‘Uman’), ‘Myrgorod Cannery’ (TM ‘Babusyni recepty’) and others are on the track of leaders.
The largest canneries are located in the regions of Central and Southern Ukraine, that are rich by raw materials (Kherson, Mykolaiv, Vinnytsia, Cherkassy, Poltava regions).The leading producers tend to develop their own raw material base for some vegetables in order to minimize the risks related to raw material supply.
Most canneries are highly diversified (wide assortment of products of different groups). Thus, on the average, the assortment range contains 30 - 50 products. For example, about 50 types of products are manufactured under TM ‘Veres’, about 100 items are produced under TM ‘Zlatodar’.
However, almost each producer specializes in the certain group of canned food. For example, ‘Chumak’ (TM ‘Chumak’) is the leader in processing of tomatoes, while ‘Agroekoproduct’ (TM ‘Veres’) is famous for its canned mushrooms. ‘Polesie’ (TM ‘Nezhyn’) and ‘Myrgorod Cannery’ (TM ‘Babusyni recepty’) are specialized in canned gherkins and cucumbers.
The lion’s share of the tomato sauces market is occupied by six key players –‘Chumak’ (TM ‘Chumak’), ‘Nestle- Ukraine’/‘Volyn-Holding’ (TM ‘Torchyn Product’) ‘Unilever-Ukraine’ (TM ‘Calve’), ‘Lutsk Foods’ (TM ‘Runa’), ‘Sostra’ (TM ‘Paprichi’, ‘Palitra Culinarii’) and Baltimor (TM ‘Baltimor’, ‘Vostochny Gurman’) 9. Ketchup segment is dominated with ‘Chumak’, ‘Torchyn Product’ and ‘Veres’ trademarks.
9 http://www.kommersant.ua/doc.html?DocID=868400&IssueId=46881
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Table 9. Key Ukrainian producers of canned fruit and vegetables
Trademark/ Slogan Company name Location of production Key products Brand Chumak “From field to table” Chumak Kherson region Tomato-based (2 canneries) products Veres “Tastes like Agroekoproduct Cherkasy region Mushrooms, homem ade” cucumbers, tomato-based products, jams Torchyn product “Tasty and convenient” Nestle Ukraine/ Volyn region Sauces Volynholding (ketchups, mayonnaise) Gaysin “Nature gives, we Ukrinterpoduct Vinnytsia region Fruit jams preserve” Zlatodar “The richness of Kraft Mykolaiv region Assorted princely taste” (SEV Holding) (Voznesensk) vegetables, salads Nezhyn “Better than AIC Polesie Chernigiv region Cucumbers, homem ade” (Nezhyn) salads Prok “…and the world BKS-Postach Lviv, Chernivtsi, Rivne, Cucumbers, becomes tasty” Khmelnitsky regions jams Babusyni recepty n/a Dikan’ka Poltava region Cucumbers, (Myrgorod) tomatoes, apple juice Runa, Ketcha “Appetizing tune of OJSC Lutsk Foods Volyn region Tomato-based your kitchen” sauces Same toy, Karnau n/a Stara Fortetsia Volyn region Mushrooms (Rozhysche) Uman n/a Ukrinterpoduct Cherkasy region Cucumbers, tomatoes Aromiks “Taste and quality” n/a Kirovograd region Cucumbers, tomatoes Chudo “The one you like” Agroexport Zakarpattia region Green peas, cucumbers, salads, sweet corn Mukachevo n/a Shenborn LLC Zakarpattia region Cucumbers Zakarpattia n/a Zavydovo LLC Zakarpattia region Cucumbers, tomatoes, paprika Gospodarochka n/a CJSC Odessa Odessa Vegetable paste, Cannery tomato-based sauces Source: available data from the companies, data of BKS-Postach
Private labels have recently come into being in Ukraine. For example, ‘Furshet’ supermarket chain places orders for manufacturing of canned gherkins, tomatoes, paprika as well as assorted vegetables at the canneries of Zakarpattia region.
The recent inquiry about consumers’ preferences concerning canned fruit and vegetables has shown that TM ‘Veres’ and ‘Chumak’ remains the most popular (10.9% and 8.1% of votes correspondingly), while about 11% of respondents do not have specific trademark preferences (see Figure 12).
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Figure 12. Canned fruit and vegetables brands rating 2007
Do not know 11.76%
Veres 10.88%
Chumak 8.1%
Torchyn Product 2.65%
Bonduelle 2.17%
Gaysin 1.07%
Nezhin 0.92%
Globus* 0.71%
Zlatodar 0.29%
Eko 0.21%
Housemade 0.21% no 0.19%
Favorit 0.1%
* - Hungarian brand ‘Globus’ Source: Brand Portal http://brand.kiev.ua (5,799 respondents took part in the on-line poll)
The imported canned products presently dominate in sweet corn and green peas segment only. ‘Bonduelle’, ‘Globus’ and ‘Eko’ are the leaders among foreign brands.
The competition in the market of canned fruit and vegetables is characterized as follows:
> The market is dominated by local producers.
> The market is highly fragmented – about 550 canneries, strong national brands are few.
> Brand awareness and loyalty currently plays a key role in canned food sales.
> Many producers are production oriented and have no clear marketing strategy.
> There are strong players in each product category (like ‘Chumak’ in tomatoes, and ‘Nezhyn’ in cucumbers).
> The competition between the market players is growing
8 Foreign presence in the Ukrainian fruit and vegetables market
In the period of 2001-2005, the total volume of foreign investment into this sector in Ukraine reached approximately USD 37 million. The major part of investments was directed to the production of fruit and vegetables juices (USD 18.6 million) and canned vegetables and fruits (USD 17.4 million).
The main share of investments (about 75%) belonged to USA, Russia, Austria and Israel.
The volumes of financing of the sector by the international finance institutions such as EBRD, IFC and others are also increasing.
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The investments realization can be completely different:
Recently Nestle has acquired ‘Volyn-Holding’, one of the leaders in production of sauces.
In 2008 the investment company Dragon Capital and Sweden investment fund East Capital Bering Ukraine Fund announced the take over of 70% of shares of the company ‘Chumak’10. Based on expert estimation11, this transaction may be on level of USD 35-40 million.
Investors of Chumak – Dragon Capital (which took over 50% of shares) and East Capital (20% of shares) – did not demonstrate their interest to Ukrainian food processing sector before. The entering Ukraine to WTO, as expected, will allow Chumak to increase significantly the export of sauces to Europe.
At the end of 2007 one of the biggest producers of frozen vegetables in Europe – the Netherlands based company Oerlemans, signed a contract with Odessa based frozen meet producer Levada, on import to Ukraine frozen vegetables under TM ‘Levada’. In May of 2008 partners planned to import 1.5 thousand tons of products and to take the market share of 10%.
9 Price survey
All canned products can be divided by price into such segments as premium, value (value-for-money) and economy. Most of the canned fruit and vegetables are positioned in the segment of value products. Thus, canned cucumbers and tomatoes of local canneries are mainly positioned in this category.
Table 10. Reference prices for processed fruit and vegetables in Ukraine as of May 2008
Product Type of pack Price, USD Tomato ketchup ‘Veres’ – ‘Heinz’ Glass, 300 ml 0.5 - 2.1 Conserved gherkins Glass, 680 – 700 g 1.4 – 1.8 Green peas ‘Veres’ – ‘Bonduelle’ Tins, 420 g 0.6 – 1.1 Sweet corn ‘Veres’ – ‘Bonduelle’ Tins, 420 g 0.8 – 1.1 Conserved Mushrooms (champignon) Glass, 320 ml 1.5 – 1.7 Jam ‘Veres’ Glass, 350 g 2 – 3.6 Frozen potato Pack 2.5 kg 5 – 7.5 Frozen vegetable mix Pacj 400 g 2 - 3 Dry apricots Pack 200 g 1.4 – 2 (Zeeberger – 4.7) Raisins Pack 200 g 0.9 – 1.2 (Zeeberger – 2.8) Source: http://www.megamarket.com.ua/
The economy products are mainly positioned without recognized trademark or without trademark at all. Products offered in this segment are mainly made according to traditional recipes (squash paste, tomato sauce) in the old- type jars with SKO tin lids.
10 Source: http://www.dragon-capital.com/ru/newsroom/press-releases/304 11 http://www.kommersant.ua/doc.html?DocID=868400&IssueId=46881
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Most of the products positioned in the premium price segment are imported (e.g. exotic fruit, delicious pickles, etc.). However, some Ukrainian producers offer all their products or some special products from their assortment at premium prices.
The main factor influencing on price for canned product, is of course the raw material price. Prices for raw materials experienced dramatic increase during last several years, especially starting from 2000.
The growth rate of average sales prices in 2007 was 21% what is higher than in previous years (average rate 14%) and is mainly due to 29% price growth for vegetables from greenhouses (average rate in previous years – 20%) while potato even shown price decrease in 2007.
Taking into account forecasted high inflation rate for 2008, one can expect the price for agriculture production will continue to increase.
10 Equipment and packaging
Companies operating in the sector of fruit and vegetable processing are presently not limited by GOSTs (former State Standards) regarding recipes for their products. Therefore, each company is allowed to work out and register so called ‘Technical requirements’ and manufacture products in compliance with them. This gives certain freedom in selection of the equipment.
Thus, Ukrainian canneries prefer to install new or second life processing lines imported from Italy, Germany and Poland, while locally produced equipment is mainly used for auxiliary purpose (transporting, labelling, etc.).
As for the sealing / bottling equipment, the majority of plants use Tetra Pak lines for juices or White Cap lines (on lease terms) for twist-off glass packing.
According to the applicable practices, sterilization has to be applied for products, which contain vegetable oil and animal fat and with pH > 4.2. In other cases, pasteurization can be applied and that is more sparing method for preserving of useful substances. Taking into consideration a healthy value of the pasteurization technology and respective preferences of the final consumers, canneries are starting a wider application of the pasteurization, whenever possible.
Thus, question of technology renovation in the sector of processing of vegetables and fruits is quite actual, both from the point of view of enterprise modernization, as well as from perspective of entering to international markets.
Conserved fruits are sold mainly in glass twist-off jars of 200 – 500 ml, conserved vegetables – in glass jars of 500 – 1,000 ml and in tins of 200 – 500 ml. Dried and frozen fruit and vegetables are sold in plastic packaging from 40 g to 2.5 kg.
All the packaging is produced in Ukraine.
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11 SWOT analysis
Strengths
Favourable climate conditions
Improvement of raw material base (for vegetables)
Stable demand for canned fruit and vegetables at the domestic market (especially sweet corn, green peas, pickles, juices and tomato sauces)
Positive image of processed products from Ukraine in the CIS markets (especially in Russia)
Interest from foreign investors
Weaknesses
Existing consumers’ habit to preserve fruit and vegetables at home
Seasonality of raw materials supply
Price increase on raw materials
Shortage of professional agriculture enterprises and specialists
Insufficient level of new technologies for growing of good quality vegetables
Insufficient level of new technologies to satisfy growing demand from quickly developing retail networks
Absence of sufficient number of storage facilities, especially with new equipment and technology level
High financial risks, difficult conditions for the getting long-term loans from banks
Opportunities
Increasing purchasing power of the population
Free market niches in the segment of canned fruit and vegetables
Opportunities for freezing fruit and vegetables for final and industrial use, development of cold storage infrastructure
Opportunities for the manufacturing of dried fruit and vegetables additives for final and industrial use
Storage facilities for preserving raw and semi-finished products for further processing in winter time
Development of distribution channels and wholesale intermediaries in the local market
Entrance to WTO create good opportunity for development of export
Threats
Strengthening of competition and forcing of minor players out of the market
Possible changes in the legislation impacting manufacturing and distribution activities
Increase of import volume of high quality and on competitive price processed agriculture products due to entrance to WTO
Prolongation of moratorium on agriculture land purchase
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 27 of 34
12 Conclusions and forecast
The dynamic growth of processed fruit and vegetables sector in the nearest 3-5 years is expected in Ukraine.
The most of Ukrainian regions are attractive for the processing of fruit and vegetables. The raw material base has a good potential for the development due to favourable climate conditions.
The growth of the market is first of all related to the increase of population income. The other factor of market growth is gradual reduction of consumption of homemade canned and frozen products (especially it concerns persons with average and higher than average income) and changes in consumption pattern.
The combination of these factors and the fact that present consumption makes only 1/3 of the recommended norm may result in considerable market growth. It is assumed that the market will grow by 10% a year during the next 5 years.
Many processing companies pay special attention to the cooperation with farmers. Establishing of good relations between producers and farmers and introduction of special motivation system can serve as a guarantee of steady raw material supply.
Some processors provide farmers with the micro loans for the materials purchase before the season starts. The such type of financing is of need for the buying of high-quality seeds, plant protection stuff and drip irrigation equipment.
13 Opportunities for Dutch technology and equipment
The following opportunities for Ukrainian - Dutch co-operation in the fruit and vegetables processing sector can be drawn:
> Establishing of long-term co-operation in fruit and vegetable farming and processing (including set up of joint ventures);
> Introduction of modern growing technologies;
> Supply of modern processing lines and technology for fruit and vegetable processing, including special equipment such as spear-packer machines, pasteurization equipment, etc.);
> Provision of financial resources (loans, equity financing, technical assistance) for sector development;
> Investments in the development of production of frozen fruit and vegetables
Special attention should be drawn for the supply of modern storage facilities, which allow storing agriculture products with good quality for a long period.
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 28 of 34
Attachment 1 Gross harvest of fruit and berries by region, thousand tons
Region 1990 1995 2000 2001 2002 2003 2004 2005 2006 Ukraine, total 2,901.70 1,897.40 1,452.60 1,106.30 1,211.10 1,696.70 1,635.20 1,689.90 1,114.00 Republic of Crimea 500.7 90.1 133.5 39.1 35.3 125.6 29.6 58.6 37 Vinnytsia 240.5 141.7 72.9 43 65.3 182.1 148.6 184.9 153 Volyn 92.9 56.3 38.6 36.7 31.7 28.8 32.7 27.6 33 Dnipropetrovsk 158.5 125.7 196.2 131.2 146.1 164.6 163.7 166.1 78 Donetsk 160.2 140 158.2 127.9 133.6 157.6 217.3 228.5 44 Zhytomyr 47 53.1 24.1 19.2 32.2 31.6 23.9 35.3 28 Zakarpattia 138.8 116.5 103.6 78.3 72.3 86 64.4 66.4 63 Zaporizhia 152.5 87.7 57.8 42.6 47 83.5 78.2 81.3 18 Ivano-Frankivsk 69.1 118.1 24.5 38.4 32 32.5 30.9 31.6 32 Kyiv 77.1 53.1 22.4 24.9 33.2 48.5 37.1 25.5 24 Kirovograd 34.1 42.4 23.8 8.5 17.3 17.3 25.7 21.8 17 Lugansk 102.4 67.8 52.7 54.8 38.9 62.5 36.1 38 8 Lviv 112.6 148.7 90.5 75.7 79.3 74.8 90.5 73.8 90 Mykolaiv 84.8 71.3 23.7 22.5 19.8 36.7 32.1 37.1 21 Odessa 111.2 34.8 66.1 54.4 64.8 104.8 109.6 113.9 81 Poltava 101.7 110.1 22.3 5.3 28.4 30.2 35.2 39.9 36 Rivne 72.2 41 34.7 33.5 38.8 39.1 67.6 51.6 63 Sumy 38.3 7.7 4.8 4.7 4.6 7 7.9 8.7 6 Ternopil 37.9 23.8 11.3 9 20.3 16.7 22.7 21 17 Kharkiv 146.7 108.7 34.2 405 34.1 71.5 43.8 70.8 25 Kherson 86.5 31.3 65.3 56.9 42.5 80.7 51.4 58.8 14 Khmelnitsky 145.9 79.1 78.1 64.4 78.6 85.9 162.5 149.5 128 Cherkasy 69.2 24.6 35.5 18.1 36.9 43.4 35.2 23.9 29 Chernivtsi 87 71.9 52.6 38.6 54 64.1 68.7 63.5 58 Chernigiv 33.9 51.9 25.2 18.1 24.1 21.2 20 11.9 11
Source: State Statistics Committee of Ukraine
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 29 of 34
Gross harvest of vegetables by regions, thousand tons
Region 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 Ukraine, total 6,666.40 5,879.80 5,821.30 5,906.80 5,827.10 6,538.20 6,964.00 7,295.00 8,058.00 6,547.50 Republic of Crimea 427.7 225.4 185.5 176.1 159.5 132.3 126.9 105.2 160 185,9 Vinnytsia 238.2 207.5 196.2 172 147.5 233.5 209.8 293 318 230,7 Volyn 124.7 116.7 110.6 128.7 108.3 171 184.9 215 233 253,1 Dnipropetrovsk 455.7 638.4 433 430.6 433.9 492.1 498.7 494 525 394,6 Donetsk 617.8 488.3 444.5 445.1 471.5 400.9 518.1 475 533 441,5 Zhytomyr 149.5 203.4 194.5 148.3 163.1 205.2 207.1 203 219 185,6 Zakarpattia 128.6 121.7 123.3 186.8 193.7 208.5 215.1 218 227 230,0 Zaporizhia 310 298.6 230.9 199 208.6 252.5 312.7 298 367 233,4 Ivano-Frankivsk 98.8 86.5 133.9 159.6 152.1 150.7 130.6 127 126 116,9 Kyiv 464 381 295.2 252.9 261 333.3 308.5 402 459 397,8 Kirovograd 182.7 249.3 212.7 352.5 257.7 324.9 299.7 269 253 161,2 Lugansk 288 246.1 249 154.3 172.3 159.4 180.3 278 341 225,8 Lviv 181.8 163.6 268.6 294.6 294.5 326.5 328.1 380 403 424,7 Mykolaiv 285 184.6 174.1 142.6 170.2 180.5 219.9 267 297 144,9 Odessa 461.9 231.8 301 296.4 321.1 436 597.8 526 569 237,6 Poltava 285.6 319.4 199.3 361.1 307.3 343.9 379.6 350 409 398,1 Rivne 127.3 104.1 133.6 133.7 144.7 170 184.7 171 189 163,9 Sumy 191.7 99.3 137.7 139.9 143.7 172.9 161.9 140 205 171,2 Ternopil 140.6 118.1 140 117.8 129.9 155.6 122.8 145 161 156,0 Kharkiv 277.5 395.8 415.7 438.6 408.6 454.6 500.3 523 537 519,6 Kherson 423.4 277.3 421.5 422.6 426 437.3 441.6 526 622 493,3 Khmelnitsky 185.4 187.8 155.2 186.3 170.2 168.8 225 225 210 194,9 Cherkasy 320.9 253.1 344.2 283.5 280.7 319.6 251.9 296 316 208,8 Chernivtsi 123.9 75.6 146.2 122.5 133.9 134.7 152.3 184 186 190,4 Chernigiv 175.7 206.4 174.9 161.3 167.1 173.5 176.4 162 193 187,9
Source: State Statistics Committee of Ukraine
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 30 of 34
Attachment 2 Leading fruit and vegetables processing companies
No. Company name General information Descriptio Trade mark Address Phone Fax e-mail Web-site Contact person n of production 1 Ukrainian- The company started Canned "CHUMAK" 3, Kozatska 38 (0552) 38 (0552) office@chumak. www.chumak. Mr. Johan Boden, Swedish CJSC in 1996, concentrating fruit and str., 326-001 326-100 com com Managing Director; Mrs. 'CHUMAK' the investments in vegetable, Kakhovka, Larisa Metla, Marketing Kakhovka Cannery. tomato Kherson kiev.office@chu Manager The enterprise is paste, region 74800 mak.com among first to ketchups introduce processed and sauces, fruit and vegetables in mayonnaise modern packaging to in twist-off Ukrainian consumers. glass jars Leader in ketchups production. 2 CJSC The company Mushrooms "VERES" Ukraine, (8-044) 424- 044/ [email protected]. www.veres.co Mr. Andriy Rodiontsev, 'AGROEKOPRO introduced to the , ketchup, 03142, 05-55 4240555 ua m.ua Chairman of the Board DUKT' VERES Ukrainian market sauces, Kiev, p/b 154, Group of VERES brand. The jams, Vernadskogo Companies products are canned fruit bul., 34/1 manufactured at the and different sites but sold vegetables through the one in twist-off system. Company is glass jars one of the biggest tomato sauce manufacturer in Ukraine. 3 Gaysin Cannery One of the leading Fruit juices, "GAYSIN" 26, I. Franka 04334/ 42183 04334/ [email protected] www.gaisin.co LLC Ukrainian canneries. canned str., Gaysin, 04334/ 43394 42183 044/ sk.ua m.ua Packaging - twist-off fruit, fruit Vinnytsia 044/ 2062525 2062525 [email protected] bottles and jars. jams in region 23700 044/ .ua Exports products to premium 2062526 Russia and Germany. price Exclusive distributor - segment Kontinent Trade House, Kyiv
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 31 of 34
No. Company name General information Description Trade mark Address Phone Fax e-mail Web-site Contact person of production 4 CJSC 'Zlatodar' Company belongs to Canned fruit "ZLATODA Shevchenka Str., 3804748 34 Mrs. Ekaterina holding company "SEV". and R" 67, Zolotonosha, 244; 38067 Gavrilova, Director All its products are vegetable, Cherkasska obl., 4708599 certified in "UkrSEPRO" vegetable 19700 system. mixes, jam, in twist-off glass jars 5 CJSC 'Nezhyn The plant belongs to Canned fruit "NEZHYN" 1,Butlerovka str., 044/593032 044/ 593 03 info.nezhin@c http://www.nez Mr. Kovalenko cannery' Fozzy Group. Plant and office 510, 9 50 om.ua hin.ua/ Volodymyr,Director established in 1927, and vegetables, Kyiv, Ukraine reconstructed in 2002. tomato Now the plant has sauces, in modern processing lines twist-off glass from Hungary, Germany, jars (more Holland. Capacity - 22 than 40 mcu per year. products) 6 Ukrainian- One of the largest Juices, "SANDORA Mykolaivske 380 512 380 512 [email protected] www.sandora. Mr. Sergey Sipko, Lithuanian JV manufacturers of juices nectares and " village, 581040 380 581041 380 iev.ua mk.ua General Director 'SANDORA' LLC and wines in Tetra Pak wines and in "SANDORA Zhovtnevy 44 503 60 44 503 60 in Ukraine; started in Tetra Pak GOLD", district, Mykolaiv 14/15/16 24 1995. Capacity - about 0.33 and 1 l "DAR", region / 200,000 of juice "SADOCHO 17, packages per day. The K", Novozavodska enterprise has plans to "SANDORY str., Mykolaiv start deep fruit and K" 54000 vegetable processing (especially of tomatoes). 7 Ukrainian-Israeli The enterprise is based Juices and "JAFFA", 22, Vysoky 0482/ 0482/ info@vitmark. www.jaffa.com Mrs,Lenetskaya JV 'VITMARK' at the Odessa Baby nectares in "GABI", Lane, Odessa 344043 344042 com .ua Natalya,Director Food Cannery. Tetra Pak 1 l "JAFFA- 65028 0482/ 0482/ Produces juices in Tetra and twist-off GRAND", 344042 344043 Pak and in twist-off bottles 1 l "JAFFA- glass bottles. Uses GOLD", intersleeve technology. "NASH SOK", "SOLETTO" , "SOKOVYT A"
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 32 of 34
No. Company name General information Description Trade mark Address Phone Fax e-mail Web-site Contact person of production 8 Corporation Enterprise has modern Fruit and "MRIYA", 29a, Electrikov 044/ www.ridnamar 'Ridna marka' production line. All vegetable "MALENKA str., Kiev, 2392757 ka.com.ua processing processes juices, fruit MRIYA", Ukraine are computerized. drincks, "ORANZHE nectares in VI SOKY", Tetra Pak "MORS LISOVA YAGODA" 9 CJSC 'MAYBEL' The plant established on Fruit and "JUISIK" 62, 0652/ 0652/ maybel@m ay Mr. Shuterman the basis of 1 Travnya vegetable Sevastopolska 445896 445896 bel.com Alexander, Director Simferopol Cannery. juices (of the str., Simferopol, 0652/ 0652/ Has modern Crimean 95000 Crimea 255013 446906 technologies and fruits) in Tetra 0652/ equipment. Distribution Pak 0.2 l and 446906 all over Ukraine. 1 l 10 CJSC The first Ukrainian 100% juices "GALICHIN 1, Sadova str., 03254/ 03254/ Mr. Ivan Samoylenko, 'GALICHINA- company that started and 40% A" Remeniv village, 51732 51784 Director NOVA' production of juices in nectares in Kam'yanka- 0322/ 0322/ Tetra Pak packaging. Ɍetra Pak Buska district, 271865 271866 One of the leaders in packing 1l ɢ Lviv region juice production. 0.2l 80460 11 "Vimm-Bill- Juices are produced and Juices and "J-7", 7, Promyslova 044/ [email protected] www.wbd.ru Mr. Pankratov Dann" packed in Kyiv City nectares, fruit "LYUBIMYI str., Vyshneve, 4905285 Volodymyr, Chairman of Dairy No. 3 drink in Tetra SAD", "RIO Kyiv region the Board Pak 1 l GRANDE", 08132 "CHUDO- YAGODA" , "NICETEA" 12 OJSC 'Vinnifruit' Enterprise was Fruit and "VINNI", 53/80, 044/ 287 044/ 287 vinnifrut@kiev www.vinni.ua Mr. Yuriy Tochilenkov, established in 2000 on vegetable "VINNI Saksaganskogo 6223, 287 6223, 287 .vinni.ua Director of Kiev office the basis of the local juices, puree, GOLD" str.,ofice 802, 6134 6134 cannery in Vinitsa reion. nectares Kiev, Ukraine Company has three inTetra Pak 1 l modern plants. and mineral water, aerated water in PET bottles, apple pectin.
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 33 of 34
No. Company name General information Description Trade mark Address Phone Fax e-mail Web-site Contact person of production 13 'Nidan Plus' Ltd Company belongs to the Juices and "MOYA 165, B. +38 Mr. Sergiy holding company nectares, fruit SEMIYA", Khmelnitskogo (03141) 4- (Konstantinovich) "Nidan". It is Russian- drink in Tetra "CHAMPIO Str., Beregovo, 21-43, 2- Ivanov, Director Ukrainian enterprise, Pak 1 l N", "DA!" Zakarpattia reg., 32-89, 2- which was established 90202 45-21, 4- on the basis of the local 32-15 cannary in Beregovo. 14 CJSC 'Erlan' The plant has modern Mineral water, "SOKI 29, M. Donza 044/ 404- [email protected] http://www.biol Mr. Shafarenko Andrey, technologies and soft drinks, BIOLA" str., Kyiv, 27-15 044/ a a.ua Director of office in Kiev equipment. juices in PET Ukraine 404-87-98 bottles 15 OJSC Kyiv Company has 30-years Fresh-frozen 114a, Stepana 044/ 044/ www.hladoko refrigerating experience in products fruit, berries, Sagaydaka str., 5171690 5171844 mbinat3.kiev.u complex No.3' freezing. vegetable, Kyiv, Ukraine a fish, meat 16 Arti Ltd' The enterprise is among Fresh-frozen "ARTIKA" 16a, (057) 717- (057) 717- www.artika.co Mr. Suhinov Andrey first to introduce fresh- fruit, berries, Plehanovskaya 73-16 73-16 m.ua frozen fruit, berries and vegetables str., Kharkiv, vegetables to Ukrainian Ukraine consumers. Company uses a method of the quick freezing. 17 Olvita Company Recently established Fresh-frozen "OLVITA" 08325, Ukraine, (+38 044) (+38 044) [email protected] www.olvita.co Mrs.Tenesheva Vladlen, company founded by fruit and Kyiv region, 568 13 88, 568 13 88, m.ua m.ua Acting Director Dutch Olviya Foods BV. berries Boryspil area, 568 13 89, 568 13 89, The enterprise has Schaslyve 568 13 90 568 13 90 modern equipment and village, Lenina specialises on str., 20 G production of fresh- frozen fruit and berries by method of quick freezing.
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.C-R Revision: 1 Date: 29 May 2008 Page: 34 of 34
Attachment 3 Organizational structure of the branch
Ministry of Agrarian Policy
Regional agricultural UCoopSpilka departments
Canneries Farms Fruit and vegetable Inter-farms processing plants Middle-scale canning canneries facilities
Canning facilities in agricultural enterprises
Market Study Food Sectors in Ukraine – Part C: Fruit and Vegetable Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 1 of 38
Table of contents Page
1 Introduction 2
2 General overview of the branch 2 2.1 General situation in the raw milk production 2 2.2 Main trends in the milk processing industry 6 2.3 Types and assortment of final products 6 2.4 Main problems of the industry 8
3 Branch structure 9 3.1 Branch governing authorities 9 3.2 Key players 10
4 Sales system 10
5 Dairy market and production analysis 11 5.1 Milk consumption and demand 11 5.2 Domestic production and supply 12
6 Capacity and production by assortment 14
7 Materials and raw materials 24 7.1 Raw materials 24 7.2 Packaging 25
8 Foreign trade 26 8.1 Export 26 8.2 Import 28 8.3 Regulations on import 30
9 Foreign presence in the Ukrainian dairy market 30
10 Equipment 31
11 SWOT analysis 32
12 Conclusion and prognosis 32
13 Opportunities for Dutch technology and equipment 33
Attachments: 1. Organizational structure of the branch 2. Leading milk processing companies
Market Study of Food Sectors in Ukraine – Part D: Milk Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 2 of 38
1 Introduction
Last years the development of Ukrainian diary market can be described as ‘struggle for surviving’. It was influenced by the constant decrease of dairy livestock started in 1990-s, embargo for export of diary products to Russia in 2006, the increase of purchasing prices on raw materials from population.
The main figures characterizing the milk market in Ukraine in 2007 are as follows:
9 Total market turnover (including cheese, canned milk and product group) – USD 2.7 billion1
9 Output of whole milk products – 12.3 million tons
9 Number of enterprises – around 300
9 Number of enterprises with quantity of more than 1,000 dairy heads – 31
According to State Statistics Committee, the share of dairy products in the consumption basket of the average Ukrainian family is about 23%.
According to data provided by USDA-FAS and Federal science and research centre of agriculture (Germany), in 2006 Ukraine took the fifth place among the world leading exporters of milk product after New Zeeland, European Union, Australia and Argentina. Ukraine is a leading exporter first of all of non-fat dry (NFD) milk, whole milk powder (WMP), cheese and butter.
Attractiveness of the branch is stipulated by the following factors:
9 High level of demand in domestic market where population historically has ‘milk’ preferences
9 Large investments into the sector: new construction and reconstruction projects
9 Growth of the milk products consumption on both local and foreign markets
9 Restructuring of export caused by the embargo on export of dairy products to Russia in 2006
9 Acquiring and merging of small scale producers by large scale enterprises
9 High rate of capital turnover
2 General overview of the branch 2.1 General situation in the raw milk production
According to State Statistics Committee of Ukraine, the production of milk in Ukraine after sharp drop at the end of 1990-s was relatively stable, showing a slight growth in 2000, 2001. However 2006 and 2007 are characterized by the decrease by 3.2% and 7.8% respectively. The decline was suffered by both big and small farms2. Thus, in 2007 the total milk production was decreased by 7.5% down to 12.3 million tons that is 50% from the level of 1990. Big farms with 2.2 million tons of milk produced in 2007 shown only 11.8% of 1990 level, while small farms – 171% with 10.1 million tons.
1 1 billion = 109 2 In present study the following definitions were used: small farms – private husbandries with less than 10 cows, big farms – individual farmers or agricultural enterprises with livestock more than 10 cows.
Market Study of Food Sectors in Ukraine – Part D: Milk Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 3 of 38
Figure 1. Milk production in Ukraine
24.5 25 90%
80% 20 17.3 70% 15.8 13.4 14.1 13.7 13.7 13.7 60% 15 13.8 13.8 13.4 13.3 12.7 12.3 50%
million tonsmillion 10 40%
30% 5 20%
0 10% 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Small f ar ms Big f a r ms Total Share of big farms Share of small farms
Source: State Statistics Committee of Ukraine
Table 1. Milk production in Ukraine
1990 1995 2000 2001 2002 2003 2004 2005 2006 2007
production, 18.6 9.5 3.7 3.6 3.4 2.7 2.5 2.6 2.5 2.2 million tons share in Big farms 75.9% 54.9% 29.1% 26.9% 24.1% 19.7% 18.2% 19.0% 18.8% 17.9% total to previous -22.9% -2.7% -5.6% -20.6% -7.4% 4.0% -3.8% -12.0% year production, 5.9 7.8 9 9.8 10.7 11 11.2 11.1 10.8 10.1 million tons share in Small farms 24.1% 45.1% 70.9% 73.1% 75.9% 80.3% 81.8% 81.0% 81.2% 82.1% total to previous 4.7% 8.9% 9.2% 2.8% 1.8% -0.9% -2.7% -6.5% year Total, 24.5 17.3 12.7 13.4 14.1 13.7 13.7 13.7 13.3 12.3 million tons Source: State Statistics Committee of Ukraine
The decrease of milk production by big farms caused a lack of raw milk for processing. The share of big farms sector in total milk production has been constantly decreasing and reached 17.9% in 2007 compared to 75.9% in 1990. The main reasons of this tendency are the reduction of livestock due to problems with cattle fodder and due to milk overproduction in 2006 caused by the embargo on export to Russia.
The cow population in Ukraine continues to decline. In 2007 the amount of cows decreased by 7.9% in comparison with 2006 down to 3,347 million heads.
Market Study of Food Sectors in Ukraine – Part D: Milk Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 4 of 38
Figure 2. Dairy herd livestock in Ukraine, as of 1st of January of correspondent year
5 4.7 4.3 3.9 4 3.6 3.3 3.09 3
2 million heads million
1
0 2003 2004 2005 2006 2007 2008
Source: State Statistics Committee
In 2007 from the total amount of milk, that went on processing about 30% was supplied by big farms and 70% by small farms. Generally the specific weight of the milk that is going for processing is remaining respectively low in Ukraine. In 2007 from the total amount of the raw materials just 50% (6.16 million tons) went for processing. For example, in Germany, according to open sources data, this figure is 97%3.
Only insignificant share of milk of domestic origin is of high quality raw material. According to the data of the Union of Ukrainian Milk Enterprises, in 2007 from the total amount of the milk that was sold by the agricultural enterprises, 6.9% were of a premium sort, 1.5% of a first sort, 25.7% - second sort, 2.5% - grade-out4.
The seasonality of milk production in Ukraine is still providing significant influence on purchasing prices on milk raw materials.
The prices also vary between regions. The purchase price difference between regions with high (Poltava, Cherkassy) and low (Zakarpattia) concentration of processing facilities reaches 40%.
3 ‘Business’, No31, 30.07.07 4 ‘Business’, No15, 14.04.08
Market Study of Food Sectors in Ukraine – Part D: Milk Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 5 of 38
Table 2. Average purchase prices for milk by regions in Ukraine
Selling price for 1st grade milk, incl. subsidy, UAH/tons Region 2007 January-March 2008 Ukraine, on the average 1,660.6 2,238.1 Republic of Crimea 1,611.9 2,253.1 Vinnytsia 1,734.8 2,314.4 Volyn 1,644.8 2,148.0 Dnipropetrovsk 1,734.2 2,478.5 Donetsk 1,395.6 1,918.6 Zhytomyr 1,533.9 2,004.1 Zakarpattia 1,292.7 1,801.2 Zaporizhia 1,567.6 2,304.3 Ivano-Frankivsk 1,386.9 2,076.5 Kyiv 1,716.5 2,221.4 Kirovograd 1,534.9 2,228.5 Lugansk 1,585.8 2,145.9 Lviv 1,528.3 2,045.8 Mykolaiv 1,620.6 2,245.4 Odessa 1,383.8 2,015.0 Poltava 1,823.3 2,344.8 Rivne 1,609.6 2,207.1 Sumy 1,687.2 2,230.9 Ternopil 1,697.2 2,330.2 Kharkiv 1,694.0 2,287.6 Kherson 1,623.3 2,363.2 Khmelnitsky 1,609.4 2,270.3 Cherkasy 1,812.1 2,337.9 Chernivtsi 1,565.4 2,082.0 Chernigiv 1,617.6 2,209.3 Source: State Statistics Committee of Ukraine
In 2007 an average milk yield per one cow in the big farms – specialized milk enterprises amounted to 3,293 kg that is 10.4% higher than in 2006 and in the small farms – 3,995 kg per cow per year (decreased by 0,6%). The average productivity is constantly growing last years, although remaining lower than that in developed countries. For example, this figure for Australia is about 5,000, for EU (average) – 5,886, for USA – 9,165 kg per cow per year.
Market Study of Food Sectors in Ukraine – Part D: Milk Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 6 of 38
Table 3. Annual milk yield per one cow, kg
Description 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007*
Average 2,863 2,204 2,359 2,709 2,873 2,887 3,185 3,487 3,772* 3,890* productivity Big farms 2,941 1,908 1,588 2,071 2,199 2,043 2,631 3,002 2.981 3,293
Small farms 2,637 2,722 2,960 3,068 3,198 3,220 3,793 4,008 4,020 3,995
Source: State Statistics Committee of Ukraine * - according to data USDA, productivity in 2006 – 3,357 in 2007 – 3447 kg per cow per year (‘Business’, No15, 14.04.08)
It is obvious that the quality of final dairy products in many respects depends on quality of raw milk. In Ukraine the milk quality still remains a serious problem. All main indicators of milk quality, namely cleanness, acidity, bacterial semination, as well as low density (less than 1,027 kg/m 3) and albumen content define poor quality of Ukrainian milk. As the result, there are certain difficulties with production of cheese, baby food and high-quality sterilized milk products.
To resolve the problem and stabilize supplies of the raw milk the large milk processing enterprises are developing the networks of permanent milk collection points with specialized cold storage and other necessary equipment for the collection of raw milk from farmers.
2.2 Main trends in the milk processing industry
Main trends of the dairy industry are as follows:
New round of property restructuring and consolidation of foreign and Ukrainian capital
Constructions of new and modernization of existing production capacities
Acquisition and merge of small scale producers by large scale enterprises
Diversification of external markets of supply of Ukrainian milk products
Stable high demand for raw milk at shortage of quality raw milk for further processing
Runaway from seasonal prices to annual average prices for raw milk
Growing of the final consumption of milk products (especially it concerns whole milk products and yoghurts and cottage and fat cheeses)
2.3 Types and assortment of final products
Ukrainian market of dairy products is characterized by wide range of products. The most stable sectors of milk processing industry are whole milk and cottage and fat cheese production. The major part of cheese is exported.
Broad assortment of milk products is the major condition for the successful retail trade. Stimulated by the market demand, some Ukrainian milk plants produce more than 130 whole-milk products, about 100 names of cheeses and more than 25 dried milk products. The assortment of milk products is constantly extending.
Market Study of Food Sectors in Ukraine – Part D: Milk Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.D-R Revision: 1 Date: 29 May 2008 Page: 7 of 38
Whole milk products
y milk:
- pasteurized:
- baked;
- albuminous;
- fat-free;
- vitamins enriched;
- for babies and children;
- sterilised;
- T-milk (long-live milk);
y cream:
- pasteurised;
- sterilised;
y sour milk drinks:
- curdled milk;
- kefir;
- ryazhenka;
- yoghurt;
- sour milk drinks with natural additives (Simbivit, Biokefir, Biolife);
y cottage cheese (real cottage cheese/cream cheese):
- fat (fat content – 18%);
- semi-fat (fat content – 9%);
- fat-free (fat content – 1%);
y sour cream (fat content varies from 10% to 40%);
Butter
y normal butter (fat content – from 82.5% to 45%)
y melted butter (fat content – 99%)
Spread
y Mixed animal and vegetable fat (in different proportions)
Cheese
y real cheese:
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- hard;
- soft;
- pickle;
y processed cheese:
- with/without additive and spices;
- paste-like;
- smoked;
- sweet;
Dried dairy products and mixtures
Concentrated milk (sugar content – up to 45%)
Milk sugar
Casein
y food;
y technical.
2.4 Main problems of the industry
During the last years the following problems of the sector appeared:
A lack of raw materials, which is caused by:
– the decline in dairy herds due to shortage of feed;
– the low yield of milk in big farms and shift of raw milk production to small farms that creates inconveniences with milk collection.
Dependency on technical group of milk (dry milk, casein)
Dependency on external markets situation
Low quality of raw milk and incompliance with requirements of the world market which is important after entering to WTO;
Low quality of dairy products: usage of substitutes (e.g. milk fat substitutes instead of 100% milk fat in cheese production).
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3 Branch structure 3.1 Branch governing authorities
Within the Ministry of Agrarian Policy, Ukrainian dairy industry is represented by UkrMolProm – National Association of Milk Processors of Ukraine (www.ukrmolprom.kiev.ua). UkrMolProm represents the interests of milk-processing enterprises and work under MAP.
Founded in 1995, the National Association of Milk Processors of Ukraine UkrMolProm coordinates domestic and foreign economic activities of Ukrainian enterprises, while association members are economically independent enterprises.
The main functions of UkrMolProm are as follows:
x co-ordination of economic and technical issues in the branch,
x collection and analysis of the sector’s production statistics,
x development and approval of standards,
x encouragement of the development of enterprises,
x improvement of domestic and foreign market functioning,
x economic, technical and technological consulting,
x assistance with equipment and material purchase,
x creation of legislative base (laws and regulations, standards and other normative acts) for the production of competitive products, lobbying the interests of association members,
x development of marketing strategy and development plans.
UkrConservMoloko (the Association of Ukrainian Canned Milk Producers) incorporates 9 milk canneries and 33 plants, which are located in 9 regions of Ukraine. The association works under State Department of Foodstuffs.
Contact details:
National Association of Ukrainian Dairy Processors UkrMolProm (Ukrainian Milk Industry) 1, Grynchenko St., room 41-47 01001 Kyiv, Ukraine Mr. Vasyl Bondarenko Chairman of the Board Tel.: + 380 44 226 2783 Fax: + 380 44 229 8389
Mrs. Zinaida Karpenko Deputy Chairman of the Board Tel.: + 380 44 279 87 25
Mrs. Svitlana Rusetskaya Deputy Chairman of the Board Tel.: + 380 44 278 27 02
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Association of Ukrainian Canned Milk Producers UkrConservMoloko (Ukrainian Canned Milk Industry) 1, Grynchenko St. 01001 Kyiv, Ukraine Mr. Oleksandr Radchenko Chief of the Board Tel.: + 380 44 228-65-32 Tel.: + 380 44 229-65-57 Mr. Vasyl Shapoval Executive Director Tel.: + 380 44 229 8489 Fax: + 380 44 229 6424
3.2 Key players
Today in the quadruple of the biggest players, that were holding 29-32% of domestic milk market in 2006, there are two Russian and one international company with French roots.
The growing Ukrainian milk market shows attractiveness for the coming of new international players and increasing of the market shares those who are already working. In 2006 among the remarkable events here were the acquisition of Kherson factory ‘Rodich’, by Danone and the acquisition of the ‘Shostkinskiy Gormolokombinat’ by ‘Bel Group’ (both - France). Russian milk holding company ‘Molwest’ acquired the majority stock of ‘Krivoy Rog Municipal Milk Factory No. 1’.
Ukrainian milk sellers are also participating in acquiring of the most attractive assets. ‘Molochnyi alyans’ (Kyiv; production and realization of the milk production under trade marks ‘Yagotyns’ke’, ‘Zdorovo’, ‘Molochnyi shlyah’; since 2006 combine ‘Yagotyn butter factory’, ‘Pyriatin Cheese Factory’, ‘Zolotonosha butter-making complex’, ‘Goroden’kovsk cheese factory’, ‘Zgurov cheese factory’, firm ‘Etalon’) have bought the majority stock of ‘Bashtanskiy cheese factory’. ‘Milkyland-Ukraine’ became an owner of ‘First Kiev Milk Factory’. ‘Lactalis Group’ (‘Lactalis-Ukraine’; city Kiev; production of diary products under TM ‘President’, ‘Bilosvit’, ‘Laktoniya’) is going to purchase ‘Pavlograd Milk Factory’, which belongs to the corporation “Funny” (city Dnepropetrovsk; TM ‘Fanny’ and ‘Molochnyi dom’). If the deal will be closed, Lactalis will get a chance to increase its market share by 3-4%.
The more detailed information about key players is provided in the Attachment to this section.
4 Sales system
Dairy products are sold to the final consumers through the following channels:
- Big retail (supermarkets / hypermarkets / discounters);
- Small retail (specialised milk shops, own retail shops of dairy plants);
- Open (street) markets (including such form of retail as sales from own trucks of the dairy plants).
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Figure 3. Structure of sales of milk products in Ukraine
in w eight terms in money terms
70 60 54.1 57.8 47.6 47.0 60 52.3 50 50 45.3 40 37.9 37.2 32.9 40 25.3 %
% 30 26.0 20.6 30 21.4 21.8 19.4 20.9 17.5 20 15.1 20 10 10 0 0 2005 2006 2007 2005 2006 2007
Source: 'ProAgro' small retail big retail street markets
For the most of dairy products with the storage life less than 72 hours marketing channel is the shortest one: ‘producer – retail trade’. As distribution networks are still under development, many producers suffer from the lack of intermediaries of perishable milk products.
At the same time, some producers have their own distribution companies (like FoodMaster - for CJSC Bilosvit- Uman), Molochniy Dom – for Pavlograd milk plant, and Galaktis – for Galakton).
Shelves in the supermarkets and shops are occupied with the recognizable products of well known producers. Dairy products with unknown trade mark or without any trade mark (the share of such products is decreasing) are cheaper and are mostly sold directly from trucks. These products are mainly oriented to people with low incomes.
5 Dairy market and production analysis 5.1 Milk consumption and demand
The consumption of milk products by Ukrainian population is quite stable because the population of Ukraine historically has a ‘milk’ preference.
Table 4. Annual consumption of milk products, per capita
Description Norm 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 * Milk and milk products 291.6 373 244 231 211 214 224 205 208 225 226 226 226 235 220 (in milk equivalent), kg Source: State Statistics Committee of Ukraine, Science conference “Milk business 2008” * - rational norm according to the Health Ministry
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According to data of UkrMolProm, during the last year the consumption of diary products per capita decreased by 15 kg – till 220 kg per capita (in 2006 – 235 kg per capita).
Table 5. Monthly consumption of milk products in the household, kg per capita
Description 2000 2005 2006
Milk and milk products (in milk equivalent), kg 17.1 21.7 22.3
Source: State Statistics Committee of Ukraine
There are differences in the consumption level of milk products in different regions. It is caused by specifics of the regional markets. Milk products such as butter and hard cheese can be transported easily and therefore can be sold within Ukraine and abroad. However, the sales of products like whole milk, sour cream, kefir, and other products that can not be stored for a long time tend to be closer to the place of production.
5.2 Domestic production and supply
In 2006 a lot of dairy products had negative trends: in the hard cheese, casein and butter production due to the considerable reduction of export; in other segments due to the relative market saturation, increase of purchasing prices for milk, energy resources, etc. The butter and fat cheeses segment suffered the most in 2006: butter output felt by 13%, fat cheeses – by 21%. The only milk product that had the positive trend was cottage cheese with 11% of growth in 2006 (basically for the account of decrease of fat cheeses production).
In 2007 enterprises of Ukrainian milk processing industry slightly increased the output of their main products, except butter (decreased by 2.5%).
Table 6. Output of milk products in Ukraine, thousand tons
2006 2005 to 2007 to to Milk products 2003 2004 2005 2004 2006 2007 2006 2005, change change % Milk processed liquid 645 716 863 21% 818 -5% 852 6.7% Butter 137* 116 120 3% 104 -13% 99.7 –2,5% Spreads n/a 53 80,3 52% 81.1 1% 93.2 15.5% Cottage cheese 57.7 71.3 83,5 17% 92.9 11% 93.1 0.7% Fat cheeses 173 224 274 22% 217 -21% 244 13.1% Sour milk 427 467 499 7% 523 5% 533 2.5% Dried milk, creamer, 88.5 106 104.4 -2% 97 -7% 105.8 9% dried mixtures Canned milk 80.6 104 107 3% 99.5 -7% n/a n/a products, mcu Ice-cream 112 117 125 7% 120 -4% 128 6.7%
* including spreads, animal and vegetable fat mix Source: State Statistics Committee of Ukraine
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Figure 4. Output of basic milk products in Ukraine
1000 863
900 852 818 800 716 700 600 533 523 499
500 467 400 thousand tons thousand 274 271
300 259.3 244 224 217
200 171.6 175 120 116 104 99.7 92.9 93.2 93.1 80.3 83.5 81.1 79.2 100 71.3 71 53 31.7 31.4 27.1 26.9 20.1 20.7 0 2004 2005 2006 2007 Jan-Apr 2007 Jan-Apr 2008
Milk processed liquid Butter Spreads Cottage cheese Fat cheeses Sour milk
Source: State Statistics Committee
Figure 5. Structure of the milk products assortment
Fat cheeses Sour milk 10% Ice-cream products 6% Butter 25% 5% Dried milk, creamer, dried mixtures 5% Canned milk products, mcu 5% Cottage cheese Casein &s 4% Cream Whole milk caseinat 1% products 1% 38%
Source: State Statistics Committee
Due to a sharp competition at raw milk sector, production of final milk products is mainly concentrated at large enterprises, which are able to invest in modernisation of facilities, to extend range of products and to respond quickly to the market challenges.
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6 Capacity and production by assortment
Cheeses
Few years ago producers of cheese supplied to the market only low-priced and low-quality products. Now situation is changed. Consumers pay more attention to the quality of cheese than to its price.
Figure 6. Production of fat cheeses in Ukraine
300 273.5 257 244 250 223.9 217.1
200 169.3
150 128.6 105.1
thousand tons thousand 100 67.5
50
0 2000 2001 2002 2003 2004 2005 2006 2007* 2008f
Source: ‘Business’, State Statistics Committee of Ukraine * - preliminary data of State Statistics Committee
Since the beginning of 2007 with the growth of quantity of enterprises, which have got the permission to export to Russia, Ukrainian milk producers were gradually expanding the production volumes. If during the first half of 2007, compared to the analogous period of 2006, the production of all the cheeses in Ukraine grew by 3.5%, then, by the end of the year the production finally grown by 8.8%.
From the total quantity of cheeses produced in 2007 the volume of hard cheeses was 244 thousands tons, what is on 13.1% more, in 2006. The increase of this segment is actually providing the total growth of the cheese segment, as the segment of the soured milk cheese grew insignificantly and the segment of the melted cheeses was not growing at all.
According to prognosis5, in 2008 Ukrainian market of the hard cheeses will grow by 10-15%. In years 2008-2010 the growth will continue, as the market remains unsaturated and doesn’t have significant potential for the growth
5 ‚Business’, No21(800), 26.05.08
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comparing to the European countries. The tendency for the consolidation, displacement and takeover of the small players and sharpening of the competition between the market leaders will also remain.
Figure 7. Consumption of fat cheeses in Ukraine
4.5 4.1 4 3.7 3.4 3.5 2.8 3 2.4 2.5 2
kgper capita 1.5 1 0.5 0 2004 2005 2006 2007 2008f
Source: 'Business', NAUDP 'UkrMolProm'
Figure 8. Average retail prices for fat cheeses produced locally
38 2006 36 35.60
2007 33.24 34 36.83 36.43 36.64 36.66 36.05 2008 32
30 29.30
28 27.58 26.73 26.49 26.42 25.97 26.00 25.51 UAH per kg per UAH 26 25.04 24.43 23.88
24 23.02 22.64 22.80 22.04 22.05 22 21.65 24.39 24.36 22.96 20 23.61 23.39 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: 'Business', by data 'NVP Aktiv-97'
According to the research of investment-consulting group “Astarta-Tanit”, the average price of “Russian” cheese in retail was in 2005 USD 4.7 per kg (UAH 23.8), in 2006 – USD 4.5, in May 2007 – USD 5.5 and in November 2007 it went up on 33% (till USD 7.3). For the comparison, according to the data of the company “Infargo”, in the first half of 2007 the export price of Ukrainian cheese made up USD 3.6 per kg, in September – USD 6.5, in October – USD 7 per kg.
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While in physical terms the growth of Ukrainian hard cheeses in 2007 was 13.1%, then in a money terms it exceed the level of 20%. Such a dynamics is explained by the increase of prices for cheeses caused by the increased demand for milk products in Russia.
Practically all the cheese producers are involved in the process of production modernization. Ukrainian players are motivated to improve the current and develop the modern cheese production by both Russians, who have created a strict audit for the Ukrainian producers, and international companies, that are checking out Ukrainian market.
Figure 9. Market shares of key players in cheese sector, %
60 49 50 43 40
% 30 12 20 1112 12 1311 5 6 7 6 6 10 2 2 2 2 3 4 3 0
Molis Others Club Syra Terra Food Gadyachsyr Milkiland-Ukraine Shostka milkMolochny plant Alliance
Khmelnitskaya maslosyrbaza Zapadnaya Molochnaya Grouppa 2006 2007
Source: 'Business' by data of UrkMolProm
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Figure 10. Foreign trade structure of fat cheeses.
Export Import
350 320.1 40 37.1
300 269.6 35 30 250 217.5 24.5 25 200 144.2 20 150 116.2 14.5 93.6 15 11.9 8.5 100 62 6.7 49.2 10 5.5 50 5 2.9 0 0 2004 2005 2006 2007 2004 2005 2006 2007 thousand tons USD million thousand tons USD million
Source: State Statistics Committee of Ukraine
In the foreign trade of cheeses the export still strongly prevails over the import. After the export drop in 2006 due to the Russian embargo exporters were trying to restore previous positions, although now they are struggling with competitors from Belarus.
Import of cheeses, mainly from Western Europe, is constantly growing over last years.
Butter
From the first of September 2005 new standards on butter, spreads and fat blends were introduced in Ukraine.
According to new standards, it is prohibited to use in the names of the spreads and fat blends word ‘butter’ both severally and in the word combinations. However this innovation, in spite of the expectations, didn’t lead to the clear division of the market on the segments.
Mainly it happened because of the producers’ fault, who preferred not to declare openly, that their product is a spread, hiding on the label behind the trade name and decently mentioning the real compound with the small font size.
According to data of the State Statistics Committee, the production volume of the butter during the last years is fluctuating with the decrease in 2006 by 13% and in 2007 by 2.5% down to 99.7 thousand tons, while output of spreads is growing (from 53 thousand tons in 2004 to 93.2 thousand tons in 2007).
Because of not that high purchasing power, cheaper products, which consumers continue to call ‘butter’, are having a big success.
Like other milk products, butter grown in price. By information of resource ‘ProAgro’ in March 2008 the price for butter was 39.8% higher than that in March 2007 and equal to UAH 20-26 per kg, depending on region.
The lead in butter production is taken by enterprises of Starokonstantinovsky milk plan (Khmelnitsky region), Lustdorf Ltd. (Vinnitsia region), Bershadmoloko (Vinnitsia region), Shostkinsky milk plant complex (Sumy region), Galakton (Kyiv).
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Whole milk products
A demand for whole milk products is stable and high. It stimulates the production growth notwithstanding strong competition on the raw material market. With the purpose of sales increasing key players expand the range of products, develop new packaging and package materials. Furthermore large enterprises increase export sales.
Last years Ukrainian whole-milk market grew in average by 3% in physical terms and by 12-13% in money terms.
In 2006 the production has reached UAH 10 billion (about USD 1.98 million). In volume terms in 2005-2007 the output was not changing significantly.
Table 7. Output of whole milk products
2005 2006 2007
Packaged milk, thousand tons 864.7 818 852.4
% to previous year -5.4% 4.2%
Sour milk products, thousand tons 548.2 523 533
% to previous year -4.6% 1.9%
Source: State Statistics Committee
In spite of the quantity of milk factories in Ukraine is still numbered hundreds, only 25 enterprises are releasing 70-80% of the total whole-milk production. The prospects of small enterprises are in the production of the short shelf-life goods (for local markets) in low price segment or operation in the narrow niche market – production of some original product.
Among the large whole-milk market players are the Russian companies – “Vimm-Bill-Dann”, “UniMilk-Ukraine”, French – Danone, “Lactalis”, Ukrainian – “Milkyland”, “Galichina”, Rainford, “Donetskiy municipal milk factory #2”, Molochnyi dom”.
The share of foreign companies on internal market of pasteurized and sterilized milk was about 25%.
The premium-segment is still not that big in Ukraine. A lot of enterprises, that are trying to master high prices segment of the market, are faced with limited demand.
The segment of sour milk products is practically oriented on Ukrainian consumer. In 2006 the companies with foreign participation controlled 35% of the Ukrainian market of soured milk production. The leading regions of sour milk production continue to remain under Kharkiv region (12%), Dnepropetrovsk (11%), Donetsk (11%), Kyiv city (9%) and Kyiv region (7%).
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Figure 11. Structure of the Ukrainian whole-milk market
UniMilk Ukraine Wimm-Bill-Dann Milkiland 8% 8% 6%
Lactalis- Ukraine 6% Gerkules 5% Others Danone 42% 4%
Zapadnaya Molochnaya Grupa 4% Fanny Lustdorf 3% 4% Prydniprovsky Rainford complex 3% Galichina 3% 4% Source: ICG 'Astarta-Tanit', 'Business', No42, 15.10.07
Figure 12. Structure of sour milk market by products
kefir 40%
others 9%
ryazhenka 11%
sour cream yoghurt 23% 17%
Source: 'ProAgro'
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Figure 13. Structure of sour milk market by producers
60% 55%
52% 50%
40% % 30%
20%
12% 11% 12% 11%
8%
10% 7% 8%
6% 5% 4%
2%
3% 2% 2% 0% Molochny Lactalis- Galichina Rainford Danone UniMilk- Wimm-Bill- Others dom Ukraine Ukraine Dann (Fanny)
Jan-Apr 2007 Jan-Apr 2008
Source: 'ProAgro'
Yoghurt
At the beginning of the 1990-s yoghurt was not produced and sold in Ukraine. That time Ukrainian enterprises were not ready for such kind of production both technologically and financially. First yoghurts were delivered to Ukraine from Western Europe in 1995. Nowadays situation has changed. Competitive domestic producers, which gradually are winning the leading positions in the segment of cultured milk foods, have appeared. In the nearest time the market of yoghurts will continue the restructuring and development.
Yoghurt market was created in Ukraine by foreign producers. First yoghurts, like ‘Ehrmann’ that appeared onto the Ukrainian counters were of long shelf life. They were sold, as a rule, anywhere, and often not following the sanitary code.
Foreign yoghurt expansion gave a push for the developments of Ukrainian yoghurt sector. As a consequence, first domestic competitive yoghurt under TM ‘President’ appeared. Nevertheless, ‘Ukrainian’ it can be called just relatively, because the plant is owned by French company ‘Lactalis’.
With time yoghurts became more natural, shorter shelf-life and those that can be stored only in refrigerators. People are ready to pay exactly for the naturalness and carefully thinking about products with big content of preservatives and emulsifiers.
Consumers are dividing yoghurt on two basic groups – drinkable, that are bought mainly for healthy nutrition and astringent, used as a dessert.
From 96.4 thousand tons of annual production, two thirds are drinkable yoghurts. Their production volume is growing faster than other segments. So in 2007 the production of drinkable yoghurts increased by 15%, while production of astringent yoghurts stayed at the same level.
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Positive dynamics that was shown by the segment of yoghurts, which are produced with the addition of different flavouring fillers (growth of presented segment made up 10.6%) made the main contribution into the 4% increase of production volume of whole group of cultured milk foods (ryazhenka, sour cream, kefir, yoghurts).
In the structure of yoghurt sector notable changes have happened during last years. The import of yoghurts from Europe to Ukraine is completely stopped today. Yoghurts under foreign trade marks are imported from Russia and Belarus. First of all it can be explained by custom duty that makes European yoghurts uncompetitive, however, the merits of Ukrainian producers, which are implementing new technologies and improving the quality shouldn’t be reduced.
In a whole, yoghurt market of Ukraine is mainly owned by foreigners. There are just two big purely Ukrainian producers – ‘Donetsk municipal diary plant’ and company ‘Galizia’, that hold 30% of the market (together with big number of small regional plants – 60%). Other brands are owned by Russian companies (‘Vimm-Bill-Dann’, ‘Unimilk’) or French (‘President’, ‘Danone’) hold 40% of Ukrainian market. The problems of the yoghurts market are much the same as the problems of the whole Ukrainian diary sector: Seasonality of raw materials production (during the summer it is in five times bigger than during the winter); The lack of raw materials; The quality of raw materials is included by producers in the list of main problems. The most difficult is the process of fast cooling of the fresh milk and its delivery to the plant avoiding the contact with the air. Nowadays to overcome this problem considerable amounts are spent.
The market of yoghurts, on the opinion of its members, will continue to grow. This is explained by the fact that customers are thinking more and more about the healthy nutrition and yoghurt are considered as healthier than kefir and sour cream.
Table 8. Yoghurts production, thousand tons
Yoghurts products 2004 2005 2006 2007 2007 to 2006
Yoghurts, including 70.1 75.8 87.2 96.4 110.6%
- neutral (natural) 0.7 2.5 2.2 2.4 109.1%
- with aromas additives, fruits and nuts 69.4 73.3 85 94 110.6%
Source: State Statistics Committee of Ukraine
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Figure 14. Structure of yoghurt sector by producers
35 31.5 30 30 25
% 20 16 15 13 14 15 9 10 10 7 7.5 10 6 5 6 6.5 6 5 5 2.5 0
Fanny Danone Others Galichina Rainford Ehrmann
Lactalis-Ukraine UniMilk-Ukraine Wimm-Bill-Dann 2005 2006 Source: 'Business', No36, 03.09.07
Ice-cream
Ukrainian market of ice-cream remains stable and saturated over last years. By the data of Euromonitor International, in 2007 Ukrainian market of ice-cream grew by 4.7% in volume (up to 199.5 thousand tons) and by 20-25% in money terms. The size of the market in 2007 is estimated to be nearly USD 220-260 million.
Figure 15. Ice cream production in Ukraine
237.1 250 224 230.9 208.2 216.4 190.4 199.5 200 177.3 180.8 167.5 171.3
150
mn litres 100
50
0 2002 2003 2004 2005 2006 2007 2008f 2009f 2010f 2011f 2012f
Source: Euromonotor International
Leaders of ice-cream production are ‘Lasunka’ (Dnipropetrovsk region), Zhytomyr creamery ‘Rud’ (Zhytomyr), ‘Laska’ (Kirovograd), ‘Hercules’ (Donetsk region), OJSC ‘Lvivsky khladokombinat’, ‘Luganskkholod’ (Lugansk),
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‘Khladoprom’ (Kharkiv), ‘Troyanda’ (Poltava, Donetsk and Volyn regions), ‘Ice Zaporojie’Ltd. (Zaporojie region), Trade house ‘Ajour’ (Kyiv), ‘Musketeer’ Ltd. (Dnepropetrovsk).
Dried Milk
In 2007 in the structure of Ukrainian milk production the dry milk composed only 5 %.
A stable demand for dried milk and a favourable price situation stimulated the increase of production. Production of dried milk increased in 2007 by 9% and totalled 105,800 tons which were realized for the amount of USD 170 million.
During the last years dried milk whey becomes very popular on local and foreign markets. It is actively used in confectionery and milk industries. Usually main producers of whey are cheese and butter plants that manufacture considerable volumes of fat cheese. Piriatyn cheese-making plant, Shostka city milk plant, Andrushevka cheese & butter plant are to be mentioned in this regard.
Casein
Being a by-product in butter production casein is produced from skim milk. Leaders in casein production are Rozdolnya Butter (Crimea), Volyn Butter Service (Lutsk), Popelnya Butter (Zhytomyr region), Dairy Investment Group (Kyiv), Kyiv milk plant No.3 (Kyiv), Kharkiv Dairy (Kharkiv), Dunaivtsi Butter (Khmelnytsky region), Galakton (Kyiv). Ukraine’s leading producer of food casein is Lactalis-Ukraine (Mykolaiv region).
Almost all casein produced in Ukraine is exported. Due to significant price increase in 2007 (by 28.8% up to USD 8,230 thousand per ton) the demand from importers dropped sharply. So the production was decreased by 40% (down to 5.6 thousand tons during 7 months of 2007). Producers moved to more attractive sector of fat free dried milk.
Baby Food
The production of liquid and dry dairy products for babies experienced a significant growth last two years - 80%- 40% respectively in 2006 and 25-35% in 2007, and reached USD 89-92 million in money terms.
Increasing of raw materials price has lead to the Ukrainian baby food products price growth. The margins of low price segment products were shifted from UAH 7-10 to UAH 12-18 per 0,4 kg pack (USD 6-9 per kg), of high price segment – from UAH 28-33 to UAH 38-42 per 0,4 kg pack (USD 18.8-20.8 per kg).
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In 2007 the sales in cheap segment of baby food showed a good dynamics.
Figure 16. Market structure of milk baby food production, ‘000 tons
9 8.2
8 7.8
7 6.8 6.3 6 5.3 5.1
5 4.6
4
4 3.4
2.5 3 2.4 2.2
thousand tons thousand 2 1 0 2003 2004 2005 2006 9 months 9 months of 2006 of 2007
milk baby food (dry) milk baby food (liquid or spreadable)
Source: 'Business', No46, 12.11.07
In 2007 two big deals on the global market of the baby food were concluded, that possibly will influence Ukrainian market. Global producer of baby food Nestle SA has bought the leading baby feeder of USA – Gerber Products Co., the daughter company of the Novartis AG (producer of medical and officinal drugs).
Company Danone completed the deal concerned the purchasing of the largest baby food producer in Europe – Dutch company Royal Numico (trade brand ‘Nutrilion’, ‘Nutricia’, ‘Milupa’, ‘Cow&Gate’; company sales volume in 2006 – EUR 2.6 billion, including EUR 364 million – sales in the countries of Eastern Europe). The cost of the deal is estimated in EUR 12,3 billion. Players on the Ukrainian baby food market expect toughening of competition, especially in high price segment and segment of substituted mother’s milk.
7 Raw materials and packaging 7.1 Raw materials
The basic raw material for dairy production is milk. Situation in raw milk sector is described in chapter 2.1 of the report in detail.
Other important raw materials for the majority of milk products are additives. The following additives are to be mentioned:
x leaven
x ferments for cheese production
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x fruit additives for yoghurts and milk deserts
x natural and identical aromas
The local producers of additives for milk products do not meet market demand completely, so milk processing industry is forced to use additives of foreign origin. Among Ukrainian additives producers the following companies can be mentioned: Alba-Timm, Podillia-OBST, Sardonics, Agropererobka, Noris.
The main exporters of additives to Ukraine are Austria, Bulgaria, Denmark, Germany, and the Netherlands.
7.2 Packaging
A sharp competition between domestic milk processing companies compels them to pay more attention to the product’s appearance. At present, packaging has become one of the main tools in the attraction of consumers: almost all products are individually packed.
Table 9. Packaging for dairy products and its leading manufacturers
Type of packaging Products packed Major packaging manufacturers / suppliers Plastic containers of Yoghurts, sour cream, sour milk drinks, Ukrainian-German JV TWP-Ukraine Ltd (Kharkiv), various dimensions desserts, ice-cream, processed cheese Virazh (Chernivtsi), Rosan-Pak (Lviv), Likom-Pak (Kyiv), imported (Polarcup, Gizeh, Koala) Plastic bottles (250g-1l) Milk drinks, yoghurts imported Pure-Pak packages Milk, sour milk drinks Elopak (Fastiv) Tetra Pak packages T-milk Tetra Pak Polymeric film milk, sour milk drinks, sour cream, whey, Kyiv Plant of Polymeric Materials, PentaPack cheese (Boryspil) Paper backed foil butter, chocolate-glazed cottage cheese Verias (Kyiv) Foil Processed cheese Mainly imported from Russia by Sayany (Kyiv) Water-and-fat-proof Cottage cheese Paper factories, Verias (Kyiv) paper Tins Condensed milk Tin in sheets is imported from Russia; Bolshevik- Pak (Kyiv) Glass jars Condensed milk with/without coffee, Kyiv Glassworks, Gostomel Glass Plant cocoa Source: ‘Bioprom’ 6
The development of dairy products packaging is characterised by the following trends:
Reduction in sizes of packaging used;
Wide variety of packaging;
Frequent introduction of new types of packaging to the market, for example plastic bottles with valve (for yoghurts and sour milk drinks).
6 Available at: http://meatbusiness.ua/article.php?p=248&j=1
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8 Foreign trade 8.1 Export
The capacity of 300 milk-processing plants significantly exceeds the demand of domestic market that is why producers of dairy (especially of hard cheese, casein, dry milk and milk) are mostly oriented to export.
The most popular dairy products for export are dried milk products, condensed milk and cheese. The main importers of Ukrainian milk products are Algeria, Russia and Belarus. Due to the embargo on export to Russia the export was partly redirected to Asian and African countries.
Table 10. Export of milk products from Ukraine
Export Lead Code Dairy product million tons USD million importers, 2007 2004 2005 2006 2007 2004 2005 2006 2007 Milk and cream, uncondensed, 401 without sugar and sweet 1.7 1.9 2.8 4.2 0.7 1.1 1.6 2.8 Azerbaijan additives Milk and cream, condensed, 402 107.8 97.3 92.6 91.3 154.7 168.1 152.6 290.3 Algeria with sugar and sweet additives Buttermilk, curd, yoghurt, kefir, 403 0.6 3.1 0.8 1.1 0.5 3.4 0.6 1.0 Moldova others 404 Milk whey 3.8 10.2 7.7 15.5 2.2 8.6 5.9 19.0 Japan 405 Butter 42.3 24.4 12.7 3.9 62.7 43.9 23.3 10.9 Kazakhstan 406 Cheese and cottage cheese 93.6 116.2 49.2 62.0 217.5 320.2 144.2 269.6 Russia 2105 Ice-cream 2.7 4.4 1.9 2.2 3.1 5.7 2.3 3.1 Moldova Germany, 3501 Casein 21.3 17.9 13.9 8.4 97.1 97.1 58.2 66.5 the Netherlands Total: 273.8 275.4 181.6 188.6 538.6 648.0 388.7 663.2
Source: State Customs Committee
The export of milk products in unsuccessful 2006 decreased by 34% in volume and by 40% in money terms compared to the previous year. In 2007 the situation improved slightly: the export grew by 4% in value terms and by 71% in money terms compared to 2006. First of all, it happened due to the increase of world prices for dairy products. The increase of export in 2007 was basically due to buttermilk, curd, yoghurt, kefir and whey.
Milk and cream are mainly exported to Azerbaijan (55%), Moldova (28%) and Georgia (16%).
Dried milk products and condensed milk are exported to more than 63 countries. The main importers in 2007 were Algeria (28%), Russia (8%), China (7%), Japan (5%), Turkey (5%) and Kazakhstan (5%).
Export of cheese is one of the main parts of Ukrainian export after dried milk products and condensed milk. After the decrease of cheese export by 58% in 2006, the year 2007 was marked with 26% growth however the
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indicator of 2007 is only 53% of number of tons which have been exported in 2005. The cheese is exported to 15 countries, among which Russia, Kazakhstan, Moldova, Belarus, United States, Armenia.
To European Union Ukrainian cheese is exported only as a raw material for production of processed cheese.
Export of casein in 2007 decreased by 40% in value terms (while increased by 14% in money terms in comparison with 2006). Casein is mainly exported to EU countries: Germany (51%), the Netherlands (23%) and Poland (10%).
In the structure of export the most valuable milk products in 2007 remain milk and cream (48.4% in value terms and 43.8% in money terms), cheese and cottage cheese (32.9% in value terms and 40.7% in money terms).
Table 11. Market shares of Ukrainian export of milk products
Export Code Dairy product Market share in % of total volume Market share in money terms 2004 2005 2006 2007 2004 2005 2006 2007 Milk and cream, uncondensed, 401 without sugar and sweet 0.6% 0.7% 1.6% 2.2% 0.1% 0.2% 0.4% 0.4% additives Milk and cream, condensed, 402 39.3% 35.3% 51.0% 48.4% 28.7% 25.9% 39.3% 43.8% with sugar and sweet additives Buttermilk, curd, yoghurt, kefir, 403 0.2% 1.1% 0.4% 0.6% 0.1% 0.5% 0.2% 0.1% others 404 Milk whey 1.4% 3.7% 4.3% 8.2% 0.4% 1.3% 1.5% 2.9% 405 Butter 15.4% 8.8% 7.0% 2.1% 11.6% 6.8% 6.0% 1.6% 406 Cheese and cottage cheese 34.2% 42.2% 27.1% 32.9% 40.4% 49.4% 37.1% 40.7% 2105 Ice-cream 1.0% 1.6% 1.0% 1.2% 0.6% 0.9% 0.6% 0.5% 3501 Casein 7.8% 6.5% 7.6% 4.4% 18.0% 15.0% 15.0% 10.0% Source: State Customs Committee
Figure 17. Leading importers of Ukrainian dairy products, 2007
In total volume In money terms
Kazakhstan Kyrgyzstan Japan Algeria Kazakhstan Kyrgyzstan Algeria 8.3% 8.3% 6.5% 7.6% 7.6% 13.5% 13.4% Moldova Germany 4.3% 5.1% Japan Azerbaijan Others 3.9% 2.5% 17.6% Others The 21.4% Germany Netherlands 2.3% 2.6% The Moldova Netherlands 2.3% 1.3% Russia Belarus Russia Belarus Azerbaijan 30.7% 1.0% 38.4% 0.5% 1.1%
Source: State Statistics Committee
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8.2 Import
The import of milk products has a stable trend to increase by 20% annually in average although remaining insignificant share in the foreign trade balance of Ukraine. The import of dairy products in 2007 increased by 22% in value terms and by 43% in money turns in comparison with the previous year and totalled to 51.7 million tons of milk products for the amount of more than 91.7 million dollars.
Table 12. Import of milk products to Ukraine
Import Lead Code Dairy product million tons USD million exporters, 2004 2005 2006 2007 2004 2005 2006 2007 2007 Milk and cream, 401 uncondensed, without sugar 0.5 0.6 1.4 2.2 0.7 1.2 2.0 3.3 Belarus and sweet additives Milk and cream, condensed, Belarus, 402 with sugar and sweet 0.0 0.0 0.3 0.5 0.1 0.2 0.8 1.5 The additives Netherlands Buttermilk, curd, yoghurt, 403 19.5 25.4 29.5 33.1 17.4 23.8 32.1 40.0 Russia kefir, others 404 Milk whey 0.6 1.6 1.8 2.3 0.6 1.6 1.9 4.3 Poland 405 Butter 0.0 0.0 0.0 0.8 0.0 0.0 0.1 2.4 Belarus 406 Cheese and cottage cheese 3.0 5.5 8.5 11.9 6.7 14.5 24.5 37.1 Russia 2105 Ice-cream 0.8 0.7 0.8 0.8 2.5 2.0 2.5 2.6 Russia 3501 Casein 0.0 0.0 0.1 0.1 0.2 0.2 0.3 0.5 Russia Total: 24.4 33.9 42.5 51.7 28.3 43.5 64.1 91.7 Source: State Customs Committee
The stable trend to growth in import is marked in milk and cream (61% of growth in value terms and 68% in money terms in 2007), hard cheese and cottage cheese (39% of growth in value terms and 50% in money terms in 2007), sour milk products and yoghurts (12% of growth in value terms and 25% in money terms in 2007).
In spite of all attempts of local producers to supply portioned cream for coffee, Ukrainian consumers prefer to buy the imported cream. The main exporters of such cream are German companies Zeven, Turn-Sahne GmbH, Zott KG, Hochwald Nahrungsmittel, and Danish company Arla Foods.
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Table 13. Market shares of Ukrainian import of milk products
Import Code Dairy product Market share in % of total volume Market share in money terms 2004 2005 2006 2007 2004 2005 2006 2007 Milk and cream, 401 uncondensed, without sugar 2.0% 1.9% 3.3% 4.3% 2.6% 2.7% 3.1% 3.6% and sweet additives Milk and cream, condensed, 402 with sugar and sweet 0.1% 0.1% 0.8% 0.9% 0.3% 0.4% 1.3% 1.7% additives Buttermilk, curd, yoghurt, 403 79.8% 74.8% 69.4% 64.0% 61.4% 54.8% 50.0% 43.6% kefir, others 404 Milk whey 2.5% 4.6% 4.3% 4.5% 2.2% 3.6% 3.0% 4.7% 405 Butter 0.1% 0.0% 0.1% 1.6% 0.1% 0.0% 0.2% 2.6% 406 Cheese and cottage cheese 12.2% 16.3% 20.1% 22.9% 23.7% 33.4% 38.1% 40.4% 2105 Ice-cream 3.1% 2.2% 1.9% 1.5% 9.0% 4.7% 3.9% 2.8% 3 501 Casein 0.1% 0.1% 0.2% 0.1% 0.6% 0.5% 0.4% 0.6% Source: State Statistics Committee
The lion’s share of dairy import belongs to sour milk products, namely import of yoghurts and milk drinks (64% in value terms and 43.6% in money terms of the total dairy import in 2007). 99% of the total import of sour milk products are delivered from transnational yoghurt producers located in Russia: Danone, Ehrmann, Wimm-Bill- Dann, Campina.
Figure 18. Leading exporters of dairy products to Ukraine, 2007
In total volume In money terms Belarus Others France 4% 3.7% Others 8.3% 5.1% Poland Poland 2.9% 3.7% Germany Russia 2.2% Germany 84.5% Russia 3.4% France 72.8% Belarus 1.8% 3.3% Austria 0.5% Austria 1.4% Check The The Netherlands Republic Netherlands Check Republic 1.3% 0.2% 0.4% 0.6%
Source: State Statistics Committee
Cheese and cottage cheese are also mainly imported from Russia (80% of the whole milk import structure). The segment of processed and soft cheeses of premium-class is presented by products of French company Bongrain and Danish company Arla Foods. The lead distributor of premium-class cheeses in Ukraine is Jahn General
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Products Ukraine. In 2007 cheeses were imported from Poland, Denmark, Germany, France, USA, Switzerland and Italy.
8.3 Regulations on import Customs duties, regulated by the Customs Tariff of Ukraine, are shown in Table 14.
Table 14. Customs duties for milk and milk products
Customs duty Code Article Before WTO entry After WTO entry Euro / kg % (Bound Accession) 0401 Milk and cream not condensed without sugar, l 0.1 / liter 0402 Dried milk products 0.5 0403 Sour milk, cream, youghurt 0.5 10% 0404 Whey and other products with natural milk content 0.2 0405 Butter and other milk fats, kg 1.5 0406 Cheeses and cottage cheese, kg 0.8 Source: Customs Tariff of Ukraine, ‘Agrosphere’ N10(309), 17 March 2008
As can be seen from the Table, putting tariffs in accordance with WTO regulations, will lead to the decrease of price for cheap imported products and will open new possibilities for them, while price for expensive products will be higher than that before the WTO entering.
Although, besides the tariffs, there are a non-tariff barriers: all imported milk and milk products are subject to mandatory certification, veterinary and phyto-sanitary control. The complete transfer of Ukrainian legislation towards the acceptance of international quality and health certificates must be finalized before 30 December 2011.
9 Foreign presence in the Ukrainian dairy market
Dairy industry remains one of the most attractive sectors of Ukrainian food industry. A lot of foreign companies are present in Ukrainian dairy market. The most active and aggressive market players are Russian companies.
There are few ways of possible cooperation, for example, establishment of joint venture, import of additives or import of final milk products.
There are a lot of joint ventures successfully operating in the Ukrainian market:
x Ukrainian-Russian holding Unimilk Ukraine, subsidiary of Planeta Group (Russia), joined forces with the leaders of Ukrainian dairy industry – Galakton (Kyiv) and Kremenchuk city dairy;
x Russian concern Wimm-Bill-Dann owns the Kyiv city milk plant No. 3 and Kharkiv milk plant;
x French group Lactalis established the JV Lactalis-Ukraine (Mykolaiv, TM ‘President’), which specialised on butter, casein and whole milk products;
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x American investment group FMI acquired the Uman milk plant and established Bilosvit-Uman JV on its base.
The main exporters of additives to Ukrainian market are as follows:
x Austria (Erasom, Adolf Darbo AG, Dragoco)
x Bulgaria (Eko Kom Bulgaria, LB Bulgaricum)
x Denmark (Chr. Hansen, Danisco Cultor, Palsgaard Industri A/S)
x Germany (G.C.Hahn & Co., Stabilisierungstechnik GmbH, Lactoprot Deutschland GmbH & Co. KG, Unifine Doehler GmbH, Weisby
x The Netherlands (DSM Food Specialties Dairy Ingredients, CSK Food enrichment B.V.
x Israel (Frutarom Ltd)
x Italy (Dalton Biotecnologie)
x Russia (Gammi)
x France (Texel)
x USA (Valley research Inc)
x Japan (Meito Sangyo Co. Ltd)
The most successful in foreign investments in baby food is HiPP company, which manufactures dry-grain mixes and tea beverages for tots in Uzhgorod, Zakarpattia region, under the brand name ‘Babyvita’.
It should be noted, that dairy producers are not really afraid of import occupancy, as a major part of given products have short shelf-life. Some experts consider that the import of astringent yoghurts, butter and long-term storage milk might increase, but this will not influence the market substantially.
The change of the import tariffs unlikely will lead to the decrease of price dairy products for Ukrainian consumers. The price factor will be used only as a competitive benefit in a wholesale and a small wholesale trade.
10 Equipment
The majority of milk processing plants in Ukraine was reconstructed or reequipped. For the moment, about 60% of equipment used for milk processing is imported, mainly from Russia, Germany, Switzerland, Italy, Finland, Denmark, and Hungary. Key players of dairy market pay great attention to the modernisation of facilities.
Due to the consolidation of the market, there is no use to invest in organisation of small milk enterprises. Thus, high-capacity equipment for the production of wide range of products is in demand.
The Swedish firm Tetra Laval has been working closely with the major Kyiv dairies for processing and packaging of milk in cardboard containers. German company NoKaTec Schwatrte provides milk processors with complex equipment for the production of sour milk products and whey, cheese.
The largest Ukrainian food processing and packaging equipment manufacturer is Prodmash (Donetsk). The most successful manufacturers of local food processing equipment are: Tronka-Agrotech (Kyiv), Temp (Cherkasy).
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11 SWOT analysis
Strengths
Milk preferences among population and the increase of incomes and purchasing power of Ukrainians;
The dairy sector is one of the most technologically developed part of food branch;
Favourable natural and climatic conditions for milk cattle breeding;
Sufficient capacities for provisions on the domestic and foreign market;
Weakness
Number of milk cows is decreasing, leading to a shortage of raw milk;
Instable and poor quality of raw milk;
Reduction of pasture-fields due to speculative demand on land;
Milk production is mainly concentrated in small farms that complicates the collection of milk;
Seasonality and irregularity of milk supply to the processing enterprises;
Most of the equipment in Ukrainian cattle farms is outdated and needs to be replaced urgently;
Opportunities
Increasing demand for high quality products, there is a room for the quality and assortment improvements;
The baby food, for which there is unsatisfied demand, is a potential niche for domestic producers and importers;
There is a potential for the development of the distribution network by the plants themselves and by the specialised trading companies;
There is a possibility for the development of the own raw material bases.
Threats
Development of milk processing industry is slow down by the lack of raw milk;
Tightening of the competition may force small enterprises to leave the local dairy market.
12 Conclusion and prognosis
All market operators are agreed that the consolidation of dairy market will continue. Large enterprises will develop their own sources of raw materials, extend assortment of products and develop new foreign markets.
There are the following tendencies of possible development of milk sector:
x Russian expansion. Most probably, the share of Russian holdings on Ukrainian market will further grow. For the moment they already control about 30% of Ukrainian dairy market. French companies Lactalis and Danone may also take part in redistribution of market shares in the nearest future.
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x Sharp competition between key players will bring to exclusion of small and medium-size players from the fight for market niche.
x Consolidation. Small and medium-size enterprises will either join their forces or leave the market.
As far as main problem of milk processing enterprises is lack of raw milk, a great attention to cattle-breeding development is to be paid.
According to open sources data in the coming years dairy sector will receive EUR 200-300 million of investments. Among current projects are as follows: construction of milk processing complex in Kiev region, construction of large-scale farms in Chernigiv and Poltava regions.
In the same time, the experts say that Ukraine has to own at least one million of highly productive cows to become a powerful player in world dairy market.
The International Financial Corporation is also expecting the new investments into the development of large scale milk production sector. The institution developed its own milk project. In 2005 within the framework of the project, the IFC created the cooperative venture in Tomachpil district of Vinnitsa region that united the private milk households having 1-2 cows. Nowadays, the cooperative farm includes 350 members, 6 milk-collecting stations (total milk collection capacity – 16 tons per day).
13 Opportunities for Dutch technology and equipment
According to market operators, the biggest return on investments is in raw milk sector. There is sharp shortage of milk for processing, so foreign investors can develop modern milk farms.
Due to the development of premium segment, there is a possibility to increase traditional European cheeses, including Dutch and other premium segment products.
Co-operation in the baby food. There is almost empty niche for imports or local production of cottage cheese for babies and small kids.
Possibilities in occupation a smart niche in ice-cream production and other milk deserts.
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Attachment 1 Organizational structure of the branch
M A P
National Association of National Association of Dairy Canned Milk Producers UCoopSpilka Processors UkrMolProm UkrConservMoloko
Regional dairy Regional dairy associations plants Private Milk Processing Plants
Small inter-farm Milk processing Dry milk Milk canneries facilities for milk plants producing plants processing
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Attachment 2 Leading milk processing companies
No. Company General information Description of Trademark Address Phone Fax e-mail Web-site Contact person name production 1 OJSC The largest plant in Kyiv; founded The whole range of BALANCE, 4, M. 044/ 044/ reception@gal www.galacton.co Mr. Pozdnyakov GALAKTON in 1995 on the basis of Kyiv City dairy products (more GALAKTON, Raskovoy str., 5177119 2014887 acton.kiev.ua m.ua Andrey, General Dairy No. 2 of 1961. Presently, than 70): milk, T-milk, FRIENDY, Kyiv 02660 044/ Director owned by Russian Unimilk. The kefir, ryazhenka, DYVYNA, 5177001 plant processes upto 400 t of milk yoghurts, cream DELPHIA per day. Main product groups: cheese, processed bio-line, desserts, whole-milk cheese, butter, casein products, T-milk. In 2003 plant's market share was 11%. 2 OJSC The plant founded in 1979. Has Milk, kefir, T-milk, FUNNI 1v, Kharkivska www.fanni.com.u Mr. Vladimir Pavlograd modern production lines. In 2003 sour cream, cream str., a Bass, General Milk Plant plant's market share was 5%. cheese, cheese Pavlograd, Director desserts, fruit Dnipropetrovs yoghurts, chocolate- k region glazed cottage 51400 cheese, butter, cottage cheese cakes 3 OJSC Kyiv The plant located near Kyiv, was The whole range of CHUDO, 7, Promyslova 044/ [email protected] www.wbd.ru Mr. Pankratov City Dairy No. one of the leaders of milk sector. dairy products: milk, SLOVIANOC str., 4905285 Volodymyr, 3 Since 2000 is owned by Vimm- kefir, ryazhenka, HKA, VESELY Vyshneve, Chairman of the Bill-Dann, Russia (more than yoghurts, cream MOLOCHNYK Kyiv region Board 60%). cheese, processed , DOMIK V 08132 cheese, cottage DERENVE, cheese desserts, RYZHY UP casein 5 OJSC Belongs to Galakton Group. Has Milk, kefir, bio-kefir, KREMEZ 14/69, 40 053/679903 053/6621 office@kreme Mr. Sergeev Kremenchuk modern production lines. yoghurts, sour cream, rokiv Zhovtnia 5 321 z.poltava.ua Aleksey, Director City Dairy Produces more than 40 various cottage cheese str., items. desserts, butter, ice- Kremenchuk, cream Poltava region 39617
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No. Company General information Description of Trademark Address Phone Fax e-mail Web-site Contact person name production 6 RAINFORD The plant has modern equipment Production of sour SCHODNIA, 45, Vatutina 0412/ 0412/ Mrs. Natalia Dairy Factory and technologies. Belongs to cream, kefir, yoghurts, RAINFORD str., Zhytomyr 372487 372487 Korniuk, LLC Rainford Group. soft cheese desserts Marketing and creams Manager 7 OJSC Former Mykolaiv Dairy Plant, Milk, kefir, ryazhenka, PRESIDENT 2, Vinogradna 0512/ 0512/ [email protected] www.lactalis.fr Mr. Olivier LACTALIS presently a part of French butter, sour cream, str., Mykolaiv 558785 558784 kolaev.ua Picard, General Ukraina Lactalis Group, Ukrainian-French yoghurts, cottage 54018 0512/ Director JV. French partner invested in cheese and desserts, 558781 the whole milk supply and milk products for 0512/ processing chain. children 558786 8 OJSC The company was founded in Cheese desserts, ZLAGODA, 15, 056/371677 priem@zlagod www.zlagoda.dp. Mr. Andrey PRIDNEPRO 1990 on the basis of milk, T-milk, kefir, LUBIMCHIK, Zhurnalistiv, 8 a.dp.ua ua Veretennikov, VSKY Dnipropetrovsk City Dairy No. 2, yoghurt, sour-cream, LINIYA Dnipropetrovs Chariman of the Agricultural established in 1976. The butter, chocolate- ZHYTTIA k 49051 Supervisory Complex company constantly performs glazed cottage board equipment modernisation and cheese, bio-products widens its assortment, especially of chocolate-galzed cheeses (26 kinds). Daily processing volume - more than 200 t of milk. 9 OJSC Plant started in 1981; in 1994 More than 100 BILI BEREGY 27a, 05449/ 05449/ office@shostk http://www.shost Mrs. Larisa Shostka Milk trnsformed into Open JSC. products including 21 Parizhskoy 23064 71447 a- ka- Rudakova, Plant Presently enterprise processes cheese items (hard, Kommuny str., 05449/ cheese.com.u cheese.com/rus Director 150-300 t of milk per day, and soft); 16 types of Shostka, 23055 a produces about 500-750 t of hard processed cheese; 30 Sumy region 05449/ cheeses per month. whole-milk and sour 41103 22096 milk products; 4 kinds of dry milk products; 25 ice-cream and cakes; 4 types of butter.
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No. Company General information Description of Trademark Address Phone Fax e-mail Web-site Contact person name production 10 OJSC Dairy products marked "KOMO" - More than 100 kinds KOMO 0332/78337 com01@komo www.komo.ua Mrs. Tatiana Kovelmoloko - it is a high quality and a unique of milk products are 8 .ua Eremeeva, taste at reasonable prices. manufactured now: General Director cheese, processed cheese, skimmed milk powder, condensed milk, butter, wide range of all-milk products. 11 OJSC Balta The plant was commissioned in Baby food, milk, LASUNIYA, 29, Shchorsa 04866/ attis- www.lasunya.co Mr. Vasiletskiy Baby Food 1980. Installed processing butter, kefir, sour MU, Str.,Balta 23333 [email protected] m.ua Nikolay, Milk Cannery capacity - 500 t / day. About 95% cream, dry milk DETOLACT district, m.ua Chairman of the of dry milk and about 85% of Odessa region Board butter is exported (Russia, Baltic 66100 states, Bulgaria, and others) 12 Khmelnitsky The plant was founded in 1944; Processed cheese, VERSHKOVY 3, 0382/ 0382/ [email protected] Mrs. Beseda Maslosyrbasa recently reconstructed with the processed smoked RAY Kooperatyvna 551303 552485 .ua Lyudmila Collective installation of new equipment. cheese, hard cheese, str., 0382/ Enterprise One of the leaders in production ice-cream, butter Khmelnitsky 552485 of cheeses (more than 70 types). 29025 About 20% of products are exported. 13 LUSTDORF One of the first companies that T-milk, whole-milk NA 25, Saperno- 044/569490 http://loostdorf.c LLC / Illinets' started manufacturing of T-milk. products ZDOROVYE, Slobodskaya, 8 om/ Milk Plant Some facilities are renovated. Burenka, Kiev, Ukraine 044/569490 Totosha 03039 9 14 OJSC The plant with 20-year history Hard cheese, soft ZVENIGORA 35a, K. Marx 04740/5202 04740/52 igor.teliga@zv www.bongrain.c Zvenigorodka joined Bongrain group (France) in cheese str., 2 238 enigora.com om Cheese Plant 2001; Bongrain controls 92% of Zvenygorodka 04740/5410 shares. Presently, cheeses are , Cherkasy 3 produced at the modern region 20200 04740/5223 equipment and according to the 8 French tecnhology and recipes. Share in Ukrainian cheese production - 4% (2003).
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No. Company General information Description of Trademark Address Phone Fax e-mail Web-site Contact person name production 15 Piriatin Plant founded in early 70's. Hard cheese, soft MOLOCHNY 1, Sumska 05358/ 05358/ Mr. Victor Cheese Plant Processes upto 200 t of milk per cheese, butter SHLIAKH str., Piriatin, 28657 28638 Garkusha, Collective day. Poltava region Director Enterprise 37000 16 CJSC Plant founded in 1973; main Hard cheese, soft SLAVIA 4, Zavodskaya 05158/ 05158/ slaviya_chees www.slavia.mk.u Mr. Anatoly Bashtanka direction - production of hard cheese, butter str., 21843 21845 [email protected] a Poruchnik, Cheese Plant cheese. In 2003 about 4,000 tons Bashtanka, Director of cheese was produced, Mykolaiv including assortment of 8 kinds of region 56100 cheeses with different fat percentage; new production of soft cheese in plastic cans began (4 kinds). 17 CJSC The leader in production of Canned milk, dry milk, ZARECHYE 26, 05742/ 05742/ www.kmk.kharko Mrs. Lyudmyla Kupiansk Milk canned milk products. The T-milk, butter, soft Lomonosova 53116 51359 v.ua Radchenko, Cannery enterprise is favourably located in cheese, milk, kefir, str., Kupiansk, Director Kharkiv region near Ukrainia- ryazhenka, cream, Kharkiv region Russian border. The plant sour cream, cheese 63702 exports dry milk. desserts, soya milk
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Table of contents Page
1 Introduction 2
2 General overview of the branch 2 2.1 Current situation with forage grain production 3 2.2 Main trends in animal feed industry 4 2.3 Main problems of the branch 5 2.4 Assortment of final products 5
3 Branch structure 7 3.1 Branch governing authorities 7
4 State regulation of compound feed market 8 4.1 Legislation 8 4.2 Standardization 9
5 Sales system 9
6 Capacities and their utilisation 11
7 Market of animal feed in Ukraine 12 7.1 Consumption and demand 12 7.2 Production analysis 16
8 Materials and raw materials 18
9 Foreign trade 22 9.1 Export / import 22 9.2 Regulations on import 23
10 Foreign presence in the Ukrainian market of feeds 24
11 Market and price surveys 24
12 Equipment 26
13 SWOT analysis 27
14 Conclusion and prognosis 28
15 Opportunities for Dutch technology and equipment 29
Attacments:
1. Organizational structure of the branch
2. Leading producers of compound feed
Market Study Food Sectors in Ukraine – Part E: Animal Feed Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613. E-R Revision: 1 Date: 29 May 2008 Page: 2 of 33
1 Introduction
The main factor of the animal productivity is stable fodder supply that should provide the livestock with the sufficient amount of proteins and vitamins. At the same time, animal feed is a one of the key price-forming articles reaching 70-75% share in the cost of livestock products.
Presently, there are about 500 enterprises that produce animal feed in Ukraine. Around 120 of them operate in the compound feed sector. The biggest compound feed producers are feed mills of OJSC ‘Mironovskij Hleboprodukt’, CJSC ‘Complex Agromars‘ and Boryspil experimental compound feed plant (compound feeds for poultry); Hrakivskyi BP and Kalyta experimental compound fodder and premix plant (compound feeds for pigs); Mariupolskyi MK named after Illich (compound feeds for cattle). Their share in total production of animal compound feed is around 50%. Detailed information on the branch structure and leading enterprises is presented in Attachments 1 and 2.
The chapter presents an insight into the current and forecasted situation in the animal feed sector.
2 General overview of the branch
The feed plays a key role for the livestock productivity and quality of final products of the animal husbandry. At present, about 120 industrial enterprises in Ukraine manufacture compound feed. The total capacity of Ukrainian compound feed enterprises, including small-scale enterprises, according to research of ‘ProAgro’1 is about 12-16 million tons per year. A typical characteristic of activities of compound feed enterprises in the recent years is their work upon immediate orders from the consumers. At the same time, one can observe a positive tendency of compound feed production for selling to small-scale farms and population. The share of such compound feed production grows constantly. However, animal breeders today do not use all the compound feed capacities in Ukraine.
Ukrainian manufacturers of compound feed can be conventionally divided into three groups:
1. ‘Independent’ compound feed plants (CFP) or bakery plants (BP) working upon orders from various consumers;
2. CFP or BP with a status of independent legal entities that have recently joined or begun to work for vertically or horizontally integrated animal production complexes;
3. Compound feed plans or feed processing capacities that do not have a status of independent legal entities and act as part of animal husbandry farms.
The level of technical equipment and volume of production of each of the above categories differ significantly. Thus, for instance, the last group includes both modern compound feed enterprises and primitive feed processing rooms that satisfy the needs of small farms2.
Market of animal feed as well as the culture of its consumption is not yet enough developed in Ukraine. Many existing consumers have their own feed mills where they produce compound feed for internal use.
1 Market Study ‘Ukraine: Compound Feed Market’, 2007, ProAgro company, find more at: www.proagro.com.ua 2 In the present report the individuals or entrepreneurs having cattle or pigs livestock less than 10 heads are defined as small farms, more than 10 heads – big farms, large enterprises
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2.1 Current situation with forage grain production
Forage grain is the main component for the compound feed. In the last years price for Ukrainian grain considerably increased, caused by low crop yield and increasing of world price for grain. The dynamics of domestic forage grain supply is presented in Table 1.
Table 1. Supply and structure of forage grain in Ukraine, thousand tons
Description 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 Grain, total 51,009 33,930 24,459 39,706 38,804 20,234 41,809 38,016 34,258 29,294 Dynamics -33% -28% 62% -2% -48% 107% -9% -10% -14% Including forage grain, 18,499 15,711 12,253 15,770 16,297 15,220 21,771 17,691 19,204 14,668 total, of which: Dynamics -15% -22% 29% 3% -7% 43% -19% 9% -24% barley 9,169 9,633 6,872 10,186 10,364 6,833 11,085 8,975 11,341 5,981 Dynamics 5% -29% 48% 2% -34% 62% -19% 26% -47% oats 1,303 1,116 881 1,116 943 941 1,007 791 690 544 Dynamics -14% -21% 27% -16% 0% 7% -21% -13% -21% maize 4,737 3,392 3,848 3,641 4,180 6,875 8,867 7,167 6,426 7,421 Dynamics -28% 13% -5% 15% 64% 29% -19% -10% 15% leguminous 3,266 1,570 652 827 810 571 812 758 747 723 plants Dynamics -52% -58% 27% -2% -30% 42% -7% -1% -3% Fodder roots 27,270 13,470 6,672 7,713 7,449 7,786 8,139 8,015 7,746 n/a Dynamics -51% -50% 16% -3% 5% 5% -2% -3% n/a Silage and green 98,372 61,920 24,183 18,767 17,114 18,822 14,261 12,509 10,315 n/a fodder Dynamics -37% -61% -22% -9% 10% -24% -12% -18% n/a
Source: State Statistics Committee of Ukraine
In 2007 it was cropped 29.3 million tons of grain crops, including: bread grain – 14.9 million tons (51 %) and forage grain – 14.6 million tons (49 %). Grain harvesting compared to 2006 was reduced on 14.5 %, because of harvesting area reducing on 765.8 thousand hectares or 5.4 %, and reducing of crop yield on 230 kg per hectare or 9.5 %. Forage grain was harvested less on 24 %.
Decreasing of cultivated areas under fodder crops and reducing of crop yield have negatively influenced on animal feed stock.
As Table 2 shows, areas of land under fodder crops cultivation are being constantly reduced. Thus, in 2006 it reduced by 461 thousand hectares, or by 12 % compared to 2005. At the same time decrease of total cultivated area is observed.
In 2006 fodder crops accounted for only 12.6 % of the total area under cultivation while in the beginning of 90’s the areas under fodder crops made up 37 % of total sowings.
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Table 2. Area under fodder crops
Year thousand ha % of total cultivated area
2000 7,063 26.0 2001 6,375 22.8 2002 5,858 21.3 2003 5,074 20.2 2004 4,243 15.9 2005 3,738 14.4 2006 3,277 12.6
Source: State Statistics Committee of Ukraine
As a result, according to the data of the State Statistics Committee of Ukraine, in the end of 2007 farmers stockpiled 740 kg of fodder per head of livestock compared to 890 kg in the end of 2006 (as presented in Table 3).
The lack of forage grain for animal feed in 2007 is caused by the following reasons: 1) the total grain harvest was relatively low; 2) the part of forage grain was used even for bread production (i.e. 5th and 6th grade wheat); 3) considerable reducing of crop yield.
Table 3. Feed stock, thousand tons of feed units
as of 1 January each year
Products 2001 2002 2003 2004 2005 2006 2007 2008
Feed stock, thousand tons of feed 6.2 6.8 5.1 4.2 4.9 4.5 3.7 2.9 units
Dynamics 10% -25% -18% 17% -8% -18% -22%
Stock per one head, kg 1,180 1,300 1,010 1,030 1,300 1,110 890 740
Dynamics 10% -22% 2% 26% -15% -20% -17%
Source: State Statistics Committee of Ukraine
2.2 Main trends in animal feed industry
The following trends are presently observed in the animal feed industry:
Ö integration of animal feed plants into large agro-industrial complexes (production of own feed is feasible only for the farms that have a high need for them, e.g. over 200-300 tons per month, and various recipes for different age and physiological conditions of animals);
Ö investments in development of new production technologies, re-equipment and reconstruction of old facilities, and building new ones;
Ö sharp increase of prices for feeds and feed components;
Ö growth of compound feed production volume (in spite of feed grain harvesting shortage);
Ö increase of the share of protein and vitamin additives in compound animal feed production;
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Ö compound feed in the world is manufactured by large specialized plants whereas in Ukraine the bulk of products is manufactured by the consumers - mainly by the live stock breeders.
A stimulus for development of compound feed industry was coming of considerable investment in poultry and pig breeding in 2000 and following years, which led to a qualitative breakthrough in its development and growing demand for full-value feed.
2.3 Main problems of the branch
There are several bottlenecks in the development of the animal feed branch in Ukraine:
Ö Feeding of animals and poultry with unbalanced feed with excessive content of grain components results in incomplete digestion of feed and increased cost of animal husbandry products. At Ukrainian enterprises share of grain components in compound feed often exceeds 70% whereas in the EU states this figure is about 45%.
Ö Shortage of the forage grain due to poor grain harvest; shortage of cultivated areas under fodder crops.
Ö High prices for animal feeds due to expensive raw materials.
Ö Price and costs of delivery of compound feed per one beast increased significantly and thus the farms began to gradually refuse from using full-value feed.
Ö Culture of compound feed usage in livestock feeding is not widely developed at small farms; conservative small farms sector accounts for the larger part of cattle and poultry livestock.
Ö Products of different level of quality are present at the market (small-scale compound feed producers can retrench protein supplements in animal feeds due to high prices for additives; there are small producers that manufacture feed for further sale without licenses and required quality control).
Ö Outdated equipment used by majority of compound feed plants.
2.4 Assortment of final products
During the last years range of products produced by Ukrainian feed mills remained practically unchanged. Animal feed for livestock (including poultry) consists of:
rough (coarse) feeds – hay, straw, chaff, grass silage;
rich (juicy) feeds – silage, root forage, waste from canning and sugar industry;
concentrated feeds – wheat, barley, oats, corn, peas;
compound feeds.
Compound feed industry enterprises in Ukraine manufacture a wide spectrum of combined fodders for animals, poultry and fish. They make their products to the requests of their customers concerning the recipe, structure and type of feedstock depending on the kind of animals and poultry and their age. There is no standard scheme in Ukraine for calculation of recipes for animal feed. However, the basic compound feed indicators are to meet requirements set forth in Ukrainian normative documents that provide for the nomenclature of indicators characterizing quality of products (for instance, GOST 9267-68, GOST 13299-71, GOST 16955-71 and some other).
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The spectrum of manufactured compound feed can differ depending on the clients' requirements.
In terms of their nutrient value, the fodders can be divided into the following types:
Full-value compound feed - containing all necessary nutrient substances covering physiological needs of animals at the high level of their productivity and lower cost of nutrient substances per one unit of product. They are used mainly for feeding household poultry, pigs, fish and rabbits.
Concentrated compound feed - used for feeding animals in addition to the basic ration -juicy and rough fodder. Such feeding is used mainly for cattle at any age and productivity as well as for pigs.
Modern compound feed means not only mixtures of individual components in various combinations, they are also enriched with different biologically active elements that increase the value of feed rations and in some cases protect animals from diseases stimulating their vital functions. For production of compound feed, protein and vitamin supplements (PVS) and premixes enriching mixtures of biologically active elements are also used.
Addition of various supplements increases the price of compound feed but it is more than compensated by the received results. It has been established that use of compound feed increases productivity of animals by 20-30 % and helps to reduce feed expenses per a unit of products by 15-20 %.
Compound feed is manufactured in the form of homogeneous powder of particles ground to the crumble feed and feed mixtures, especially multi-component mixtures, have a number of shortcomings that have a negative impact in their storage and transportation characteristics. These shortcomings include hygroscopicity, small specific weight and tendency to fractionation during transportation. Te most successful method of elimination of the aforementioned shortcomings is pressing of products, granulation and briquetting.
Granulated compound feed have the following advantages when compared to crumble compound feed:
composition of each granule is the same - it contains the complete set of all nutrient elements present in compound feed and animals fed with the granules receive the maximum of useful substances;
poultry spends less energy when eating granulated compound feed than when eating crumble feed;
granules made for fish can stay in water for a long time without losing their nutrient value;
feeding troughs get less contaminated which improves sanitary characteristics of animal husbandry premises and decreases animal diseases;
losses of granulated compound feed are brought to the minimum;
productivity of work of employees engaged in feed dispensing increases;
granules are more easily transported, less prone to environment impacts and take less place than their crumble equivalents;
weight gain of animal increases to 8-10 %;
bacterial contamination of compound feed decreases by 85-90 %.
Compound feed can be granulated in two ways - dry and wet. The most widespread method is dry granulation because the wet method requires drying of granules that make their production more complicated and slow.
Today, there is no information about the amount of manufactured compound feed by types (crumble, granulated). According to ‘Mironovskij Hleboproduct’, in the structure of compound feed production by large industrial enterprises, 55-60 % today is accounted for by granulated feed. In 2001-2002 this indicator was 23-26 %. The
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grounds for such estimations are found in the fact that the basis of domestic compound feed production is formed by poultry feed and successful broiler growing requires mainly granulated feed - up to 95-98 % and growing of egg breeds - up to 80 %. To a less extent, granulated feed is also used in domestic pig breeding.
The process of granulation is rather energy consuming and it results in a growth of the price for compound feed. According to some market operators, it can achieve UAH 60-80 (USD 12-16) per one ton of ready compound feed depending on its purpose and manufacturer. The growth of prices for energy resources is one of the main factors that impede the growth of production of this type of compound feed (the cost estimate for granulation demonstrates that about 80-85 % is the cost of electric energy).
With regard to small plants one can say that they manufacture mainly crumble compound feed - up to 80-90 %.
Enterprises sell their products by weight or pre-packed. For transportation of compound feed sold by weight one requires special automobiles or railroad wagons. Depending on the type of a wagon, compound feed is packed in sacks of 2-40 kg. For instance, compound feed for various types of poultry is usually packed in sacks of 2, 5, 10, 25 kg; pigs, cattle - sacks of 5-40 kg.
3 Branch structure 3.1 Branch governing authorities
Open joint stock company Khlib Ukrainy (100% state owned company) regulates all activities in the grain collecting, storing and processing sector. Khlib Ukrainy is a governmental agent for grain procurement as well.
The company has 125 daughter enterprises including 72 enterprises for grain storage. Nominal storage capacity is about 6.2 mn tons of grain per year, however, only a half is actually utilised. The technical department of Khlib Ukrainy keeps under control the animal feed production. Production capacities of the company amount to 1.5 mn tons of flour per year, 1.2 mn tons of compound feed, 106.9 thousand tons of groats. Moreover, Odessa and Mykolaiv port elevators belong to the company as well. For the moment Khlib Ukrainy is planning to expand their activities connected to flour use.
The Production Association of Feed Industry UkrMizhGospKombikorm established in 1988 is involved mostly in design and (re)construction of compound feed plants, equipment and raw materials supply to feed mills and poultry farms.
Contact details:
OJSC Khlib Ukrainy (Bread of Ukraine) 1, Saksaganskogo St. 01033 Kyiv, Ukraine Mr. Ivan Rezniak Chairman of the Board Tel.: + 380 44 206 1512
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OJSC Ukrzernoproduct 1, Saksaganskogo St. 01033 Kyiv, Ukraine Mr. Victor Bondarenko Chairman of the Board Tel.: + 380 44 226 2120 Mr. Anatoliy Klimenko
Production Association of Feed Industry UkrMizhGospKombikorm 16, Vasylkivska St. 03040 Kyiv, Ukraine
Mr. Mikhail Artemenko General Director Tel/fax: + 380 44 502 3339 Tel/fax: + 380 67 506 3926
There is also a scientific enterprise in the sector – Vinnytsia Institute of Feeds of Ukrainian Academy of Agrarian Science. The main functions of the Institute are conducting fundamental and applied researches in the sector: development of energy saving and environmental technologies for growing, storage, production and utilisation of feed, elaboration of recipes for compound feed and premixes production, coordination of scientific researches for feed production in Ukraine.
4 State regulation of compound feed market 4.1 Legislation
State regulation of compound feed market is provided by national policy in the sphere of agriculture development and is guided by appropriate legislation.
The Ministry of Agrarian Policy in conjunction with a number of other agencies developed a National Program for Ensuing Favourable Conditions for Stabilization and Development of Animal Husbandry for 2005-2010. According to the Program, Ukraine is planning by 2010 to manufacture 2.5 million tons of meat (slaughter weight), which is 45 % more compared to 2003. Program implementation requires about UAH 15 billion3 in total or UAH 2.5 billion each year. The pig livestock in Ukraine is expected to achieve 11 million heads by 2010, which is 16 % more than in 2003. It is also expected that as a result of Program implementation, consumption of meat and meat products per capita will increase to 50 kg. In order to achieve such indicators, the Program provides for increased support for animal husbandry enterprises through subsidizing production and parent herd, cheapening of short- and long-term loans for machinery and equipment and improvement of financial leasing mechanisms. Furthermore, the program envisages support for development of agricultural cooperatives and private enterprises that process and sell animal products and coordination of prices between market participants.
Pursuant to the National Program for Development of Production and Market of Compound Feed for the period till 2007 approved in 2003, compound feed production in 2007 is to achieve 4,950 thousand tons and compound feed supplements – 50 thousand tons. In 2004, these figures were supposed to be 2,275 and 25 thousand tons,
3 1 billion = 109
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and in 2005 – 3,265 and 35 thousand tons, respectively. The results of compound feed industry over the recent years demonstrate that the program is quite viable and is nearly completely implemented.
Manufacturers of poultry and animal husbandry products, including the Union of Poultry Breeders of Ukraine, ‘Tvarynprom’ Corporation and ‘Ukrptitseprom’ association jointly with the Fodder Institute and Institute of Animal Husbandry in order to regulate the fodder market developed a draft law of Ukraine ‘On Fodder’ that has been tabled and is currently discussed at Ukrainian parliament.
The bill provides for requirements concerning production, imports, use, package, marking, transportation and introduction of fodder and feedstock for its production as well as powers and terms of reference of state authorities to ensure implementation of duties set forth in this law.
Pursuant to the bill, certification of enterprises manufacturing fodder-biologically active supplements and premixes is to be performed. The document also identifies the procedure of imports and certification of fodder feedstock.
4.2 Standardization
In the recent years in Ukraine standardization of agricultural feedstock resources and methods of quality control significantly activated. Over this period, there were developed and adopted about 40 normative acts providing for the nomenclature of indicators characterizing quality of products. At present, about 30 more such acts are considered by the state standardization service.
Ukrainian national standards concerning fodder production that were adopted during the last years include:
DSTU 4507:2005 ‘Compound feed for pig fattening performance tests. Technical requirements’ (enacted on January 1, 2007);
DSTU 4508:2005 ‘Concentrated compound feed for pigs. Technical requirements’ (enacted on January 1, 2007);
DSTU 4647:2006 ‘Dried press cake. Technical requirements’ (enacted on December 1, 2006);
Other standards concerning methods for determining quality of compound feed and components thereof.
5 Sales system
For the moment the major share of meat production belongs to big integrated complexes, which cover whole cycle of the production: from growing of feed crop and up to supply of finished meat products. Such integrated complexes take care about feed supply. Usually large meat producers own one or several feed mills being their main consumers.
The most of ‘independent’ feed producers are oriented to small farms sector and develop their own distribution systems.
Population prefers to buy compound feeds for poultry and fish packed in 2 kg polymeric bags. The 5, 10 and 35 kg packaging is popular as well.
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Nevertheless, majority of consumers are not aware where to buy feed in retail, as this group of products is not widely promoted. Some producers have own small shop chains. Some of them try to sell compound feed through supermarkets and cash & carry stores.
According to experts’ opinion, animal feed producers should promote their product among small farms more aggressively.
Manufacturers usually sell their products to sellers located not far from their enterprises. In the structure of sales, according to market operators, such customers account for up to 80 %.
The main sales channel for compound feed is a wholesale network for products with a specific recipe made by orders of customers. Large enterprises will continue to be oriented mainly to this sales market. Thus, in the nearest future, there will be no cardinal changes in the sales system.
As to the small retail sales of compound feed, this kind of goods is absence in the network. The products are not sufficiently advertised and promoted. Usually, compound feed is sold from the enterprise's warehouses or from cars. These products are typically sold pre-packed.
At the same time, production of products oriented toward small farms can become really promising especially due to the fact that large part of cattle and poultry is kept in this sector. Already now, rural population began to use compound feed more actively having learnt that such use leads to quicker weight increase and lower manufacturing costs.
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6 Capacities and their utilisation
At present, about 120 industrial enterprises in Ukraine manufacture compound feed. Total capacity of Ukrainian compound feed enterprises, including small-business enterprises, small compound feed plants and feed processing facilities, is about 12-16 million tons per year although one can find information about designed capacities of 22 million tons per year. A typical characteristic of activities of compound feed enterprises in the recent years is their work upon immediate orders from the consumers. At the same time, one can observe a positive tendency of compound feed production for selling to small-scale farms and population. The share of such compound feed production grows constantly.
Figure 1. Structure of compound feed production per type of feed plant
2005 2006 2007
35% 32% 25% 60% 70% 55%
5% 8% 10% Independent compound feed plants Vertically integrated poultry farming holdings Vertically integrated animal farming holdings
Source: ‘Business’, No16,21.04.08
However, animal breeders today do not use all the compound feed capacities in Ukraine and a considerable part of such enterprises is either completely frozen or works with the minimum workload. Functioning compound feed plants use 30 % of their capacities at best, and most often this figure is 10-20 %, and only unique enterprises manage to load their capacities more than 60-80 %.
Usually large animal feed plants are located near grain-elevators and become a part of agro-industrial complexes. Besides there are a lot of small enterprises working in this sector. Moreover, the majority of poultry and cattle farms have their own feed processing rooms.
The data on leading enterprises of the sector is given in Attachment 2.
Commissioning of many enterprises that are mainly former inter-district compound feed plants is very problematic and in the majority of cases requires considerable investments for there is a need not only for a complete replacement of equipment but also for reconstruction of buildings and infrastructure necessary for successful production.
The majority of feed mills were constructed in 1970’s - 1980’s. Equipment and technologies used are mainly outdated. Therefore, during the last years owners of plants started investing in re-equipment of the facilities.
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The good example is OJSC ‘Mironovskij Hleboprodukt’ that reconstructed and modernized all feed plants after their acquisition. Today, OJSC ‘Mironovskij Hleboprodukt’ is a versatile industrial complex which includes feeds factories, protein factory, grain elevators and etc.
Feeds manufacture is the main direction of activity of such enterprises of Mironovskij Hleboprodukt group as: Mironovsky plant for Manufacturing of Feeds and Cereals (MFC), Katerynopilsky Elevator and Tavriysky Fodder Mill.
Mironovskij MFC was reconstructed completely in June 2002. Modern industrial facilities were introduced; in particular Swiss line ‘Buhlerag’ for feeds manufacturing as well as a line for soy processing with capacities that allow processing up to 30 thousand tons of soy annually. In 2004 It was launched a new protein factory. Thanks to the usage of their own protein plant for feeds manufacture the cost of feeds was considerably reduced. The project was based on Ukrainian-Dutch concept. The protein factory enabled the processing of up to 600 tons of sunflower per shift for special cake and oil extraction. Another great influence on feeds cost reduction was the addition of a boiler-house which has become an alternative energy source and allowed them to save gas. Thanks to the usage of energy from burning a peel of sunflower the enterprise produces water steam (up to 26 tons per hour) and electricity (2.55 megawatt per hour).
A new compound fodder production plant was up and run in 2007 in the territory of Katerynopilsky Elevator. The plant produced about 600 thousand tons of compound fodder, and a new soy-bean processing line with a projected capacity of about 30 thousand tons per year was added.
After acquisition of Tavriysky Fodder Mill a complete reconstruction of the plant with simultaneous full replacement of technically out-of-date equipment was provided within less than five months. The new equipment was made by Danish company ‘Sprout Matador’. Today, the processing capacity of the Tavriysky plant is about 220 thousand tons of feed per year.
Feed production is aimed to satisfy mainly (over 80% of production) the needs of the poultry farms of the group (broiler and goose).
CJSC ‘Bakhmutsky Agricultural Union’ in 2003 bought a compound feed plant and completed its reconstruction and reorganization. For this purpose, the company purchased a set of technological equipment of the ‘HeemHorst’ company (The Netherlands). The total project budget reached EUR 2 million. As the result of implementation of this project, the company received its own modem facilities for production of compound feed capable of completely covering the needs of the main production.
7 Market of animal feed in Ukraine 7.1 Consumption and demand
Compound feed products occupy a unique position in the market of agricultural feedstock resources that can be characterized as dubious. On the one hand, the main component of compound feed is grain, one the other - it is itself used for production of animal husbandry products. Unlike other grain products, compound feed is characterized by elastic demand that depends on the capacity and elasticity of demand for animal husbandry products and changes depending on a number of macro- and micro-economic conditions. The prospects for development of compound feed industry are directly dependent on development of animal husbandry and poultry farming. Rhythmical stable sales of products are characteristics of those compound feed plants that manufacture compound feed with necessary range and quality that ensure maximum weight gain and productivity, which
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makes it possible for poultry plants and animal husbandry complexes to manufacture competitive high-quality products.
The main groups of compound feed consumers are animal/poultry production complexes and small farms. Their needs depend on the type and volume of production of ready animal products per livestock size (cattle, pig, poultry, fish, etc).
As to the dynamics of production of animal farming sectors, one has to say it is not unanimous. Cattle livestock in Ukraine recently has been constantly decreasing. In the first place, this is true for the big farms. Decreasing of cattle livestock has been observed already for several years. Situation in the small farms sector is somehow better. The rate of cattle livestock decrease is insignificant and is mainly season-dependent. For the nearest future, it is hard to forecast any stabilization and growth of cattle population. First of all, this can be explained by a relatively low level of profitability of production caused by long-term herd replacement cycle and high price for feed.
One also has to mention that in this sector, according to the world practice, there is observed decrease of cattle livestock due to the growth of the number of highly productive heads which consequently requires higher quality of compound feed to ensure high milk and meat yield.
As to pig population, the situation considerably improved over the last year. This segment is more profitable and herd replacement requires significantly shorter time. Another important factor is a considerable inflow of investments into this branch during the last year, into construction and reconstruction of pig farms using alternative methods of pig growing.
In poultry farming, there is also registered a constant growth of livestock and profitability of production of poultry meat and eggs especially in the public sector. Significant growth of poultry livestock during last years affects substantially on increasing of demand for compound feeds, because demand for poultry compound feeds is more than 50 % in structure of general demand for compound feeds (as demonstrated in Table 5).
Table 4. Ukraine: cattle, pig and poultry livestock (all types of enterprises), thousand heads Animal 2002 2003 2004 2005 2006 2007 Cattle 9,108 7,712 6,902 6,514 6,175 5,683
Dynamics -3.3% -15.3% -10.5% -5.6% -5.2% -8.0% Pigs 9,203 7,321 6,466 7,052 8,055 7,266
Dynamics 10.0% -20.5% -11.7% 9.1% 14.2% -9.8% Sheep and goats 1,984 1,858 1,754 1,629 1,617 1,679
Dynamics 1.0% -6.3% -5.6% -7.1% -0.8% 3.8% Poultry, mn heads 147 142 152 162 166 168
Dynamics 7.7% -3.4% 7.3% 6.0% 2.8% 1.1% Source: State Statistics Committee of Ukraine
Concentrated fodder, including compound feed, in the ration of dairy cattle today account for 23%, feeder and fattening cattle - 21%, pigs - 76.5% and poultry - 94.3%.
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Table 5. Feed demand for livestock and poultry in Ukraine, 2004-2007, thousand tons
2004 2005 2006 2007 thousand thousand thousand thousand Animal tons % tons % tons % tons % Cattle 942 29% 852 23% 920 21% 960 18% Dynamics -10% 8% 4% Pigs 658 20% 741 20% 1,015 23% 1,415 26% Dynamics 13% 37% 39% Poultry 1,632 51% 2,046 57% 2,487 56% 3,014 56% Dynamics 25% 22% 21% Total 3,232 100% 3,639 100% 4,422 100% 5,389 100% Dynamics 13% 22% 22%
Source: ProAgro
A lot of compound feed producers change feed compounding by replacing expensive raw materials by cheaper ones. Thus, deficit maize is often replaced by decorticated barley.
During the 90’s the constant decrease in the feed consumption was marked, especially by the farms of public sector (as demonstrated in Table 6). Though in 2002 a slight increase in feed consumption was registered, in 2003 the total quantity of used feeds decreased by 8.6% compared to 2002, and in 2004-2006 the level of consumption varied from 37.5 to 38.5 million tons of feed. For concentrated feeds the decrease made 6.7% in 2003, and in 2006 the increasing up to 13.8 million tons was observed.
Table 6. Consumption of feeds for livestock and poultry in Ukraine, million tons
1990 1995 2000 2001 2002 2003 2004 2005 2006 All kinds of feeds All categories of farms 103 71 42 42.8 44.3 40.5 38.5 37.5 38.3 Dynamics -31.5% -9.4% 0.7% 3.5% -8.6% -4.9% -2.6% 2.1% of which: public sector 78.2 45 16 15.3 15.4 12.2 11.2 11.8 12.2 Dynamics -42.5% -24.5% -4.4% 0.7% -20.8% -8.2% 5.4% 3.4% private sector 25.4 26 26.5 27.5 28.9 28.3 27.3 25.7 26.1 Dynamics 2.4% 3.1% 3.8% 5.1% -2.1% -3.5% -5.9% 1.6% Concentrated feeds All categories of farms 35.5 22.3 12 12.2 13.4 12.5 12.1 12.9 13.8 Dynamics -37.2% -10.4% 1.7% 9.8% -6.7% -3.2% 6.6% 7.0% of which: public sector 27.7 14.4 4.2 4.5 5.4 4.6 4.7 5.6 6.5 Dynamics -48.0% -27.6% 7.1% 20.0% -14.8% 2.2% 19.1% 16.1% private sector 7.8 7.9 7.8 7.7 8 7.9 7.4 7.3 7.3 Dynamics 1.3% 2.6% -1.3% 3.9% -1.3% -6.3% -1.4% 0.0%
Source: State Statistics Committee of Ukraine
In 1997-2002 the volume of animal feed and concentrated animal feed, used by households and private farms constantly increased compared to previous years, while decrease by 2-6 % was marked in 2003-2005 and in
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2006 stopped at the level of 26.1 million tons. At the same time, consumption of animal feed in the public sector reduced. Thus, consumption of animal feed in the public sector in 2006 was only 15.6 % of 1990 consumption.
Figure 2. Compound feed consumption
thousand tons 16,000 30% 13,800 14,000 20%
12,000 11,100 10% 10,000 9,400 0% 7,700 8,000 6,000 -10% 6,000 5,389 4,422 4,000 3,639 -20% 4,000 3,232 2,600 2,600 2,800 2,400 2,300 2,200 2,500 2,000 -30%
0 -40% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Compound feed Feed for poultry Dynamics
Source: Data of previous Market Study, ‘ProAgro’
As it is shown in the Figure 2, consumption of compound feed is insignificant. Its share in total animal feed consumption makes only 7-8% during the last five years. It can be explained by the fact that culture of compound feed use in livestock feeding is not developed. Many farmers still prefer to use ‘traditional’ rough and rich feeds.
Intensification of animal husbandry industry requires development of a sustainable feed foundation capable of satisfying animals’ need for full-values fodder at the farms of all forms of ownership and management. Simultaneously, one has to bear in mind that absence of a necessary amount of digested protein, calcium, phosphorus, carotene and other important ingredients in the animal's ration, leads to excessive use of fodder and lower livestock productivity, deterioration of quality of manufactured products and growth of their manufacturing costs. In conditions of full-values and balanced nutrition, agricultural animals make use of their genetically determined productivity. It should also be noted that many feed consumers spend significant funds for both pedigree cattle with high productivity characteristics and in necessary compound feed enduring high milk yield of dairy herd and weight gain of cattle and feeder poultry.
Except for the main factors that directly influence the situation on compound feed market, it also experience impact of indirect factors, one of which still remains the population's buying capacity that led to a decrease of an actual consumption of animal husbandry products. In 2007 an average Ukrainian annually consumed 41.5 kg meat. This figure is significantly lower than meat consumption in European states and in the USA (USA -119.7 kg, average Europe – 80 kg per capita). According to the forecasts of UN Food and Agriculture Organization (FAO), average annual consumption of meat in the world will increase to 41.7 kg per capita. The growth of consumption of meat in Ukraine directly depends on the growth of population's incomes: at the same time,
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growing inflation prevents people from eating the recommended amount of meat, fish and other food products. The main growth of meat consumption over the recent years occurred due to the growth of consumption of poultry meat.
Thus, the trends observed in the animal husbandry segment at present (increase of livestock of cattle, pigs and poultry in general and strengthening of demand for high-quality feed) give grounds to expect the growth of demand for feed in a future.
7.2 Production analysis
Dynamics of production of compound feed in the recent years has demonstrated sustainable growth trend although production volumes remain insignificant when compared to 1990 (5.2 million tons in 2007 vs 16.5 million tons in 1990). The segment of compound feed for cattle and pigs is not in the best situation: as before, production of vitamin and protein containing feed supplements is very low: whereas in 1990 827 thousand tons of vitamin and protein containing feed supplements were manufactured, than in 2005 only about 18-20 thousand tons.
Despite difficulties, compound feed industry is increasing its production volumes. Ready animal feed is manufactured in all Ukrainian regions in larger or smaller volumes.
Figure 3. Regional structure of animal feed production in Ukraine, 2006
Kyiv region 22.8%
Other regions 43.9%
Donetsk region 12.3%
Kharkiv region 7.1% Dnepropetrovsk Poltava region region 7.2% 6.7% Source: 'ProAgro'
The most important factor of efficient feed production is reliable supply of feedstock, including forage grain and oilseed mill, especially soybean mill. Sustainable yield of grains and oilseeds in recent years created favourable conditions for compound feed production. Simultaneously, one has to admit that such dependence on forage grain to a large extent determines trends not only in the animal husbandry sector but also has an adequate impact on selling prices of animal husbandry products.
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The main bottlenecks of the compound feed production are:
- fall in demand for compound feed (due to the bankruptcy of large state livestock complexes);
- deterioration of the technical level of the feed mills;
- significant increase in prices on industrial components and energy resources;
- untimely payments and large debts for the supplied feeds by consumers.
Figure 4. Production of compound feed in Ukraine, thousand tons
18,000 16,470 16,000
14,000 12,000 10,000
8,000 6,439 5,200 thousand tons thousand 6,000 4,700 3,128 4,000 2,363 2,486 1,810 2,000 1,126 1,262 0 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007*
Source: State Statistics Committee of Ukraine
* By estimations of ‘Mironovskij Hleboprodukt’
The structure of production of compound feed quite adequately reflects the trends and needs inherent to Ukrainian agriculture. According to the 2006 evaluations, in the overall structure, the bulk of compound feed is made of poultry compound feed – 59 %, pigs – 23 % and cattle – 17 %.
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Figure 5. Structure of animal feed production, 2007
Other products Feed for cattle 4% 17%
Feed for pigs 23% Feed for poultry 56%
Source: 'ProAgro'
The tendency in the production of rough and rich feeds is demonstrated in Table 7. The decline for these types of feeds is considerable in the recent years compared to early 90’s, which is mainly caused by the decrease in cultivated areas under fodder crops and reduction of crop yield.
Table 7. Production of rough and rich feeds in Ukraine (all categories of farms), thousand tons
All kinds of feeds 1990 2002 2003 2004 2005 2006 Fodder roots 27,270 7,449 7,786 8,139 8,015 7,746 Silage and green fodder 98,372 17,114 18,822 14,261 12,509 10,315 Haylage 6,615 3,322 3,032 3,592 3,911 3,951
Source: State Statistics Committee of Ukraine
8 Materials and raw materials
More than 100 items of raw materials are used in the feed mill industry. The most important feed components are forage corn, wheat, soybean and sunflower meals, sunflower oil, wheat bran, beet pulp and feed concentrates and premixes. Structure of raw materials supply formed during the last years is demonstrated in Figure 6.
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Figure 6. Tentative structure of raw materials sources for feed mill industry
Proteins 22%
Bran, cake, siftings 10%
Mineral Other 4% (bagasse, fat, grass flour, molasses) Premixes 3% 1%
Grain forage 60%
Estimation of Khlib Ukrainy
Feedstock components for production of full-value feeds can be divided into three main groups:
1. Components that deliver energy (forage grain, fat).
2. Protein-containing (oilseeds meals, oilseed flour, legumes, fishmeal, yeast, etc).
3. Enriching components (protein and vitamin supplements, premixes).
The need of the compound feed industry for components of Group 1 is completely covered by the internal production, and that for Groups 2 and 3 - deficit of internal production is compensated by imports.
Forage grain
Forage grain is the main component for the compound feed production. Its quality and quantity to a high extent determine the quality of feeds. At present, demand of Ukraine for fodder grain is estimated as 14-15 million tons.
A close look at the current situation in the forage grain sector and at the factors that caused it is presented in chapter 2.1.
Protein
Protein is one of the most important components of animal feed. Usually the following types of protein raw materials are used in feeds production:
- soybean and sunflower meal;
- meat-bone and fish flour;
- dry powdered milk.
Sunflower meal is the most accessible of all oilseeds meals presented in Ukrainian market, which is explained by both its stable domestic supply during the whole season and relatively low price. Generally speaking, meals of other oilseeds (rapeseed, mustard, lax and false flax) are also used in Ukraine but their unstable supply (except for soybean) makes manufacturers of compound feed constantly change recipes and thus big producers prefer
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sunflower meals. Moreover, the quality of offered rapeseed meal despite its lower price often fails to meet the needs of compound feed industry.
Increase of production of sunflower meals in Ukraine in the recent years is explained by a range of factors, including increase of gross production of sunflower. Second, it resulted from introduction of export duties for sunflower seeds and a ban on a customer-furnished scheme of seed exports as well as gradual increase of processing facilities of oil extracting enterprises.
By estimate of ‘ProAgro’ in MY4 2006/07 the volume of domestic consumption of sunflower meals can increase to 450 thousand tons.
Soybean products
Production of soybean in Ukraine also grew, following the growing demand for high-protein component of compound feed.
The volume of soybean processed for various purposes is hard to evaluate more or less precisely for there is no such statistics in Ukraine.
x Part of the harvest of soybean after preliminary treatment is used as animal fodder immediately on farms after processing. The share of this segment is evaluated as 40-45 %.
x About 25-30% is processed by the domestic oil and fat industry. Soybean meal and cake are manufactured in Ukraine first of all by Pologovsky Oil Extraction Plant, Vinnitsa Oil Extraction Plant and Chernovtsy Oil Extraction Plant.
Soybean meal is used mainly in poultry farming where it is an important protein feed component, in pig breeding where consumption of protein meals is less developed - soybean meal is used in considerably lower amounts because of its relatively high price. It is practically never used or is used in very small quantities for the purposes of cattle farming - except for specific characteristics of recipes for cattle fodder - as the branch economy today cannot afford this component.
Until today, the main part of soybean meal consumed by the animal husbandry is imported. Thus, in MY 2004/05 there was imported 66.6 thousand tons of soybean meal, in MY 2005/06 – 156.6 thousand tons. In this respect, taking into account the growth of own soybean production in Ukraine recent years, the development of domestic soybean processing looks promising. A number of companies already invested significant funds for these purposes.
For instance, OJSC ‘Private-Alliance’ (Poltava region) launched a modern plant assembled by an American company ‘Insta-Pro’. Productivity of the soybean extrusion line is 4 tons per an hour. CJSC ‘Freedom Farm International’ (FFI) is planning to construct a soybean processing plant with elevator in Novaya Kakhovka (Kherson region). Project budget is about UAH 190 mn. The project will be commissioned in January 2008. The planned plant capacity is processing 700 tons of soybeans a day. The CJSC Industrial Group ‘Creative’ (Kirovohrad) and CJSC ‘Protein Production’ (Russia) have plans to invest about USD 25 mn into construction of a plant ‘Protein Production’ in Kirovohrad region. Expected processing capacity of the plant will amount to 100,000 tons per a year. The plant will manufacture soybean meal and other products of deep soybean processing.
The level of consumption of soybean meal and cake in MY 2005/06 by enterprises belonging to the compound feed industry is estimated at the level of 300 thousand tons. Potential consumption will mean the growth of this type of components of full-value feed twice or more.
4 - marketing year
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Fishmeal
Annual level of production of fishmeal by domestic enterprises is about 10 thousand tons. It is nearly all used by the domestic market. Besides, about 7 thousand tons of fishmeal annually was imported over the recent period. In 2007, due to the considerable increase of fish yield and its price on the world market there was observed a growth of prices for fishmeal offered by the leading foreign manufacturers, which resulted in some decrease of its imports to Ukraine.
Annual level of consumption of fishmeal by the compound feed plants is about 15-17 thousand tons.
Premixes and enriching components
Premix is enrichment mixture of bioactive substances used for increasing of sustenance of compound feed and improvement of its biological influence on animal organisms.
The basis of Ukrainian market of protein and vitamin supplements and premixes is formed by the imported products, which according to various estimations account for 75 - 90% of total consumption. On this market, one can find products of leading European manufacturers of fodder supplements. Supplies of premixes and other feed supplements are done by over 30 companies, the majority of which are working in all market segments of animal industry (meat and daily cattle breeding, pig breeding, poultry farming, etc).
Ukrainian manufacturers of feed supplements usually take the segment of cheaper and lower-quality (according to the consumers) products. The quality issues are one of the main concerns of leading domestic manufactures receiving considerable attention.
The market of premixes is characterized by constantly growing competition. Due to their ability to finance research and development activities, availability of their own feedstock base and extended network of representative offices all over the world, such transnational companies as BASF, Roche, Adisseo preserve their leading positions both in the sphere of feedstock supply for production of premixes and ready premixes.
Foreign companies and distributors present on Ukrainian market offer a wide range of premixes for all kinds of agricultural animals (e.g. Provimi, BASF, Salvana, Biofactoiy, AgroFeed), as well as addressed premixes, e.g. for poultry farming (Hefeed, Steb Nutrition BVBA., etc.).
Taking into account that the majority of premix components is imported, the mechanism of price-setting for domestic premixes to a large extent depends on the world prices for biologically active substances and other components used for production thereof as well as by price policies of companies that supply these components.
The leading manufacturers of domestic premixes and protein and vitamin containing supplements are OJSC ‘Kremiks’ (Poltava region), private company ‘Tekro-Dnepr’ (Poltava region), OJSC ‘Kamia’ (Kiev region), Plaklitiansky Plant of Premixes and Feed Supplements (Kiev region), concern ‘Stirol’, Trypillya biochemical plant, Kyiv vitamin plant, ‘Khimimpex’ and others. Some compound fodder plants have their own lines for premix production.
The demand of Ukraine market of premixes and protein and vitamin supplements is estimated to be about 80-85 thousand tons with prospects of increase by 2010 to the level of 130-150 thousand tons.
The demand of Ukrainian compound feed market in vitamins (including choline chloride) and amino acids in full is satisfied by import products. Lysine is an exemption since there is one Ukrainian producer OJSC ‘Stirolbiotekh’ manufacturing lysine product ‘Liprot’. According to estimations of market operators, consumption of choline chloride is about 1.3-1.6 thousand tons (both in pure form and as part of premixes) and that of amino acids - to
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12-15 thousand tons. In the consumption structure of amino acids, lysine share is about 50-55 %, threonine – 40- 45 %, and the rest amino acids – 5-7 %.
9 Foreign trade 9.1 Export / import
Foreign trade in the market of ready compound feed for agricultural animals and poultry is not very active. A specific feature characterizing the compound feed market is a limited nature of its competitive environment. Compound feed is characterized by low transportability. In the process of transportation gets self-sorted. To a smaller degree, this drawback is also typical for granulated compound feed. Thus, compound feed is seldom transported from one region to another in significant quantities let alone transportation between different states. Foreign trade of ready compound feed is insignificant. This is mainly a product for internal consumption and thus one observes mainly inter-regional competition in compound feed markets.
Ukrainian producers of compound feeds are focused mainly on the domestic market. Small lots of compound feed for valuable fish are traditionally exported to Russia, Baltic States and Belarus. The largest amount of ready compound feed in recent period was exported in 2005 - 13,200 tons. This was mainly poultry compound feed. Over two thirds of export - about 70% goes to Armenia. Besides, compound feed was exported to Belarus (18%), Russia (10%) and Kyrgyzstan (2%).There are no serious preconditions for considerable increase of export in the nearest future. The reasons are expensive grain and energy resources as well as outdated technologies and facilities.
It is ingredients for compound feed production that are imported and exported in more or less significant quantities. Export of ready compound feed from Ukraine is insignificant compared to the shipments of feedstock for compound feed production. Market operators maintain that the reasons for this is the growth of prices for compound feed caused by transportation and customs costs, risk of delivery delays, risks related to deterioration of quality of products during transportation and other.
The main export commodity item for compound feed production along with forage grain is offal. As to the export of protein and vitamin supplements and premixes, two thirds of it is formed by the lysine-containing feed supplement ‘Liprot’ manufactured by the OJSC ‘Stirolbiotekh’ (Kiev region). It is exported to Russia, Moldova, Poland, Kyrgyzstan and other states. Part of protein and vitamin supplements of European origin is re-exported.
The basis of imports of protein and vitamin supplements and premixes is formed by products manufacture by such companies as ‘Provimi’ (Poland), ‘Salvana International’ (Germany), ‘Agrofeed Ltd’ (Hungary), ‘Steb Nutrition BVBA’ (Belgium) and ‘Sodruzhestvo-Cargo’ LLC (Russia).
Among suppliers of chorine chloride leading position is preserved by the ‘AKZO NOBEL’ Company (The Netherlands), followed by German Company ‘Helm AG’ and Chinook Group Limited Company. The structure of amino acids suppliers consists of the next:
- Lysine suppliers: Ajinomoto Eurolysine (French-Japanese joint-venture), Basf (Germany), ADM (USA);
- Methionine suppliers: Degussa AG (Germany), Novus (USA), OJSC ‘Volzhsky orgsintez’ (Russia);
- Threonine suppliers: Ajinomoto Eurolysine, Degussa AG;
- Tryptophane suppliers: Ajinomoto Eurolysine.
Amino acids are also imported to Ukraine by over twenty Ukrainian companies. The shares of these companies in the market are not equal. The bulk of synthetic amino acids are imported by companies-distributors of the
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world leaders manufacturing feed supplements and the leader of Ukrainian poultry farming - the company ‘Mironovskij Hleboprodukt’ - which imports products only for the purposes of its own consumption. Other companies are also importing amino acids in small consignments mainly for internal use.
In the imports structure, the basis is formed by products for poultry - about 55 %, pigs – 44 % and cattle – 1 %.
Import of compound feed is almost absent. Few fish farms import feed for trout breeding. However, the import volume is insignificant and is less than 1 % of feed sales.
Table 8. Foreign trade in feeds for farm animals and poultry, 2004-2006, thousand tons
2004 2005 2006 (8 months) Code CCFEA Product name Export Import Export Import Export Import 2302 10 Maize gluten 2.9 - 3.4 - 2.3 - 2302 30 90 Mill offal 308.3 - 222.7 - 119.0 - 2303 20 11 Beet chips 67.8 0.5 23.2 - 17.9 - 2303 10 19 Corn feed 31.4 - 33.3 - 39.0 - 2304 Soybean meal 1.7 85.5 3.3 84.3 - 108.7 2309 90 93- Protein and vitamin 12.4 36.3 17.9 56.7 8.1 44.9 2309 90 99 supplem ents, premixes 2309 90 97 Compound feed 4.8 - 13.2 - 2.7 -
Source: ‘ProAgro’
9.2 Regulations on import
The following regulations are applied for the feeds import:
- import duty;
- all imported components for feed production are subject to mandatory certification, veterinary and phyto- sanitary control. The complete transfer of Ukrainian legislation towards the acceptance of international quality and health certificates must be finalized before 30 December 2011..
Table 9. Customs duties for main non-grain components for feed production in Ukraine
After WTO Before WTO Code Product name entering (bound entering accession) 2302 Mill offal 20% 20% 2303 Residues of starch manufacture 20% 20% 2304 Oil-cake and other solid residues 0% 5% 2309 90 Other feed for animals including compound feed 10% 10% 2309 90 99 10 Premixes - 2%
Source: Customs Tariff of Ukraine, ‘Agrosphere’ N10(309), 17 March 2008
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10 Foreign presence in the Ukrainian market of feeds
For the moment, French, Austrian and Dutch companies are the most active in the supply of additives for the concentrated feed production (for example, La Roche, Aventis and Rhone-Poulenc Animal Nutrition of France, Basf of Germany, Nutrifeed of the Netherlands and others).
Some attempts for the establishment of the joint ventures with Ukrainian companies in order to increase animal feed output and introduce the new technologies can be marked:
x The Ukrainian-American JV Kyiv-Atlantic Ukraine was established in 1994. In 1998 the joint venture put into operation integrated agrarian center, which includes facilities for production of compound feed and additives with total capacity 85.000 tons of balanced feed concentrate and formulated premixes per year. Moreover, in 2003 the company started production of small-granulated compound fodder using Ukrainian and Dutch equipment.
x Ukrainian-Hungarian JV Konstanta-Agro (Donetsk region) was established by Hungarian company V plus K, Kostyantynivka compound fodder plant and few citizens of Ukraine. JV Konstanta-Agro is a part of Soyuz-Agro corporation, which owns several poultry farms. The company has invested more than USD 1.5 mn into the compound fodder plant modernisation. JV Konstanta-Agro produces complete feed, protein-vitamin additives and concentrated compound feed for cattle, pigs, poultry and fish.
x CJSC ‘Theeuwes Holding Thegra Ukraine Ltd’ was established by Theeuwes Group (the Netherlands) in 1997. In 2007 Gajsin affiliate of Thegra Ukraine – new plant has been opened in Gajsin town. The purpose of the plant is processing of oil plants (soya, rape, flax) in order to produce feed oilseed meals and vegetable oils, and also soya exstruder. Planning capacity of the plant is 55-60 thousand tons of raw materials per year. Construction activities have being executed since May 2005, investment costs equaled to EUR 2,5 mn. After commissioning of the plant it is planed to construct warehouse for raw materials up to 15 thousand tons, and also compound fodder plant with investment costs 850.000 Euro.
11 Market and price surveys
Products manufactured by feed plants of OJSC Khlib Ukrainy form the major supplies at the animal feed market. The prices for it depend on the structure and cost of raw materials, production costs from one side and market demand from the other side.
The spectrum of compound feed products for each group of animals/poultry is rather wide covering dozens of recipes for each group of feed as well as the fact that each enterprise forms its own line-up of products, so the estimation of average price of compound feed for different groups of products is rather conventional. Besides, at various enterprises the cost of production even of similar compound feed can be different it depends on prices for forage and its delivery mechanisms (own, purchased, customer-furnished), cost of enriching supplements and their composition, energy intensity of equipment, on region, sales channel and other factors. As it is shown in Table 10, the highest prices are for feeds for poultry and fish breeding.
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Table 10. Ukraine: average compound feed prices, 2002-2006, UAH, VAT included (USD 1=UAH 5.05)
2002 2003 2004 2005 2006 Cattle 430 ÷ 750 950 ÷ 2 090 650 ÷ 1 645 650 ÷ 1 400 730 ÷ 1 500 Pigs 320 ÷ 770 870 ÷ 1 435 680 ÷ 1 250 700 ÷ 1 150 780 ÷ 1 270 Poultry 600 ÷ 1 400 1 100 ÷ 1 960 1 050 ÷ 1 670 1 000 ÷ 1 550 1 050 ÷ 1 690 Fish 950 ÷ 2100 1 190 ÷ 2 600 1 150 ÷ 1 900 1 000 ÷ 1 800 1 100 ÷ 1 800 Source: ‘ProAgro’
Taking into account that the dominating component of compound feed is forage grain, developments concerning compound feed prices can be indirectly determined by the dynamics of forage grain prices.
Price trends for forage grain, premixes, protein and vitamin supplements
In March-April 2008 purchasing prices (EXW) for raw materials for compound feed production were as follows5:
x forage wheat – USD 246-248 per ton
x forage barley – USD 242-323 per ton
x forage maize – USD 242-234 per ton
x forage peas – USD 245-455 per ton
Due to the fact that this bulk of components for premixes is imported, the prices for Ukrainian premixes, protein and vitamin supplements as well as protein and vitamin mineral supplements to a large extent depend on the world prices for biologically active substances and other components used for their production as well as price policies of companies that supply these components.
5 Source: ‘ProAgro’
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Table 11. Ukraine: average price level for some feed supplements (USD 1=UAH 5.05)
Product Price, UAH/ton Premix 1% For detachable piglets 4,380 For pigs of the 1 fattening period 3,630 For pigs of the 2 fattening period 3,300 For sows, young replacement livestock, boars 4,380 For veal up to 2 months old 3,960 For 2-6 months old veal 2,940 For 6-12 months old veal 2,420 For 12-18 months old veal 2,120 For bulls 3,180 For milking cows, 3-3.5 thousand l/year 2,460 For milking cows, 3.5-4.5 thousand l/year 2,650 For laying hens 3,810 For broilers 4,590 For geese 4,940 For quails 4,620 For ducks 3,960 Protein and vitamin mineral 10% for laying hens 3,360 supplements 30% for sucking pigs 7,110 20% for weaned pigs 3,550 30% for weaned pigs 3,120 10% for fattening pigs 3,280 20% for fattening pigs 2,810 10% for milking cows 2,690 20% for milking cows 1,750 10% for cattle fattening 1,920 20% for cattle fattening 1,710 Source: ‘ProAgro’
Average prices for analogous types of premixes of domestic origin were evaluated on the basis of information provided by several companies. A difference in the price-setting mechanism depends on the subtle characteristics of recipes, preferences concerning the companies manufacturing active components, suppliers and other conditions. Price difference can amount to 10-20 %. Given all equal conditions, one should not forget that a high-quality premix cannot be cheap (products of fine organic and microbiological synthesis that are part of a premix are expensive products).
Amino acids added to the premix, according to the manufacturers, increase its price by 10-15 %.
In the conditions of growing competition in the market of premixes, in more favourable position are those companies that optimize their recipes in terms of their price and quality to make them most suitable for the customer.
12 Equipment
Ukrainian animal feed mills have both domestic and foreign equipment installed. At present, Ukrainian feed plants can be completely equipped by domestic hardware for production of high-quality animal feed. However, the main problem of domestic equipment remains quality and effectiveness.
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Ukrainian producers of compound feed are interested in close cooperation with foreign equipment and technology suppliers. Thus, during modernization of Bozhkovo feed mill (Poltava region) the modern equipment for premix production was imported from Germany (‘Specht’, ‘Big Dutchman’) and Italy (‘Facco’). Technological schemes of the mill were developed in close cooperation with specialists of Dutch companies ‘Wijnveen’ and ‘Ottevanger’. Moreover, premixes of ‘Steb Nutrition’ (the Netherlands) are used in production process. Among Ukrainian producers of this type of equipment ‘Tekhna’ plant is to be mentioned.
Equipment for production of compound feeds is imported from Denmark (‘Sprout Matador’), The Netherlands (‘Van Aarsen’, ‘HeemHorst’), Switzerland (‘Buhlerag’) and etc.
Ukrainian manufacturers of compound feed being a part of vertically or horizontally integrated animal husbandry complexes are interested in foreign equipment for related sectors (e.g. elevators hardware).
13 SWOT analysis
Strengths
Combining into large agro-industrial complexes
Availability of capacities for compound animal feed production for all groups of cattle, pigs and poultry
In the recent years investments came to cattle breeding, pig and poultry farming. Investors are mainly owners of large dairy and meat processing enterprises and poultry farms
Weaknesses
Strong dependence on grain harvest
Unstable grain supply due to weather conditions and other grain market factors
Dependence on the level of prices for compound feed ingredients, high purchase price for forage grain and expensive imported feed additives
Outdated equipment
No culture of compound feed consumption at small livestock-breeding farms, decrease of cattle breeding
Current deficit of feed protein and vitamin supplements of domestic origin
Opportunities
Attraction of investments and introduction of modern technologies to the animal feed industry
Increase of compound feed demand for poultry due to economic growth in the poultry and pig farming sectors
In the nearest future large feed mills will produce mainly protein-mineral vitamin additives and concentrated compound feed, which require expensive modern equipment. These products will serve as semi-product for further preparation by final consumers.
Threats
Decrease of the demand for feeds due further livestock slaughtering
Financial difficulties of the small farms with timely payments for feed
Russian embargo for Ukrainian animal products
Market Study Food Sectors in Ukraine – Part E: Animal Feed Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613. E-R Revision: 1 Date: 29 May 2008 Page: 28 of 33
Further decrease of cultivated areas under fodder crops
14 Conclusion and prognosis
The compound feed industry is a very promising branch although it is directly dependent on the situation in poultry and pig farming. The flow of investments into agriculture facilitated development of large poultry and pig breeding complexes.
The branch is very much dependent on the level of prices for compound feed ingredients. Under conditions of prolonged low profitability of the animal husbandry branch (except for poultry farming), any increase of price for compound feed ingredients has a negative impact on situation in the industry and forces many agricultural manufacturers to decrease the livestock size.
At the same time, the recent trends demonstrate that manufacturers try to replace the available low-productive dairy and meet herd with pedigree stock, which, in its turn, necessitates changes in approaches to feeding, i.e. use of balanced feed. A very pleasing is the fact that in the recent years investments came to the animal husbandry sector, and investors are mainly owners of large dairy and meat processing enterprises and poultry farms who realize that they can receive the desirable profits only if they ensure adherence to the technological regime and thus invest significant resources also in fodder production.
At the same time, experts believe that there will not be drastic increase in compound feed production in Ukraine in the nearest 2-3 years. The growth will be commensurate with the growth of the needs of animal husbandry industry and the rate of development of commercial production of meat and milk.
Furthermore, Russian embargo for Ukrainian animal husbandry products escalated all problems of the domestic animal husbandry base whereas commercial production of milk and meat becomes virtually vital both for cattle breeders and processing sector in conditions of Ukraine's European integration and the upcoming WTO accession, which will have a respective impact on the increase of demand for full-value feed.
So far, the deficit is covered by the imports of components for compound feed production or is compensated through the use of forage grain for fattening of animals.
The main segment lacking in the process of feeding for highly intensive meat and dairy production, according to the specialists, is also the current deficit of feed protein and vitamin supplements of domestic origin, absence of functional workload of available production facilities as well as the present level of investments and local environment in the agricultural sector. The fact that the rather conservative private sector accounts for the larger part of cattle and poultry livestock is an obstacle for active development of compound feed production.
In contemporary conditions compound feed manufacturers need first of all to seek all possible forms of integration and cooperation with animal husbandry, poultry and fish farms.
Second, they have to develop new recipes and technologies in order to manufacture competitive products and pay more attention to marketing as a necessary mechanism in conditions of a rapidly changing market situation.
Improvement of regulatory policy concerning food products market as well as the further reform of the agrarian sector give grounds to forecast further increase of food products industry in Ukraine and the growth of agricultural products processing by 16% already in the nearest future. According to the Ministry of Economy of Ukraine, the supply of cattle and poultry for industrial processing will increase due to the increased of the share of large-scale enterprises as well as private and private cooperative enterprises operating in the sphere of processing and sales of products.
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Besides, it is also envisaged a gradual increase of the size of cattle and poultry livestock which will also facilitate the increase of meat and milk processing. Such factor as the growth of production of agro-industrial complex products will reserve its significance as well as the further expansion of demand for Ukrainian food products in the foreign markets. As expected, Russia will probably mitigate its position concerning imports of Ukrainian food products.
Fodder expenses form the main component of the cost of meat production that is why premixes and multi- enzyme compositions will be used more and more widely for the purposes of cattle and poultry feeding in order to increase the feed digestibility and nutrient value by 30%.
There is also a need to endure further development of integration of animal husbandry industry, i.e. a merger of production, processing and sales of products into a single technological chain.
Transition of the branch to energy- and resources-efficient technologies, preservation of specialization at large complexes and other comprehensive measures will help to make it profitable.
At the same time, one has to mention that Ukrainian animal husbandry and compound feed production industries can survive in the present conditions only provided that there is efficient governmental subsidizing, low loan rates and risk insurance for animal husbandry. Animal husbandry and compound feed industries require real assistance in order to make true all those forecasts that are set forth in numerous programs, which often fail to achieve the expected level due to a formal approach to the tasks encountered by animal breeders.
15 Opportunities for Dutch technology and equipment
At present, the following opportunities are evident for the Dutch businesses:
Equipment for feed and compound feed plants is in demand, as well as the equipment for the production of premixes and related sectors facilities;
Conceptual design and equipment for additives production (e.g. lysine);
Import of such additives as vitamins, premixes, meat-bone and fish flour, soybean meal, is needed;
Establishment of the joint ventures with Ukrainian companies.
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Attachment 1 Organizational structure of the branch
MAP
Department for Feeds of MAP UkrMizhGospKombikorm OJSC Khlib Ukrainy
Regional agricultural Regional Associations management for Elevators and Grain Processing Industry
Technical Department
Agricultural Inter-farm mixed Inter-farm mixed Grain processing Mixed fodder enterprises fodder shops fodder plants plants plants
Market Study Food Sectors in Ukraine – Part E: Animal Feed Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613. E-R Revision: 1 Date: 29 May 2008 Page: 31 of 33
Attachment 2 Leading producers of compound feed for cattle
No. Company name Address Telephone Fax Web e-mail Contact person 1 JSC 'Ilyich Iron and Steel 1, Levchenko str., +38 062/ 3879145 +38 062/ 9530030 www.ilyich.com. [email protected] Works of Mariupol' Mariupol, Donetsk region, +38 062/ 3879151 ua etsk.ua (Agricultural complex) 87504 2 OJSC 'Slovianskyi Demyana Bidnoho str., +38 06262/ 38308 compoud feed plant' Slaviansk, Donetsk region, 84107 3 Burat' LLC 17, Vyzvolennia str., +38 0532(2)/ 667880 +38 0532(2)/ 74041 Poltava, 36000 4 Agricultural firm 2, Radianska str., +38 05458/ 51943 +38 05458/ 59417 Mr. Nikolaj Purej, Director 'Voskhod' Nytsakha village, (+38 05458/ 59425) Trostianets district, Sumy region, 42654 5 Myrohoschansky 1, Studentska str., +38 03656/ 77490 +38 03656/ 42790 myrogoschaMAK Mr. D.O.SHvarc, Director agricultural college Myrohoscha Druha village, +38 03656/ 77773 @ua.fm Dubno district, Rivne region, 35624 6 CJSC 'Ecoprod A.T.' 16, Vorovskoho str., +38 062/ 3340146 +38 06244/ 41981 [email protected] Mr. Ivan Mel'nik, Director General Volnovakha, Volnovakha +38 06244/ 41036 district, Donetsk region, +38 06244/ 41173 85700 +38 06244/ 41641 +38 06244/ 42483 7 Agricultural LLC named Kalashnyky village Poltava +38 05322/ 97445 Mr. ȱvan Stepanenko, Director after Kalashnyk district, Poltava region, 38753 8 OJSC 'Mykolayiv BP' 122, Persha Slobodska +38 0512/ 508501 +38 0512/ 246259 www.mlyn.mykol [email protected] Mrs. Vera Kovalenko, Head of commercial str., Mykolayiv, 54002 +38 0512/ 508495 +38 0512/ 508511 ayiv.com department (+38 0512/ 508501) +38 0512/ 508693 Mrs. Larisa Kachanova, Leading specialist of sales department (+38 0512/ 508236) Mrs. Alla Skiba, Head of PTL (+38 0512/ 508985) 9 PE 'Rosiya' 1, Zatonskyi str., Velykyi +38 03846/ Mr. Zagrods'kij ȱvan, Director Oleksandriv village, 21341;+38 03846/ Vinkovetsky district, 26546 Khmelnytsky region 10 'Druzhba Narodiv' 1, Pol'ova str., Petrivka +38 06556/ 25844 http://www.miroh Mr. V.A. Mustetsov, Director General Agricultural LLC (branch village, Krasnohvardiyskyi +38 06556/ 24442 leb.kiev.ua/en/ab of OJSC 'Myronivsky district, Crimea, 97012 out/enterprises/d Hliboproduct') ruzhba_narodov/
Market Study Food Sectors in Ukraine – Part E: Animal Feed Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613. E-R Revision: 1 Date: 29 May 2008 Page: 32 of 33
Leading producers of compound feed for pigs
No. Company name Address Telephone Fax Web e-mail Contact person 1 'Hrakivskyi BP' 1, Poliova str., urban-type settlement +38 05746/ 22793; +38 LLC Chkalivske, Chuguyiv district, 05746/ 51156; +38 05746/ Kharkiv region, 63500 51393 2 OJSC 'Kalyta 2, Peremogy str., urban-type +38 04494/ 68305 +38 04494/ 50291 Mr. Petro Tyshhenko, experimental settlement Kalyta, Brovary district, +38 04494/ 68787 Director compound fodder Kyiv region, 07420 and premix plant' 3 JSC 'Ilyich Iron 1, Levchenko str., Mariupol, Donetsk +38 062/ 3879145 +38 062/ 9530030 www.ilyich.com.ua [email protected] and Steel Works region, 87504 +38 062/ 3879151 etsk.ua of Mariupol' (Agricultural complex) 4 Ahropromyslova 175, Kirov str., Melitopol, Zaporizhia +38 06192/ 61859 +38 06192/ 422486 Mrs. Valentyna Popova, Kompaniya' LLC region, 72300 Director 5 OJSC Demyana Bidnoho str., Slaviansk, +38 06262/ 38308 'Slovianskyi Donetsk region, 84107 compoud feed plant' 6 Agro-Avrora' 17, Kavkazka str., Prydniprovske +38 0566/ 675621 +38 0566/ 675513 avrora@nikopol. Mr. Andriy Pomazansky, State Enterprise village, Nikopol district, net Director General Dnipropetrovsk region, 53280 7 OJSC 111, Lutuhinska str., Luhansk, 91020 +38 0642/ 934518 +38 0642/ 556975 www.mill.lg.ua [email protected] 'Luhanskmlyn' +38 0642/ 346538 a 8 PE 'Rosiya' 1, Zatonskyi str., Velykyi Oleksandriv +38 03846/ 21341 +38 03846/ 26546 Mr. Zagrods'kij ȱvan, village, Vinkovetsky district, Director Khmelnytsky region 9 'Druzhba Narodiv' 1, Pol'ova str., Petrivka village, +38 06556/ 25844; +38 http://www.mirohleb.ki Mr. V.A. Mustetsov, Agricultural LLC Krasnohvardiyskyi district, Crimea, 06556/ 24442 ev.ua/en/about/enterp Director General (branch of OJSC 97012 rises/druzhba_narodo 'Myronivsky v/ Hliboproduct') 10 'Agro Soyuz' LLC Mayske village, Synelnykivskyi +38 05663/ 53235; +38 www.agrosoyuz.ua [email protected] district, Dnipropetrovsk region 05663/ 53321 a
Market Study Food Sectors in Ukraine – Part E: Animal Feed Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613. E-R Revision: 1 Date: 29 May 2008 Page: 33 of 33
Leading producers of compound feed for poultry
No. Company name Address Telephone Fax Web e-mail Contact person 1 OJSC 'Myronivsky Plant for 1, Elevatorna str., Myronivka, +38 04474/ 51667 +38 04474/ 51457 http://www.mirohleb.kiev Mr. O.V. Zhukotansky, Manufacturing of Feeds Myronivka district, Kyiv region, .ua/en/about/enterprises Chairman of the Board and Cereals' 08800 /myronov_plant/ 2 ‘Kyivkombikorm’ CJSC 98, Frunze str., Kyiv, 04080 +38 044/ 4171637; ‘Complex Agromars‘ +38 044/ 4171093 3 Branch ‘Tavriyska’ of OJSC 13, Promyslove str., Tavriysk, +38 05549/ 74732 +38 05549/ 74732 http://www.mirohleb.kiev Mr. B.S. Herman, 'Myronivsky plant for the Kherson region, 74988 +38 05549/ 74742 +38 05549/ 74742 .ua/en/about/enterprises Director manufacturing of feeds and /tavriyskiy/ cereals' 4 OJSC 'Boryspil 46, Pryvokzalna str., Boryspil, Kyiv +38 04495/ 53204 +38 04495/ 53204 Mr. Valeryj Svyteckyj, experimental compound region, 08300 +38 04495/ 53978 Director feed plant' +38 04495/ 53645 +38 04495/ 71401 5 OJSC 'Dykanka compound 4, Poltavska str., urban-type +38 05351/ 91106; Mr. Oleksandr Fedorov, feed plant' settlement Dykanka, Dykanka +38 05351/ 91279 Director district, Poltava region, 38500 6 'Izium BP' State Enterprise Kapytolivka village, Izium district, +38 05743/ 24425; Mr. Nikolaj Rybalko, Kharkiv region, 64319 +38 05743/ 26834; Director +38 05743/ 26839 7 CJSC ‘Feonis’ 2, Stepova str., Rozivka village, +38 062/ 3322630 +38 062/ 3322630 [email protected] Shakhtarskyi district, Donetsk +38 062/ 3322267 nbass.com region, 86221 +38 062/ 3322263 8 ‘Konstanta-Agro’ LLC 1, Dokuchayiva str., Berestok +38 062/ 3351215 village, Kostiantynivs'kyj district, Donetsk region, 85107 9 OJSC 'Poultry plant ‘Pershe 2, Tsentralna str., Khutory village, +38 0472/ 300208; Travnia’ Cherkasy district, Cherkasy region, +38 0472/ 305050; 19603 +38 0472/ 305221; +38 0472/ 472449 10 CJSC 'Poultry integrated 15, Kalinin str., Pershotravneve +38 05662/ 32902; plant ‘Dniprovskyi’ village, Nikopol district, +38 05662/ 34219 Dnipropetrovsk region, 53221 11 ‘Kyiv-Atlantic Ukrayina’ JSC 8, Stepova str., Myronivka, Kyiv +38 044/ 2463854 with foreign investments region, 8800
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Table of contents Page
1 Introduction 2
2 General overview of the branch 3 2.1 Overview of Ukrainian confectionery 3 2.2 Main trends and problems in confectionery industry 5
3 Branch structure 6
4 Sales system 7
5 Ukrainian market of confectionery products 9 5.1 Market size, consumption and demand 9 5.2 Market performance by segment 9
6 Production analysis 10 6.1 Assortment of final products 10 6.2 Output analysis 13
7 Materials and raw materials 14 7.1 Raw materials 14 7.2 Packaging 15
8 Foreign trade 16 8.1 Export / import 16 8.2 Export 16 8.3 Import 17 8.4 Regulations on import 18
9 Foreign presence in the Ukrainian confectionery market 18
10 Competitive analysis and price surveys 19 10.1 Market share survey 19 10.2 Price survey 22
11 Technology and equipment 23
12 SWOT analysis 24
13 Conclusions and forecast 25
14 Opportunities for Dutch technology and equipment 25
Attachments:
1. Organizational structure of the branch
2. Leading confectionery producers
Market Study Food Sectors in Ukraine - Part F: Confectionery Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.F-R Revision: 1 Date: 29 May 2008 Page: 2 of 34
1 Introduction
Confectionery industry of Ukraine occupied one of the leading positions in the former Soviet Union. It provided almost 1/4 of the overall confectionery production.
Since 1991 due to the economic decay, deficit of raw materials, and inflow of imported competitive confectionery products, the production of confectionery in Ukraine reduced from 1 million tons to 0.3 million tons in 1996. The downward tendency was changed only in 1997. In 1997-2002 the average annual production growth was about 17% (30% in 2000). In 2005 production reached the level of 1990. In 2007 7% of growth has been reached.
The reasons of industry revival are as follows:
9 quick privatisation in the industry ;
9 relatively easy mastered confectionery technology;
9 extensive local raw material base;
9 extension of export possibilities;
9 state support in a way of reduction of import duties for raw materials and equipment, and present status of open trade with Russia that facilitated an increase in export supplies;
9 increase of population purchasing power;
9 effective management.
Almost 100% privatisation in the industry has led to the appearance of new efficient owners (both of local and foreign origin) invested in modern processing and packaging lines, increased the quality of final products and extended the assortment, introduced the new brands and provided the effective marketing. As an important component of the development strategy, confectionery leaders invest considerable amounts in the human resources.
Large confectionery players have chosen the scheme when mother companies are responsible for the procurement and logistics of all necessary materials and sales of products, while confectioneries have to produce high quality sweets in required volumes.
During the last years the market demand for confectionery has been stabilized, consumer prefer domestic products that creates favourable conditions for the local manufacturers. The development of consumer tastes and population incomes growth create opportunities for the premium segment development.
Main trends in the branch:
The confectionery market is practically stabilized at the production level of 1 million tons a year.
In 2007 an assessed value of the confectionery market of Ukraine has exceeded USD 2 billion1, which is 15-20 % more than last year. Such growth can be explained by expansion of products in the higher price segment.
During the last two years main producers paid special attention to the premium segment development.
Consumption of confectionery products per capita during 2003-2007 in average increased by 28% (from 18 kg in 2003 to 23 kg in 2007), exceeding the level of 1990 (21 kg)
1 1 billion = 109
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Farinaceous products were the most rapidly developed confectionery sector in 2007 while the second result was demonstrated by chocolate confectionery.
Having occupied the best niches in the local market, local confectioners confidently entered foreign markets.
Favourable conditions in the economy (growing population income and demand for confectionery goods, existing ‘best practice’ examples, etc.) stimulate highly competitive environment with follow-up in quality of goods and optimisation of the assortment.
Switch from traditional ‘soviet’ recipes and assortment of sweets to new kinds of confectionery products based on new technologies.
2 General overview of the branch 2.1 Overview of Ukrainian confectionery
Number of enterprises: By different assumptions, there are nearly 800 confectionery enterprises in Ukraine. 28 enterprises are specialized confectioneries that manufacture the wide assortment of sweets. Confectionery assortment of Ukrainian producers within 100 – 300 items products.
Production: During 2004 – 2007 average growth of confectionery production was about 6%. Capacity utilization doubled in 2007 comparing to 1999 (§ 80% – 90%)
Market leaders: Market leaders are represented by main players that have from 4% to 26% share of ‘sweet’ market. The leaders are as follows: Roshen Confectionery Corporation, AVK Concern, Kiev-Konti, Nestle– Svitoch, Kraft Foods Ukraine, Kharkiv Biscuit Factory & Kharkivyanka Confectionery, Poltavacondyter, Zhytomyrski Lasoschi, Svit lasoschiv. Ukrainian confectionery market is relatively structured: share of the first 8 market players in total production volume is over 71% (share of Top-6 is 67%), they control over ¾ of export.
Export: Export makes almost 31% of the overall confectionery production. In 2007 main importer was neighbouring Russia with 58% of the total exported confectionery (in 2004 it was almost 70%). However, there is a tendency for the Russian export share decrease toward new big exporters (Kazakhstan, Azerbaijan, and Moldova).
Import: ‘Sweet’ market of Ukraine is by 95% of local origin and by only 5% - of imported confectionery. Imported production share increased from 3% (in 2004) to 5% (in 2007). Average growth was about 30 % (2004 - 2007).
Modernization: Main local producers introduce new processing technologies that lead to increase in efficiency and productivity as well as to qualitative changes in assortment.
Assortment: Ukrainian confectioners introduce dozens of new confectionery products a year.
Confectionery segments: Farinaceous confectionery products represent the biggest segment (45% in 2007), chocolate confectionery has 32% (2007) in overall production output, share of sugar products was 23%.
Consumption preferences: The main consumption preferences are products with filling, glaze, layer, powder. Other products with high demand on the market are: crackers, rolls, waffle, chocolate glazed candies with waffle base, and various cakes.
Market Study Food Sectors in Ukraine - Part F: Confectionery Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.F-R Revision: 1 Date: 29 May 2008 Page: 4 of 34
Quantity of the confectioneries in Ukraine grew year by year and was over 800 at the beginning of 2007. Based on estimations of the Agency for Industrial News, 90% of confectionery enterprises produce farinaceous confectionery products while only 10% manufacture sugar products (chocolate, caramel, candies, dragee, etc). The confectionery market capacity in Ukraine is about 800-1,090 thousand tons per year.
Figure 1. Confectionery market in Ukraine
1200 1082 1023 1014 963 1000 868 768 778 801 800 680 629 600
336 thousand tons thousand 400 309 296 260 281
200 21 26 41 45 55 0 2003 2004 2005 2006 2007 Consumption Production Export Import
Source: State Statistics Committee of Ukraine
Figure 2. Production of confectionery in Ukraine
2,000 1800 1900 1,800 1,600 1500 1,400 1200 1,200 1050 1023 1082 963 1014 1,000 868 800 600 400 200 0 2003 2004 2005 2006 2007 USD million Thousand tons
Source: State Statistics Committee
The total capacity of 28 main large-scale Ukrainian confectioneries is about ¾ of the total Ukrainian capacity for confectionery production.
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Ukrainian confectionery vanguard is formed by Roshen Confectionery Corporation with the market share of 25%, Kiev-Konti Group (over 14%), AVɄ concern (about 12%), Kharkiv Biscuit Factory and Kharkivyanka Confectionery (united brand ‘Biscuit-Chocolate’) (in total – about 6%), Poltavacondyter (5%) and Nestle-Svitoch (3%).
Confectionery products may be separated by three groups:
(1) sugar confectionery (except chocolate and chocolate products): chocolate sweets, sweets with chocolate or confectionery glaze; non-glazed sweets, caramel, dragee, iris, marmalade;
(2) chocolate, chocolate products: chocolate bars and products;
(3) farinaceous confectionery.
Only large confectioneries produce the whole range of confectionery products, small and medium factories usually manufacture the limited number of goods. However, in recent years the tendency for specialization of every confectionery was observed in the industry.
Large confectioneries are mainly located in the regional centres, except for Trostyanets Chocolate Factory of Kraft Foods Ukraine (located in Sumy region), Mukacheve Confectionery of AVK (Zakarpattia region) and Mariupol Confectionery of Roshen (Donetsk region).
During the last years the main dynamic changes in assortment were observed in production of chocolate bars (mainly because of aerated and high quality thin chocolate with additives); chocolate candies (with various praline filling); chocolate batons and sticks (especially of waffle group); rolls, biscuits (including biscuit cookies), glazed cookies and cookies with various filling. Range of Eastern sweets and diabetic products is also developing.
The high season is during national holidays (December - January, March - April). From the assortment point of view, summer is the high season for caramels (though summer is a very low season, especially when fresh fruit becomes widely available at the reasonable price), while winter – for chocolate sweets. In the period before holidays sweets in boxes are the most popular.
2.2 Main trends and problems in confectionery industry
During last few years growth of population income and culture of sweet's consumption promoted the increase of consumption of more qualitative and expensive confectionery products. It can be traced the tendency of the production orientation to a premium class (from USD 3 for a box of sweets of average weight). Premium confectionery segment has good prospects for the development under condition of further improvement of well- being of the population.
Large confectioneries are engaged in updating of manufacture, developing of own logistics complexes, registration of trade marks, introducing of new products or revival of forgotten recipes. A serious place among new products is allocated to farinaceous confectionery products.
The expansion of export geography testifies to ample opportunities for Ukrainian products abroad.
Confectionery leaders that export large volumes to Russia are sensitive to Russian regulations on import of confectionery products. In 2001 Russia initiated antidumping investigation on sugar confectionery of Ukrainian origin. This investigation led to introduction of specialized import duty (21%) and VAT (20%) applicable to sugar confectionery coming from Ukraine. Because of this, Ukrainian import fell down five times (from 72 thousand tons in 2001 to 15.6 thousand tons in 2003). Ukrainian producers tried to keep gained positions in Russian market by
Market Study Food Sectors in Ukraine - Part F: Confectionery Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.F-R Revision: 1 Date: 29 May 2008 Page: 6 of 34
increasing export of cocoa-based products, including caramel with 0.5% cocoa and with opening own enterprises in the Russian territory.
In 2006 Russia raised duties on caramel export, which entails losses in USD 36 million. As in 2004-2006 Russia was the largest consumer of cheap Ukrainian confectionery, actual loss of this market entailed serious changes in structure of domestic production.
On the 23 of March 2008 the government of Russia has cancelled special import duties on caramel production. In particular, duties on cooked sweets with a stuffing and without a stuffing, toffee, caramel were canceled. Production containing cocoa, were taxed at a rate of EUR 0.6 per kg. Abolition of duties is opening an access of Ukrainian small-size confectionery enterprises to the Russian market.
Two years before the caramel crisis almost all players of ‘top nine’, the exceptions were Nestle and Kraft Foods Ukraine, have been aimed at manufacture of maximum wide spectrum of confectionery products. Caramel crisis and market saturation have compelled large manufacturers to search for new niches and to concentrate on narrower assortment.
3 Branch structure
Process of concentration and consolidation observed in the industry has led to the situation when few leaders share over half of the market. Besides there is a lot of small- and medium-size confectioneries mainly working in farinaceous confectionery segment and selling their products on the local regional markets.
National confectionery industry is represented by enterprises-members of UkrKonditer (Ukrainian Confectioner), Ukrprodspilka (Ukrainian Food association), Ukrkhlibprom (Ukrainian Bread Industry) and non-associated private enterprises.
The umbrella structure for confectionery industry is called UkrKonditer. This branch association was founded during privatisation period and since 1991 represents interests of local producers. Its main task is to represent and to lobby the interests of Ukrainian confectioneries, independent enterprises under its patronage at the market and in the government.
UkrKonditer (Ukrainian Confectioner) 1, Grinchenko St. 01001 Kyiv, Ukraine Mr. Stanislav Mironenko General Director Tel.: + 380 44 279 6913 Fax.: + 380 44 228 3642 e-mail: [email protected] website: www.ukrkonditer.kiev.ua Mr. Yuriy Kozhanov First Deputy General Director – Tel.: + 380 44 229 7133 Technical Director Mrs. Lidiya Sokha Deputy General Director for Tel.: + 380 44 229 7014 economic issues
At present, UkrKonditer unites 28 confectionery companies, 3 enterprises manufacturing food concentrates and factory for production of lactic acid. Total production output by confectioneries of CJSC UkrKonditer covers ¾ of overall confectionery production in Ukraine
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UkrKonditer provides coordination of the activities of the associated enterprises for the following activities: investments by foreign and local investors into technical development, aesthetic retail packaging and increase of competitive position; establishment of the joint ventures based on existing production facilities; extension of sales in the local and foreign markets.
JSC Ukrprodspilka represents over 350 confectioneries of medium and small scale that produce 7% of total confectionery output.
Ukrkhlibprom is an association of bread baking enterprises that unites major part bakery (including farinaceous confectionery) products manufacturers in Ukraine.
The level of privatisation in the confectionery sector is one of the highest in Ukraine - about 100%. Most of large- scale confectioneries are CJSC. Practically all small-scale enterprises (cafe-baker’s shops) have a status of ‘Private Enterprise’. All newly organised enterprises are mainly limited liability or joint stock companies.
By their adaptation to new market conditions, Ukrainian confectioneries can be divided into three groups:
those who have attracted foreign investors (Kraft Foods Ukraine, Nestle-Svitoch);
affiliated with local investors (Roshen Confectionery Corporation, Kiev-Konti and others);
survived themselves due to the successful industrial and financial activity (Kharkiv Biscuit Factory, Odessa Confectionery).
Enterprises belonging to local investors like factories of Roshen Confectionery Corporation are functioning normally since local investors are not afraid of ‘dead’ enterprises that in the long run start to operate steadily under the successful professional management. The work of corporations is organised under the give-and-take scheme: corporations are responsible for all procurement and sales of products, while confectioneries only have to produce high quality sweets in required volume.
Among confectioneries with Ukrainian investments the following companies are to be mentioned: Technocenter (Ivano-Frankivsk Confectionery), Petrus Holding Company (Cherkasy Biscuit Factory and Shpola Confectionery), Zaporizhia Regional Bank (Zaporizhia Confectionery).
4 Sales system
In confectionery sector two main channels of sales are used: through distributors or other trading companies; through own sales networks and representative offices of the confectioneries. The advantages of having the own sales network are as follows: it improves company’s image; helps to speed up the working capital turnover; makes easier direct communication with customers.
However, the most important for the producer is to find a right balance between the sales through own network and through distributors.
Sales through the retail networks in Ukraine are given in Figure 2 below.
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Figure 3. Retail sales of confectionery
4,480 4,500 4,000 3,649 3,500 2,752 2,751 3,000 2,252 2,522 2,500 2,000 1,500 1,000 500 0 2005 2006 2007
Thousand tons UAH million (USD 1 = UAH5.05)
Source: State Statistics Committee
In retail outlets the minimum assortment package of each producer includes 2-3 dozen of positions – several for every confectionery group – chocolate with or without filling, caramel, chocolate candies sold in weight and a la carte, cookies, etc. Promotion of the minimum package is rather difficult task. In practice, such package is successful not by every producer. Thus, within 20–30 items that represent trademark in whole, usually there are some hardly sold positions that are sometimes considered as extra products to popular ones.
Following a Central and Eastern Europe experience some of the wholesale traders of food products open own supermarkets, discount markets and retail cash & carry centres.
All big confectionery companies have own distribution facilities. As a rule delivery covers key channels of realization (large networks, supermarkets), as well as kiosks, pavilions and the open markets.
To meet requirements of retailers and increase effectiveness of logistics big manufacturers started to build logistics centres. So in the beginning of July, 2007 Kiev-Konti group has opened the logistics center in Makeevka (Donetsk region), the modern automated warehouse with the area of 16 thousand square meters for storage of 12 thousands tons of products. At the end of February 2008 Roshen has opened a warehouse of total area 60 thousand square meters and capacity 45 thousand tons for finished goods and 20 thousand tons for raw material in Yagotin (Kiev region). Improvement of production storage conditions, optimization of good deliveries become an important competitive advantage of market operators.
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5 Ukrainian market of confectionery products 5.1 Market size, consumption and demand
Ukrainian confectionery market size is about 1 million tons per year. Sales in 2007 are estimated at the level of USD 2 billion.
After a sharp drop at the beginning of 1990-s sector completely recovered by 2005. In 2005 confectionery production in Ukraine per capita was get to mark 21,6 kg per capita and market now is close to saturation.
Figure 4. Confectionery production and consumption in Ukraine2
25
20 23.2 21 21.6 21.6 21.4 15 20.2 18.0 kg 15.7 17.2 15.0 16.6
10 16.2 13.6 14.3 13.0 10.4 5 11.7 8.0 10.6 10.0 8.3 6.5 6.1 5.3 5.5 0 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Poduction per capita Consumptiont per capita
Source: State Statistics Committee
Ukrainian confectionery market has finished a stage of the formation and is in a stage of strong competition, attraction of new consumers by using novelties of production, advertising and marketing policy, searching of new commodity markets. The leading Ukrainian confectionery companies plan to strengthen the leading positions at the expense of export to Russia, Georgia, Kazakhstan, Armenia, Azerbaijan, Baltic, Moldova and other countries.
5.2 Market performance by segment
Confectionery market may be conditionally divided into three main segments: sugar confectionery; farinaceous confectionery; chocolate confectionery.
2 Agency of Industrial News gives different figures for the consumption: 2002 – 11.83 kg per capita, 2003 – 11.87 kg, 2004 – 12.4 kg, 2005 – 15.6 kg; available at: http://www.ukrkonditer.kiev.ua/passport/
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Figure 5. Market structure by confectionery segments, 2004 – 2007
100%
90% 24% 23% 29% 28% 80%
70%
60% 30% 32% 32% 30% 50%
40%
30% 42% 44% 45% 20% 41%
10%
0% 2004 2005 2006 2007
farinaceous confectionery chocolate confectionery sugar confectionery (w ithout cocao)
Since January 2004 the State Statistics Committee of Ukraine accepts new statistical classification of production which is approached to European, so it is difficult to follow trends before 2004, but nevertheless one can mention that share of farinaceous products slightly increased (from 41% in 2004 to 45% in 2007) mainly on the expense of sugar confectionery (decreased from 29% to 23%).
Almost all groups of confectionery products show the development based on introduction of modern technology and equipment.
6 Production analysis 6.1 Assortment of final products
From the start of activity main players of the market have extended assortment of their products up to 100-300 items, covering almost all confectionery segments.
However, nowadays Ukrainian confectioners are revising their assortment policy. The keeping of traditionally extensive range of products is started to be very expensive due to extra costs for individual packaging, recipe and technology, as well as readjustment of the processing equipment.
New products coming to the market can be divided into two main types:
1) new products within the own assortment already present on the market – this products may be developed by renewal of packaging, changes in weight and size, recipe corrections and new positioning tactics; introduction budget here may count for USD 500 thousand
2) new products both for producer and the market, with new taste, manufactured based on new technology;
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introduction budget can reach some million dollars.
Main recent trends in assortment change are:
switching from ‘soviet traditional’ to ‘brand-new’ and variety assortment;
introduction and development of snack confectionery products;
revising of recipes and forms of confectionery products;
growing share on newly introduced products in a year (up to 100 kinds of new products);
increase in share of premium products;
registering by confectionery leaders almost every kind of confectionery products as a trademark.
The structure of confectionery production per main groups of confectionery products according to new classification is given in Table 1 an Figure 6 below.
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Table 1. Confectionery production in Ukraine, thousand tons
Description 2003 2004 2005 2006 2007
Chocolate and other finished food products with cocoa, in briquettes, plates or brick 205 244 283 303 325 Increased to previous year , % 19% 16% 7% 7% Including chocolate and analogous products with filling or without 33.3 36 40.1 39.2 43.6 to previous year , % 8% 11% -2% 11% chocolate candy 77.9 86.4 106 144 159 to previous year , % 11% 23% 36% 10% sugar confectionery or with sugar substitute with cacao 89.8 115 129 113 119 to previous year , % 28% 12% -12% 5% paste products with cacao 1.8 2.7 3.4 2.9 3.1 to previous year , % 50% 26% -15% 7% Sugar confectionery(including white chocolate) without cacao 293 310 285 241 181 to previous year , % 6% -8% -15% -25% including sugar covered products, confectionery with jelly 17.6 24 39.5 46.7 50.5 to previous year , % 36% 65% 18% 8% Caramel, toffee and analogous sweets 244 233 194 141 122 to previous year , % -5% -17% -27% -13% Dragee 7.9 6.1 8.5 8.5 8.3 to previous year , % -23% 39% 0% -2% Farinaceous confectionery 370 409 455 470 522 to previous year , % 11% 11% 3% 11% Confectionery, total 868 963 1023 1014 1082 to previous year , % 11% 6% -1% 7% Source: State Statistics Committee
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Figure 6. Comparative structure of confectionery production by main groups of products
2003 2007
Chocolate Chocolate Sugar Chocolate Chocolate Sugar and candy , 8.97% confectionery and candy , conf ectionery analogouse or with sugar analogouse 14.20% or with sugar products with substitute products with substitute f illing or with cacao, f illing or with cacao, without, 10.35% without, 11.14% Other, 2.96% 3.84% Paste Other, 4.80% 3.87% Paste products with products with cacao, 0.21% cacao, 0.29% Sugar Farinaceous cov ered Farinaceous Sugar confectionery products, conf ectionery cov ered , 42.63% conf ectionery , 46.35% products, with jelly , conf ectionery 2.03% Caramel, with jelly , tof f ee and 4.61% analogous Caramel, sweets, tof f ee and Drage, 0.91% 28.11% analogous Drage, 0.84% sweets, 13.91% Source: State Statistics Committee of Ukraine
The following trends in 2003-2007 are to be noticed:
increasing of shares of farinaceous products, chocolate candies, sugar covered jelly products
significant decreasing of share of caramel, toffee and analogous products
6.2 Output analysis
According to the latest data from the State Statistics Committee, Ukraine’s confectionery output in 2007 grew by almost 7% compared to 2006 and reached 1082 thousand tons.
Farinaceous confectionery
In 2007 in Ukraine it was produced 522 thousand tons of farinaceous products. From the total amount of about 450 only 60 enterprises have production capacity more than 1 thousand tons a year. The TOP-5 companies in this segment are: ‘Kyiv-Konti’ (market share - 18 %), ‘Roshen’ (13 %), ‘Biscuit – chocolate’ (7 %), ‘AVɄ’ (5 %) and ‘World of delicacy’ (5 %).
Sugar confectionery
The assortment of sugar confectionery manufactured in Ukraine is relatively wide. It contains caramel, dragee, candies, toffee, halvah, Eastern sweets, marmalade, pastille, etc.
During 2004 - 2007 the production of sugar confectionery decreased by 38%. First of all the decrease is caused by import regulations by Russia in 2001-2006.
Nevertheless, caramel and sugar candies still remain popular in megacities, and in regions.
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The leader in the segment is Roshen corporation (production is concentrated mainly at Kremenchug confectionery factory). It holds 36 % of the market.
Unlike caramel, other segments show stability and even increase of production. For example in 2006, production of halva grown by 3.6 %, production of Turkish delight - by 25%.
Chocolate products
The following kinds of chocolate products are manufactured in Ukraine:
Chocolate bars and sticks
Candy bars and waffles with chocolate covering
Chocolate figures
Chocolate sweets (packed in boxes and individually wrapped and sold by weight)
Chocolate glaze. In 2006 Roshen and AVK were leaders in chocolate production in Ukraine having shares of 21 % per each. The third place was occupied by Kiev-Konti with 9%.
The leader in production of chocolate bars is Kraft Foods (43.8 % in 2007), Roshen is on the second place with 30.7 %.
7 Raw materials and packaging 7.1 Raw materials
Part of the raw materials for confectionery sector is produced locally. These are flour, sugar, milk, eggs, fruit jam, margarine, confectionery oil, shortenings, etc. Imported raw materials are: cocoa-beans, cocoa-oil, nuts (cashew, peanut, etc.), confectionery oil for cookies, waffle, chocolate goods and candies), hard fractions of oil and fat on palm base, aromatisation, stabilisations, emulsifiers, fruit and nut additions, glaze and other food additives.
According to different sources, weight of imported raw materials in cost of production of confectionery goods in some cases reaches up to 40-60%, especially at enterprises specializing on production of chocolate and chocolate products.
During the last years the range of raw materials used for the sweets production has been expanded. On one hand, it is a positive trend – modern technologies are being implemented at Ukrainian factories; on the other hand, it has a negative meaning – concentrates and artificial additives serve as substitutes for original natural ingredients.
The cost of raw materials that are imported is increased by import duties (see Table 2) and VAT of 20%.
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Table 2. Customs duties on raw materials for confectionery production
Import duty rates before WTO Import duty entering rates after WTO Code Article entering % EUR / 1 kg %
080131, 080132, Cashew nuts, almonds in packages 0 5, 10 080211, 080212 larger than 10 kg
0905-0910 Vanilla and other spices 0 0
1511, 1513 Palm oil, coconut oil 0 0
Oil mixtures for food processing in 1516209810 0 5 packages larger than 1 kg
1517909300 Cooking fat mixtures 1 15
Oil and fat mixtures for food 1517909910 0 5 processing not less 1701 Sugar 50 than EUR 50 0.3 per 1 kg
1801 Cocoa beans 0 0
1803100010, Cocoa paste in 10 kg and larger 0 0 1803200010 packages
Cocoa butter and oil in 10 kg and 1804000010 0 0 larger packages Cocoa powder in 10 kg and larger 1805000010 0 0 packages Source: Customs Tariff of Ukraine, ‘Argosphera” magazin, No 10(309) 17 March 2008, No11(310), 24 March 2008
Market of cocoa raw materials in Ukraine is presented exclusively by imported products (cocoa beans, grated cocoa, cocoa oil and cocoa powder).
There are about 20 suppliers of cocoa raw materials in Ukraine and if in case of cocoa oil and grated cocoa there is only one intermediary between foreign producer and local buyer (importer), in case of cocoa powder there are two intermediaries – importer and dealer. Cocoa beans are imported by confectioners from countries-producers, other cocoa products are supplied by processing companies of various origin (Europe, China, Malaysia, Indonesia).
7.2 Packaging
During last years segment of packed confectionery products grew significantly following the growing retail market.
Proper packaging is the powerful marketing tool for the increasing of sales, so producers pay great attention to this issue. According to information provided by one of the leaders of packaging market, ‘Blitz’ holding, the
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quantity of orders for new packaging design grew by 20% in 2007. In 2008 it is forecasted 20% growth for candies packaging segment, 3-7% for chocolate packaging.
The lion share of packaging used in the confectionery industry is of Ukrainian origin. The leader in this sector is ‘Blitz’ holding (Kyiv), that produces wide assortment of paper (‘Blitz Print’), cardboard (‘Blitz Pack’) and soft (‘Blitz Flex’) packaging3.
8 Foreign trade 8.1 Export / import
In 2007 export from Ukraine grew by 19% and reached 336 thousand tons or USD 576 million in money terms. The main share in export structure belonged to chocolate products (about 45%).
The total volume of confectionery import to Ukraine was 55 thousand tons. It is 22% more than in 2006. 56% of the total import falls at chocolate products. The main part of imported confectionery is formed by premium-class products such as chocolate and chocolate sweets, cookies, rolls, chewing gum.
Table 3. Ukrainian confectionery: export / import, thousand tons
Code, description 2003 2004 2005 2006 2007 Export 1704, sugar confectionery 51.7 68.7 67.4 70.2 80.2 to previous year,% 33% -2% 4% 14% 1806, chocolate confectionery 155.3 164.9 150.9 128.8 151.2 to previous year,% 6% -8% -15% 17% 1905, farinaceous confectionery 53.3 75.3 77.4 81.8 104.9 to previous year,% 41% 3% 6% 28% Import 1704, sugar confectionery 1.5 2.0 3.8 3.6 4.8 to previous year,% 33% 90% -5% 33% 1806, chocolate confectionery 9.1 19.5 21.5 26.2 30.8 to previous year,% 114% 10% 22% 18% 1905, farinaceous confectionery 10.0 14.3 15.6 14.9 19.7 to previous year,% 43% 9% -4% 32%
Souce: State Statistics Committee
8.2 Export
The leading exporters of Ukrainian confectionery are: Roshen Confectionery Corporation, Ⱥ9Ʉ Concern, Kiev- Konti Group, Zhytomyrski Lasoschi, Svit Lasoschiv (Cherkasy Biscuit Factory), Kharkiv Biscuit Factory. Their total share in the structure of export is about 50%.
3 www.blitz.kiev.ua
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Main export flow (almost 80% of the total exported confectionery) goes to Russia, Kazakhstan and Azerbaijan. Other countries of Ukrainian confectionery export are as follows: Moldova, Lithuania, Latvia, Estonia, Germany, Israel, USA, Canada, Mongolia, Poland, and Slovakia. The requirements to confectionery products in Western countries are strong, however leading Ukrainian companies were certified ISO 9001-2001 and they are looking for the perspectives in EU market. Ukrainian confectionery giants acknowledged their plans for gaining part of USA caramel market in competitive struggle with producers from Pakistan, Argentina and Chile.
Apart from direct export operations, Ukrainian producers are looking for other ways of penetration to prospective markets abroad, especially to Russia. The main direction appeared to be an acquisition of assets in Russia to shorten the costs related to export and transportation. Thus, in 2001 Roshen acquired JSC Likonf (Lipetsk Confectionery) and started the investment program of its modernization. Kiev-Konti recently acquired Konditer- Kursk Confectionery in Russia.
Another way of entering Russian market is purchase of the local trademark. Thus, Roshen bought ɌɆ ‘Around the World’ and TM ‘Royal Dessert’, under which it is planned to sell known in Ukraine chocolate candies ‘Monte- Kristo’ and ‘Margarita’.
8.3 Import
From the total volume of confectionery imported in 2007 about 36 % belonged to farinaceous products. Almost 44% of the imported farinaceous confectionery is of Russian origin since Russian producers have competitive advantages in the segment (10% VAT applicable to flour, less expensive energy resources and transportation).
Main confectionery importers are represented by traders, distributors, trade houses of foreign producers: Ferrero Ukraine (Ferrero Rosher, Mon Cheri, Rafaello and others); Cadbury Ukraine (chocolate Vispa, Fruit&Nut, Russia), Masterfoods and Effem Ukraine (chewing candies Starburst, fruit-drops and other, Russia), Gala (chewing candies ‘Dragon’ and other, Kalev, Estonia). The structure of import to Ukraine by countries is shown in Figure 7.
Figure 7. Ukrainian import structure in 2006 by countries
Other, 12%
Turkey, 3% Germany, 4% Netherlands, 5%
Poland, 8%
Russia, 68%
Source: State Statistics Committee
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8.4 Regulations on import
Various import barriers try to protect Ukrainian sweets from the competition with the imported ones. All imported confectionery products are subject to mandatory certification. Entrance of Ukraine to WTO is compelling to cancel mandatory certification.
Table 4. Customs duties for confectionery products in Ukraine
Import duties, before Import duties, after Code Article WTO entering WTO entering % EUR / 1 kg % 1704 Sugar confectionery (including white chocolate) 1 10 without cocoa content
1806 10 Cocoa powder with sugar or sweeteners 15 5
1806 20, Chocolate and other finished products with cocoa 1806 31, content in bricks, bars, plates or in liquid, paste 1806 32, or powder form with or without filling and 15 5, 10 1806 90 11- additives 1806 90 39
1806 90 39 10 Chocolate products with inedible games and 15 10 souvenirs inside
1806 90 50- Other food products containing cocoa (sugar
1806 90 90 confectionery with cocoa, cocoa containing 15 10 pastes, products for beverages production)
1905 (except for
1905 40 10 00, Farinaceous confectionery and bakery products 10 12 1905 40 90 00)
1905 40 10 00, Rusk and other 17 12 1905 40 90 00
Source: Customs Tariff of Ukraine, ‘Argosphera” magazine, No11(310), 24 March 2008
9 Foreign presence in the Ukrainian confectionery market All foreign companies that are present in the Ukrainian confectionery market can be divided into two main groups: 1) companies, which established joint ventures with Ukrainian counterparts and now manufacture sweets in Ukraine, and 2) companies importing confectionery goods to Ukraine.
Ukrainian confectionery market due to its continuous development is quite interesting for foreign investors. However, since the industry is mainly controlled by local capital, foreign presence in the sector is limited to several foreign investors:
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Western NIS Enterprise Fund (AVK Concern, 25.1%);
Kraft Foods (Kraft Foods Ukraine);
Sigma Bleizer (Poltavacondyter, 76.27%);
Nestle (Svitoch, majority ownership).
The market share of imported confectionery was reduced from 12% in 1996 to 5% in 2007 (55 thousand tons) with its absolute minimum in 1999 (9 thousand tons).
At the moment American, Dutch, Italian, French, Swiss, Danish, British, Turkish and Polish companies have quite limited activities in Ukraine. They export their products to the Ukrainian market, and some of them have representative offices in Ukraine. The largest of the exporters, like Ferrero and Mars, seem to have chosen to play a defensive game aiming at maintaining the past level of the market.
However, foreign presence in farinaceous confectionery is more tangible. Such foreign trademarks as ‘7 days’, ‘Tornado’, ‘Dan Cake’, ‘Dahli’ are present practically in all retail outlets. They compete with locally made roll and biscuit products.
10 Competitive analysis and price surveys 10.1 Market share survey
In 2007 the following companies hold the leading positions in Ukrainian confectionery market: Roshen Confectionery Corporation (25% in overall confectionery output), enterprises of AVK Concern (12%), Kiev-Konti Group (14%), Nestle-Svitoch (3%). Details on leading confectioneries are given in Attachment 2.
Figure 8. Ukrainian confectionery leaders in 2007
Roshen, 25% Other, 29%
Kraft Foods, 2% Juitomirsky Lasoshi, 5% AVK, 12% Poltavakonditer, 5% Kiev-Konti, Buiscuit- 14% Chocolate, 6% Svitoch, 3%
Source: State Statistics Committee
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By the development dynamics Kiev-Konti Group is the leader among market players. Main production capacities are located on 3 confectioneries in Donetsk region and new one in Russia. Nowadays company produces about 16 thousand tons of products per month. In 2007 company invested nearly USD 100 million into three projects: new production complex in Donetsk, new logistic centre in Makeevka (Donetsk district) and production lines for chocolate premium segment.
Market share of Poltavacondyter grew from 3% (in 2002) up to 5% in 2007 due to commissioning of two new workshops producing chocolate and farinaceous confectionery using investments of Sigma Bleyzer.
As of chocolate and chocolate products market, leaders can be ranked as follows: Roshen - 21%, AVK - 13%, Kiev Konti Group – about 9%, Poltavakonditer - 8%, Kraft Foods Ukraine - 7%, Jitomirsky Lasoshi - 6%.
Figure 9. Ukrainian leaders in chocolate confectionery in 2007
Other 28%
Juitomirsky Lasoshi 6%
Kraft Foods Roshen 7% 21%
Poltavakonditer 8%
Kiev-Konti 9% Ⱥ9Ʉ 21%
Source: State Statistics Committee
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Among leaders of the sugar confectionery (without cocoa) market segment the following companies are ranked: Roshen Confectionery Corporation (36%), Kiev-Konti Group (8%), Concern AVK (6%), Jitomirsky Lasoshi (6%), Odessakonditer (4%) and Biscuit-Chocolate (4%). In 2007 these confectioneries produced about 160 thousand tons of sugar confectionery(without cocoa) products that is about 64% of overall sugar confectionery output.
Figure 10. Leaders in sugar confectionery (without cocoa) in 2007
Other 36%
Biscuit- Chocolate 4% Odessakonditer 4% Roshen Juitomirsky 36% Lasoshi Ⱥ9Ʉ 6% 6% Kiev-Konti 8%
Source: State Statistics Committee
As of farinaceous confectionery output, Kiev-Konti gained a leading position with 18% of the market (88 thousand tons). Second place is occupied by Roshen (13%). The share of Biscuit-Chocolate is 7%, Svit Lasoshiv and AVK — 5% each.
Figure 11. Leading farinaceous confectionery producers in 2007
Other 52%
Roshen 13%
Ⱥ9Ʉ 5%
Biscuit- Kiev-Konti Chocolate 18% 7% Svit Lasoshiv 5%
Source: State Statistics Committee
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In spite of the sound turnover over last years, declarable profit is not considerable since leading confectioners invest a lot in production extension (see Table 5 below).
Table 5. Leading confectioneries: turnover and profit, thousand UAH
Turnover place place place place place Producer 200 7 2007 2006 2006 2005 200 5 2004 2004 2003 2003 Roshen Confectionery Corporation 2,248,768 1 2,248,770 1 1,900,270 1 1,690,510 1 1,382,176 1 AVK Concern 984,747 5 984,75 4 1,000,450 3 851,42 2 644,8 2 Kraft Foods Ukraine 1,324,800 4 1,324,800 3 1,113,080 2 841,01 3 642,98 3 Nestle-Svitoch 1,355,349 3 529,76 5 5 14,5 5 449,63 5 477,947 4 Kiev-Konti Group 1,395,615 2 1,395,620 2 926,63 4 708,57 4 372,002 5 CJSC Kharkiv Biscui t Factory 428,743 6 503,14 6 411,49 6 321,06 6 215,554 6 JSC Poltavacondyter 322,932 7 322,93 7 287,62 7 238,51 7 162,767 7 CJSC Odessa 126,759 9 126,76 10 151,88 9 152,959 8 CJSC Zhytomyrsky Lasoschi 300,154 8 300,15 8 2 61,2 8 210,29 8 149,625 9 Svit Lasoschiv 112,021 11 95,575 10 Zapori zhia Confectionery 114,768 10 144,771 9 11 0,691 10 81,228 11
Profit place place place place place Producer 200 7 2007 2006 2006 2005 200 5 2004 2004 2003 2003 Roshen Confectionery Corporation 188,795 1 188,8 1 8 0,06 2 -26,73 7 -2,408 8 AVK Concern 28,482 4 28,48 5 4 7,94 3 34,8 3 22,338 2 Kraft Foods Ukraine 109,108 2 109,11 2 1 04,2 1 52,34 1 -19,435 11 Nestle-Svitoch 17,81 7 20,7 6 -31,17 8 -4,434 9 Kiev-Konti Group 42,349 3 42,35 3 4 0,43 4 49,6 2 26,627 1 CJSC Kharkiv Biscui t Factory 33,202 5 34,82 4 1 9,78 7 23,75 4 14,409 3 JSC Poltavacondyter 16,684 7 16,68 8 1 4,21 8 18,12 6 4,714 5 CJSC Odessa 5,2 24 8 5,22 9 6,34 9 367 7 CJSC Zhytomyrsky Lasoschi 27,147 6 27,15 6 2 3,35 5 20,01 5 8,754 4 Svit Lasoschiv -2,016 10 -8,866 10 Zapori zhia Confectionery 2,103 9 2,1 10 3,63 10 772 6 Source: Top-100 Survey-2007 by InvestGazeta
10.2 Price survey
Prices for confectionery products highly depend on cost of raw materials and grade of the product. Last years markets of such raw materials as sugar, flour, cocoa-beans, additives were rather unstable and demonstrated tangible growth in prices.
It should be mentioned that caramel and most of the farinaceous confectionery can be referred to as economy price group, while candies, chocolate and chocolate products – medium and premium price groups.
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Table 6. Retail prices for confectionery products in May 2007, USD
Product Price per pack Price per kg
Chocolate bars (100 g) 0.8 – 2 (premium)
Chocolate with fillings 4 - 12
Caramel 2 – 2.5
Toffee 2
Jelly 3
Souffle 3 - 4
Cake 4 - 8
Source: Market Study
11 Technology and equipment
Processing and packaging equipment of almost all main foreign producers is now present in Ukraine: Winkler & Dunnebier, Klockner Hansel, Robert Bosch, Chocotech, Theegarten-Pactec, Hebenstreit (Germany), Buhler and Buhler Bindler (Switzerland and Germany), Franz Haas (Austria), Hosokawa (USA, Japan, The Netherlands), Haas-Mondomix, BOSCH Tevofarm, Klokner (The Netherlands), Carle & Montanari, Mazzetti Renato, Brambati, Nuovɚ Euromec, Orlandi (Italy), Petzholdt Heidenauer (successor of former Nagema).
Fortunately, the customs duties for some confectionery equipment have been changed from 10% in 1999 to 1% at present. According to current customs tariffs, for imported ovens 2% of duty is applied, duty for spare parts - 3%. Indeed, such support by the government facilitates the purchase of modern equipment by Ukrainian confectionery producers.
There was a period when UkrKonditer started financing the development of the local equipment production for confectionery (Dnipropetrovsk Engineering Institute). Stable growth of confectionery in Ukraine and Russia during the last years stimulates local equipment producers to follow modern trends and technology. Moreover, there are good traditions in local production of dough processing equipment.
The following Russian and Ukrainian equipment producers are to be mentioned:
FIS (Russia, www.fis-engineering.ru): lines for extrusion forming, farinaceous confectionery lines, zephyr and pastille production, jam, marmalade and chocolate, incl. complex products; glazing equipment;
Agromash (Ukraine, http://www.agromasz.ukrbiz.net/): chocolate production, ovens of various capacity and configuration, dough preparation and forming equipment;
Kyivprodmash (Ukraine, www.kievprodmash.com.ua): farinaceous confectionery equipment, sugar confectionery equipment, packaging equipment;
Vinnytsia Research Plant (Ukraine, www.vinresearch.com): food processing equipment.
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In addition, almost all confectionery producers have their own engineering departments that are responsible for development and installation of tailor-made equipment necessary for processing adjustments.
Main factors while choosing confectionery equipment are as follows: safety and reparability; energy saving; environment friendly processing; low labour-intensiveness; high productivity; easy setting-up while changing the assortment with high quality ensuring.
From the point of view of assortment changes market shows the demand for equipment for production of chocolate sticks, biscuit snack products, original caramel (large and small scale, flat, chewing, glazed), waffle products, multi-layered sweets, jelly-glazed and pectin sweets.
12 SWOT analysis
Strengths
Leading confectioneries merge into concerns that strengthen their financial and market position
Large confectioneries have sufficient resources for renewal of equipment and technology, and introduction of new kinds of confectionery products
The leading Ukrainian factories maintain a positive image of high quality products among the population
Favourable geographical location of confectioneries
Some of large confectioneries are operating own logistic centres
Leading confectioneries are certified ISO-2001.
Weaknesses
High dependence on raw materials import: unsteady supply and high prices for raw materials make the operations risky
Dependence on legislative changes (foreign trade, prices)
Opportunities
The demand for confectionery products grows with the increase of incomes of population
Because of ‘tasty’ image of Ukrainian confectionery products in CIS countries, there is a demand for these products, and there is opportunity to increase export to new markets
Entering to WTO creates opportunity for export increasing
Threats
Ukrainian foreign trade legislation is being frequently changed that prevents steady supplies of imported raw materials
Russian and other CIS countries foreign trade legislation limits Ukrainian confectionery export in order to support local producers
Deficit of cocoa-beans productions on world market
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13 Conclusions and forecast
Almost all segments of confectionery industry are on the path of continuous development. However, if the market of candies and chocolate products is stable, a niche for farinaceous confectionery, traditionally preferred by Ukrainian population, is not structured yet. Local confectioneries, both giants and small players, pay special attention to farinaceous group of their assortment.
As of sugar and chocolate products there is still a niche for the kid-oriented products.
Industry demonstrates a stable tendency towards the increase of premium products share. The leaders of confectionery production look at truffles and marzipan as the most perspective products in this niche.
Taking into consideration continuous the branch developments, modernisation of main production facilities will continue and will require substantial capital inflows both of local and foreign origin.
Also, it can be forecasted that a number of small confectionery firms having modern equipment and know-how will continue to appear in the market. They will not influence noticeably on the market position of leaders but will partially fill in the regional mini-niches and will create the demand for modern equipment of small capacity.
During last years the consumption of confectionery products per capita in Ukraine reached the European level. Further development in the industry is expected in medium and premium segments, e.g. introduction of hand- made production. Following the development of retail centers confectionery boutiques start their operation in Ukraine. In Kiev such formats as ‘Nouvelle’ restaurant, ‘Foodservices’ shop, ‘Reprisa’ café-confectioner’s, ‘Shokolino’ confectionery house became more and more popular. In ‘Reprisa’ prices range for hand-made candies varies from USD 5 to USD 10 per 100 g, in Nouvelle – USD 8-10 per 100 g.
Entry of Ukraine to WTO as forecasted will have a positive effect to the confectionery sector development. Confectionery sector is one of the most technologically developed in Ukrainian food industry. National standards for products were adapted to European codes .Main confectionery companies invested significantly in equipment, in modern production technologies. For the regional producers the situation is less optimistic. They are not modernized like big producers and their production possibilities are limited. They don’t have the developed distribution. However these producers don’t appreciably influence now to confectionery market.
14 Opportunities for Dutch technology and equipment
At present, the following steps regarding activities in the confectionery industry can be recommended: assisting in modernisation of equipment at Ukrainian confectioneries and retail outlets for confectionery products; establishing joint venture with the Ukrainian confectioneries especially small ones with further specialization; in order to promote Dutch equipment or starting production of similar equipment in Ukraine it can be interesting to co-operate with local producers of confectionery and food equipment in form of JV or providing licenses; offering equipment for production of candies of premium class with wide range of filling; pectin based candies; children-oriented products; cooperation and transfer of know-how in introduction of HACCP/GMP at Ukrainian confectioneries;
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Attachment 1 Organizational structure of the branch
Ministry of Agrarian Policy
UkrKhlibprom UkrConditer UkrProdspilka
Medium- and Confectionery Large-scale small - scale workshops at confectioneries cofectioneries bakeries (28) (350) Private mini- Private mini-bakeries confectioneries
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Attachment 2 Leading confectionery producers
N Company name General information Description of production TM(s) Address Telepho e-mail web-site Contact o (current status) ne person . Fax 1 Roshen Before 2001 - Ukrprominvest-condyter'. Assortment: over 200 kinds Umbrella TM 26/9, Elektrikov Str., +38 044/ konditer@rosh www.roshe Mr. Confectionery Annual production (2002): 200 of candies, chocolate and 'ROSHEN' Kyiv 04176 2392650; en.com.ua n.ua Vyacheslav Corporation thousand tones. Sales (2002): $205 m. chocolate products, Slogan: 'The 2392605; export@roshe Moskalevsky, Export geography: Russia, caramel, waffle, sweet mark of 2392640; n.com General Kazakhstan, Azerbaijan, Georgia, marmalades, and traditional quality' 2391658; reklama@rosh Director Moldova, Lithuania, Latvia, Estonia, cakes. 2392611; en.com.ua Mr. Germany, Israel, USA, Canada, 2392610; Vovchanovsky Mongolia, Poland, Slovakia. Roshen 2392648; Eugenui, Confectionery Corporation regularly 4625740; Marketing participates in such great international 2392605; Mr. Mai confectionery events like Köln 2392640 Konstantin , International Confectionery Exhibition Sales where corporation was present in 2000-2004. In 2002 Lipetsk confectionery factory "Likonf" (Russia) joined to Roshen Confectionery Corporation (http://likonf.lipetsk.ru/ ) and in 2006 Klaipedsk confectionery factory (Lithuania) joined too. Also Roshen has some offices: LLC "Roshen"(Russia) - sale representative offic, LLC "Roskonditerprom" Byansk(Russia) confectionery, LLC "Roshen-Ist" (Kazakhstan) sale representative office. CJSC Karl Marx The enterprise was founded in 1886. Specialization: chocolate Umbrella TM 1, Nauky ave., Kyiv +38 044/ www.roshe Kyiv Production capacity is 52,000 t/year. and chocolate products, 'ROSHEN', TMs: 03039 2653438; n.ua Confectionery Personnel: 2,140 employees. traditional cakes. Renuar, Versal, 2653438 Monte Kristo, traditional 'Soviet' TMs
Market Study Food Sectors in Ukraine - Part F: Confectionery Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.F-R Revision: 1 Date: 29 May 2008 Page: 28 of 34
No Company General information Description of production TM(s) Address Telepho e-mail web-site Contact name (current status) ne person Fax Vinnytsia The enterprise was founded in 1929. Range of products consists of Umbrella TM 8, G.Uspenskogo Str., +38 0432/ [email protected]. www.roshe Confectionery Installed production capacity is 50,000 more than 100 nam es. 'ROSHEN', Vinnytsya 21001 274310; ua n.ua t/year Specialization: chocolate- traditional +38 waffles cakes, pectin and 'Soviet' TMs 0432/ chocolate glazed sweets 274311 Kremenchuk The enterprise was founded in 1898. Range of products consists Umbrella TM 57, Zhovtneva Str. +38 0536/ [email protected]. www.roshe Confectionery Number of employees is about 1,000. of more than 70 names. 'ROSHEN', Kremenchuk 39600 742225; ua n.ua Specialization: caramel TMs: 'Malibu', 742661 'Capri', 'Bon Pari' Mariupol The enterprise was founded in 1910. Range of products consists of Umbrella TM 89, Mykolaivska Str. +38 0629/ www.roshe Confectionery Production capacity is around 30,000 about 50 names. 'ROSHEN', Mariupol 87500 346628; n.ua t/year Specialization: farinaceous TMs: 337815 confectionery. 'Pannochka', 'Tortynka' 2 CJSC AVK CJSC AVK was founded in 1991. The More than 240 kinds of Umbrella Str.. Shevchenkɚ, 4, +38 044/ [email protected] www.avk.ua Mr.Andrey concern consists of 5 confectioneries. confectionery products and Trademark Donetsk 2068595; Dikynov, The company's staff is more than 30 types of chocolate glaze. 'AVK', TMs: +38 0622/ General 5,000 employees. AVK has been 'Mix', 'Taygo', 661493; Director certified according to ISO 9001. The 'Clubzhele', +38 062/ company exports its products to 15 'Major', 3350050 countries. Production N°1: before 2000 'Shedeuvr', — production of semi-products based 'Bonita', on merging of Pchela and Mart 'Konfiterra' confectioneries in 1999. Pchela Confectionery was founded in 1994 for the purposes of confectionery and chocolate semi-products production. Later on confectionery started production of confectionery products. In 2000 management of the confectioneries was certified according to ISO 9001-94. Production N°2: was commissioned in 2001. Specialization: farinaceous confectionery products with additives, sweet and salted crackers, chocolate candies with various filling, snacks.
Market Study Food Sectors in Ukraine - Part F: Confectionery Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.F-R Revision: 1 Date: 29 May 2008 Page: 29 of 34
No Company General information Description of production TM(s) Address Telepho e-mail web-site Contact name (current status) ne person Fax CJSC AVK Confectionery joined AVK Concern in Specialization: AVK Umbrella TM 9, 1st Alexandrovka +38 062/ www.avk.ua Donetsk 1996. assortment 'AVK', TMs: Str., Donetsk, 83062 2661493; Confectionery 'Mix', 'Taygo', 2635633; 'Clubzhele', 2661104; 'Major', 2636820; 'Shedeuvr' 2660674; 660488 CJSC AVK The factory was founded in 1927. About 300 products. TM 'Dniprovski 11, Zhurnalistiv Str., +38 056/ www.avk.ua Dnipropetrovsk Confectionery has three production Specialization: chocolate Zori' Dnipropetrovs'k, 49085 2270944; Confectionery departments in Dnipropetrovsk and candies, biscuits, cookies 2279035; Marganets. Staff of the factory: 2,073 2211300; employees. 279035; 211313 JSC AVK The factory was established in 1959. In Chocolate and caramel Umbrella TM 131, Lutuginska Str., +38 064/ www.avk.ua Lugansk 1997 the factory became a part of AVK candies, waffle, farinaceous 'AVK' Lugansk 91020 2556542; Confectionery Concern. confectionery products. 2556408
JSC AVK The factory was founded in 1946. For Specialization: dragee, cream Umbrella TM 14, Dukhnovycha Str., +38 031/ www.avk.ua Mukacheve the moment the confectionery employ candies, cupola-shaped 'AVK' Mukacheve 89600, 354968 Confectionery 450 people. During 1997-2003 candies, iris. Zakarpatia region confectionery entered AVK concern. Confectionery has dragee, caramel, candies workshops.
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No Company General information Description of production TM(s) Address Telepho e-mail web-site Contact name (current status) ne person Fax 3 CJSC Kiev-Konti was founded in 1997and Assortment is presented by Umbrella TM 6b, Shevchenko Blrd., +38 062/ konti@kiev- www.kiev- Mr. Oleg Industrial and now is joined three Ukrainian 300 products: cream candies, 'Kiev-Konti' Donetsk, 83100 3450914; konti.com konti.com Logvinov, Association (Donetsk, Konstantinivka and cookies, chocolate-waffle 3450915 General Kiev-Konti Gorlovka) confectioneries. Ukrainian cakes, sticks of Director factories produce around 108,000 confectionery, waffles, t/year. There are around 300 nam es of caramel, dragee, final products in the assortment. The marmalades, crackers, number of employees exceeds 3,500 praline candies and people. The company has been chocolate. certified according ISO 9001:2000. Company is within Top-3 domestic leaders of the confectionery market and is a leader by annual output growth rate. In 2004 Kursk confectionery factory "Konditer-Kursk" (Russia) joined to Kiev-Konti association
Donetsk The factory was built in 1946. In 2001 Chocolate products, caramel, Umbrella TM www.kiev- Confectionery confectionery entered 'Kiev-Konti'. waffle, biscuit, fruit jellies 'Kiev-Konti', konti.com Production staff: 900. Confectionery TMs: produces about 2 000 t/month. 'Belissimo', Confectionery has workshops for 'Melodika', processing of candies, marmalades, 'Super-kontik', waffle, chocolate-waffle and sandvich- 'Mamulin Tort', farinaceous products. 'Skate', 'Trixi'.
Konstantynivka The factory was founded in 1943. In Specialization: sweet Umbrella TM www.kiev- Confectionery 1997 confectionery joined Industrial farinaceous confectionery 'Kiev-Konti konti.com association 'Kiev-Konti'. Production products, 'classic' and 'brand- staff: more than 1,000 employees. new' caramel, candies, Production capacity is about 60,000 dragee, and chocolate glaze. t/year.
Gorlovka Confectionery was founded in 1960's. Main specialization - Umbrella TM www.kiev- Confectionery In 1999 confectionery joined Industrial farinaceous confectionery (10 'Kiev-Konti' konti.com Association 'Kiev-Konti'. Staff: more types of cookies, incl. dietetic than 200 people. Production capacity foodstuff). is around 1.8 thousand t/month.
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No Company General information Description of production TM(s) Address Telepho e-mail web-site Contact name (current status) ne person Fax 4 JSC Confectionery was founded in 1910; #1 Chocolate and products of it, Umbrella TMs Nestle LLC +38 044/ http://rus.ne Mr. Bruno Le SVITOCH- in manufacturing of chocolate and caramel, toffee, waffle, 'Svitoch', 32, Pechenegivska 4908020 stle.ua/abo Sikle, General Nestle products of it. Signed an agreement biscuits 'Nestle' Str., Kyiv (Nestle ut/svitoch/ Director in with Nestle to receive USD 41mln of Slogan: 'Quality JSC Svitoch LLC) Ukraine Mr. investments (the factory changed 32% of products - 10, Tkatska Str., Lviv, +38 032/ Andriy of its shares for funding to modernise quality of life' 79019 2520582; Tavpash, and increase the production). 2520583; President 2599508 (Svitoch) (JSC Svitoch) +38 032/ 2520584 5 CJSC Kraft Joint venture of Kraft Foods and The whole range of chocolate TM 'KORONA', Franka Str., 31, Kiev +38 044/ www.kraftfo Mr. Yuri Foods Ukraine Trostyanets Chocolate Factory was products incl.: cocoa-powder, TM 'MILKA', TM 01030 4901300; ods.com.ua Logush, founded in 1995. Annual production is chocolate bars, candies, 'Siesta' 28a, Naberezhna Str., +38 054/ General at the level of 20,884 t of confectionery dragee, chocolate sweets Trostyanets, 42600, 5851243; Director goods (in 1998). with filling Sumy region 5853630; 5851451; 5851565; +38 044/ 4590000; 4590010
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No Company General information Description of production TM(s) Address Phone e-mail web-site Contact name (current status) Fax person 6 Biscuit - The factory was founded in 1935; Specialization: CJSC Kharkiv Umbrella TM 8, Lozivska Str., [email protected] www.biscuit Mrs. Alla Chocolate privatised in 1993. Number of Biscuit Factory - biscuits, 'BISCUIT & Kharkiv, 61017 om.ua .com.ua Kovalenko, Corporation employees: 1,200. In 1998 Kharkiv crackers, wafers, sponge CHOCOLATE' plaksiy@biscu General Biscuit Factory had baught control cakes, and rolls; CJSC it.com.ua Director packet of shares of Kharkiv Kharkiv Confectionery Mr.Vladimir Confectionery "Kharkivchanka".Kharkiv 'Kharkivchanka - caramels, Plaksiy, Sales Confectionery - one of the oldest chocolate and chocolate confectionery businesses of Ukraine candies, toffee, dragee, established in 1896 by George zephyr, marmalade. Borman, a supplier of the Imperial Court - where today about 1,300 people work. The output of sugar confectionery is 90 tons per day; The Confectionary has 5 workshops for production of: caramel (6 lines); toffee (9 lines); chocolate sweets (4 lines and 5 manufacturing sections); chocolate; jelly and marshmallow (8 manufacturing sections). The products are sold through own distribution network in Ukraine, are exported to Russia, Kazakhstan, Moldova, the Baltic countries, Mongolia, the United States, Germany, and Israel. In July 1998, Kharkiv Biscuit Factory, began to develop and implement a quality system complying with the requirements of ISO 9001. The system was implemented by November 1999.
7 JSC Poltava The enterprise founded in 1919 is Range of products consists of TM 'Dominic' 10, Spas'ka Str., +38 053/ [email protected] www.domini Mr.Valeriy Confectionery located in the ecologically clear zone of 250 kinds of sweets: Poltava, 36020 2250292 et.ua c.com.ua Plaksiy, POLTAVACON Ukraine. chocolate and caramel kievkond@ukr Chairman of DYTER candies, zephyr, waffle, pack.net the board diabetic sweets, dragee, Mrs. Natalya toffees, cookies, cakes, Tanich, marmalade. Marketing Mrs. Zoya Pershina, Export
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No Company General information Description of production TM(s) Address Phone e-mail web-site Contact name (current status) Fax person 8 CJSC The firm was founded in 1820; Caramel, dragee, biscuits, TM 'Odessa' 9, 3rd Vodoprovodny +38 048/ [email protected] www.odess Mr. Yevgen ODESSA privatized in 1994. The installed waffle, chocolate, cakes, prov., Odessa, 65023 2223935; .ua alux.com Ivannikov, Confectionery capacity of the plant is 40,000 t/year. dietary products 2252071; Technical The factory produce more than 250 2258330; Director; names of confectionery products only 2224588; Mr. Arkadiy from natural products: chocolate, 2227140 Lutsyk, chocolate, candy, iris, dragee, zephyr, Deputy fruit candy, cookies, wafer, pies. General Director 9 CJSC Confectionery was founded in 1944. Chocolate sweets, caramel, Umbrella TM 67, Schorsa Str., +38 044/ reclama@slad www.konfet Mr. Vladimir Zhytomyrski The factory produce around 200 toffee, waffle, biscuits, cakes 'Zhytomyrski Zhytomyr 10003 4170582; osti.com.ua ka.com.ua Tsyema Lasoschi names of products. The company Lasoschi' 2413200; produce over 50 t of confectionery +38 041/ products per day. 2418324; 2373251; 2413205; 2418323; 2413204; 2418324; 2413205 10 JSC Various sweets, halva, 7, Artema Str., +38 0612/ http://zkf.co "Zaporozhska waffels, caramel, dragee, Zaporozhye, Ukraine 646621; m.ua/ confectionery toffee 69063 137452 factory" 11 "Svit 32, Svyatoshynska +38 044/ [email protected] lasoshchiv" Str., Kyiv, Ukraine 4941977; om.ua Ltd. 03115 4941976 12 JSC "Lagoda" Confectionery was founded in 1999 . It Waffels, biscuits Umbrella TM 34, Petropavlovskata +38 044/ http://lagod Confectionery has more than 1300 employees. 'Zagora' Str., Kyiv, Ukraine 2449560; a.com.ua factory Slogan: 04086 2399058 'Noregrets about eaten calories'
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No Company General information Description of production TM(s) Address Phone e-mail web-site Contact name (current status) Fax person 13 "Malbi Agency" The factory was built by commercial Chocolate, chocolate sweets TM Karla Libknechta Str.,3 +38 056/ malbi@malbi. http://www. Ltd. and industrial group "Rainford" in 1999 and dragee "Millennium", b, 12, Dnipropetrovs'k, 3701544; dp.ua ukrfood.co in Dnepropetrovsk. This is the most "Zolotoy Dnipropetrovs'k region, 3701542; m.ua/indust modern and advanced chocolate Oreshek" etc. 49070 3701541; ry/aliens/ph factory. 3701542; p?framelnk 3701544 =www.choc olate.rainfor d.ua 14 CJSC The factory exists for 70 years; Chocolate and caramel Umbrella TM 69, Shevchenka Str., +38 038/ kondfil@kondf www.kondfil Mr. Vassyl'' CONDFIL produces 35 t of sweets daily. More candies, toffee, dragee, 'Condfil' Khmelnitsky, 29000 2720113; il.utel.net.ua .com.ua Liubovetsky, Khmelnytskiy than 160 kinds of sweets are waffle 2720113; Director Confectionery produced. 2720115 15 JSC The firm is founded in 1993 as a result Various chocolate sweets, Umbrella TM 13, Kovalchuka Str., +38 037/ mail@bukovin www.bukovi Mr. Yakiv Production and of confectionery factory privatization caramel, toffee, dragee, 'Bukovinka' Chernivtsi, 58022 2241022; ka.com.ua nka.com.ua Kleyman, Sales that was created in 1944 and is one of biscuits, waffles, Eastern 2242627; snab@bonbon President, Confectionery the largest confectionery producing sweets 2273621; .net Mr. Vassyl' Firm enterprises. The traditional sphere of 2242509; Mustetsa, BUKOVINKA activities is the production and sale of 2242133 Commercial a wide assortment of confectionery and Director food stuffs. 16 JSC Chernigiv The factory was founded in 1933. Chocolate and caramel Traditional 2, Komunalna Str., +38 046/ [email protected] http://www. Mr. Nikolay Confectionery Installed capacity is 7,710 t/year. candies, waffle, dragee, 'Soviet' TMs Chernigiv 14005 2253139; .ua strela.cn.ua Vlaschenko, STRILA Number of employees - 280. biscuits 2101350; /predpr.htm Director 2101171 17 Kviten' Ltd. Confectionery was founded in 2001and Specialization: waffles, Umbrella TM Radgospna Str., 76, +38 056/ kviten@kviten. Mr. Eduard is one of the leaders in farinaceous crackers, spice-cakes with 'Kviten'' Yuvileyne, 7254029; dp.ua Burchak, confectioners in Ukraine. various fillings and additives, Dnipropetrovs'k region, 7254028 Director groats cookies, 'healthy food' 52005 products
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Table of contents page
1 Introduction 2
2 General overview of the sector 2 2.1 Fish farming and industrial fish catch 3 2.2 Trends in Ukrainian fish sector 7 2.3 Products’ assortment 8 2.4 Main problems of the branch 9
3 Committees, associations and other organizations that form the branch structure 10
4 Distribution 12
5 Production analysis 14
6 Market demand and consumption 16
7 Raw materials and packaging 20
8 Foreign trade 20 8.1 Export 22 8.2 Import 23 8.3 Regulations on import 26
9 Foreign presence in the Ukrainian fish market 26
10 Equipment 27
11 SWOT analysis 27
12 Conclusion and forecast 28
13 Opportunities for Dutch technology and equipment 29
Attachments:
1. Organizational structure of the branch
2. Leading companies of fish sector
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 2 of 38
1 Introduction
Ukraine’s fish processing business has shown a positive dynamics over the last five years, going a stunningly intense, although short way from unsaturated, far-below-average-demanded (in contrast to Western and Central- European markets) to highly-competitive segment that keeps showing yearly double-digit growth.
Prospect foreign investors are likely to face real competition challenges, oftentimes backed by corrupt lobbyists within Ukraine’s relatively dense fish-processing/fish distribution businesses, although both of them keep accounting sales increases; at the same time, the market is extremely undersupplied with infrastructural premises, namely with quality storage facilities, what’s already created attractive investment opportunities for logistics companies, commercial real estate developers and equipment selling firms.
Market insiders say FDI may start flowing into Ukraine’s inland fish-farming in short to mid-term, as it appears to be more than promising in terms of returns, both for foreign and domestic companies, although the way to inland establishment traditionally goes through the complicated and time consuming procedures of obtaining all the necessary licenses and permissions from the Ukrainian state.
Recent Ukraine’s entering to WTO will not affect considerably on the industry, since the main barriers, namely decrease in import customs duties and quotas have already been removed in 2005.
2 General overview of the sector
Ukraine’s fish industry, as well as country’s economy in general, reflects the effects of transition to a market economy, setting challenging demands for structural reforms within fisheries sector, namely a need for creation of new production sets management standards that would comply with market-driven requirements.
The sectors’ key trends of the last few years were:
intensification of competition;
consolidations within fish processing and distribution businesses.
By the data of ‘Business’ magazine1, the retail sales volume in 2007 reached USD 1 billion2.
The intensive growth of Ukrainian fish and sea market during the last three years was caused mainly by increase of import that holds absolute majority share in the sector. According to State Committee for Fish Industry, the share of inland fish production and coastal catch was estimated in 20% of the total market size. The fish catch by Ukrainian companies is decreasing by 5-10% annually. At the same time Ukraine remains the European leader and world’s top ten by the area of fish-farming ponds (at present it is 8 thousand hectares).
Some of the domestic enterprises have been led to bankruptcy with a purpose of then privatizing them for low cost; other inland fish companies, although relatively successful as supported by the state authorities, face unfair competition, mainly due to corrupt import schemes, used by many of the companies that import fish and sea products into Ukraine.
Market watchers say Ukraine’s fish-farming industry may still be reanimated, mainly through removing barriers for FDI into Ukraine’s fish-farming segment.
1 No 23, 09.06.08 2 1 billion = 109
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 3 of 38
Fish consumption peaks in Ukraine show expressively seasonal prevalence, starting in September and lasting up to the end of May.
2.1 Fish farming and industrial fish catch
Domestic fish breeding
Disposing of tens of formerly Europe’s largest enterprises, Ukraine’s fish-farming industry attracted as little as yearly USD 4 million of investments since 2005.
Inland water fisheries are operating by nearly 50 fish-breeding farms, licensed for fisheries and assigned a catch quotas, with as little as 11 of them reporting profits.
The main fish species caught in rivers and lakes are common carp (80% of total catch), freshwater bream, catfish, goldfish, roach, and pike-perch.
About a quarter of all ponds and estuaries and almost two-thirds of artificial water bodies – reservoirs and cooling systems of electricity generation plants – are stocked with fry of common carp and other herbivorous fishes in order to rehabilitate stocks and increase productivity, and for bio-melioration. In Ukraine there are now 5 fish- breeding factories and 13 hatcheries, designed for production and cultivation of carp, trout and mullet juveniles. The State owns 6 hatcheries; the others are part of the industrial association UkrDerzhRybGosp, or subsidiaries of the fish protection agency.
In the last years a lot of entrepreneurs have come to renting ponds for commercial fish breeding, mainly due to little competition in the sector, resulting into fresh water fish production decrease from 120,000 tons in 1990 to 37,000 tons in 2007.
Natural water bodies and reservoirs in Ukraine are restocked with fish every year. This activity is funded from the State budget. Moreover, according to the national law, fish stocking is also carried out by private companies, as well as by individuals. However, numerous ponds and estuaries are not stocked with fish due to their remoteness from towns, lacking infrastructure, or non-suitability for fish farming.
Ukraine’s overall inland fish catch is constantly decreasing mainly due to fishing vessels ageing and quantitative reduction thereof. According to the State Department for Fisheries of Ukraine (UkrDerzhRybGosp) only 20% of the officially operating vessels deliver fish catches.
However, although seeing little support from the state, going along with numerous murky ownership changes, many of the privatized fish-farming enterprises started showing production increases over the last three years.
Some of the plants, having faced structural problems were, oftentimes, artificially led to bankruptcy, in order to speculatively be able to take advantage of the land plots on the cost of Crimea.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 4 of 38
Figure 1. Ukraine's yearly fish catch and sea products extraction dynamics, as opposed to growing import volumes, 2002-2008f
700
600
500
400
300 thousand tons thousand 200
100
0 2002 2003 2004 2005 2006 2007 2008f Inland fish breeding and catch Import
Source: State Statistics Committee of Ukraine
Detailed data on fish catching and sea products extraction is presented in Tables 1 and 2. Figure 4 shows fish catching and sea products extraction by types of enterprises.
Table 1. Fish catch and sea products extraction of the Ukrainian state (tons), 2000-2007
Description 2000 2001 2002 2003 2004 2005 2006 2007
In domestic waters 38,210 38,257 38,011 37,703 35,365 37,396 36,701 37,692
In fishery zone of Ukraine 56,990 134,585 93,030 55,027 52,467 61,176 46,799 45,997
In 200-mile coastal waters of other 175,033 151,613 153,324 140,991 126,834 149,622 122,374 123,553 states
In the open part of the ocean 79,854 8,908 8,840 14,455 11,239 17,391 22,966 - (outside 200-mile coastal waters)
Total 350,087 333,363 293,205 248,176 225,905 265,585 228,840 207,242
Source: State Statistics Committee of Ukraine
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 5 of 38
Figure 2. Fish catch and sea products extraction in 2007, by types of enterprises
Other companies 19%
Large-scale fish f arms 1% Small-scale f ish f arms 10% Fish catching enterprises 59% UkrRybGosp Farms 11%
Source: State Statistics Committee
Although Ukraine inherited a rather strong fishing fleet from the Soviet times, at the same time the country lost most of the oceanic fishing licenses in favour of Russia.
Most of the formerly state-owned vessels were sold to private owners and currently operate abroad, others were rebuilt into transport vessels, or scrapped. Current number of fishing vessels amounts as little as 30% of what it used to number in 1990.
In 2003 Ukrainian fishing fleet consisted of 5,400 vessels, including 500 marine vessels. Only 62 of these vessels were ocean-going trawlers. By 2005 the number decreased to only 500 vessels with average ageing of 23 years, in other words average depreciation degree shows 80%.
The State Register of Ukraine is responsible for technical surveillance and classification of the country’s marine vessels. Given the fact that currently operating vessels are, on average, 23 years old, more than 90% of the fleet may be scrapped by 2010–2015. At present, only 15 Ukrainian large-tonnage vessels are relatively new (2–8 years old). About 30 old large-scale vessels have been on demurrage for 8–10 years, mainly due to lack of reparation and operation funds.
According to the State Program of the Development of Ukraine’s Fish Industry (Feb 19, 2004 #1516-IV), Ukraine planned to increase the catch to 750,000 by the year 2010, mainly through upgrading country’s fishing fleet. According to statements within the program, the amount of imported products was planned to be reduced to 30%, whereas by this time, only the actual imported products account for 90% inland sales.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 6 of 38
Table 2. Fish catch and sea products extraction by type (tons) 2002-2008f
Description 2003 2004 2005 2006 2007
Sardine 24,549 29,873 38,979 31,845 34,543
Horse-mackerel 28,891 21,756 25,773 21,614 25,142
Anchovy-sprat 28,701 23,494 31,423 17,214 15,743
Carp 9,777 10,054 10,531 10,322 11,151
Sardelle 9,422 7,238 12,563 8,667 9,457
Khamsa 11,144 9,136 5,408 6,151 8,604
Azov bullhead 5,921 10,204 9,607 8,065 6,156
Mackerel 9,565 4,236 2,880 3,880 2,881
Bream 2,313 2,081 1,980 1,967 2,192
Cod 2,166 8,492 1,375 921 1,282
Vobla, sea-roach 1,455 1,232 1,077 881 1,095
Herring 138 182 270 300 301
Flatfish 173 257 216 185 248
Pike-perch 103 126 183 163 164
Salmon 9 21 26 73 113
Sturgeon 10 15 6 11 19
Other fish 88,049 66,673 91,952 90,005 62,118
Fish catch, total 222,385 195,071 234,248 202,264 181,209
Crustaceans 17,137 10,967 14,077 14,137 11,000
Shellfish 8,655 19,867 17,256 12,439 15,001
Seaweed - - 4 0 32
Sea products extraction, total 25,792 30,834 31,338 26,576 26,033 Source: State Statistics Committee of Ukraine
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 7 of 38
2.2 Trends in Ukrainian fish sector
The main characteristics of the fish sector are as follows:
Demand for exotic seafood and premium fish kinds will be further increasing on the back of booming HoReCa businesses;
Strong competition on the retail sales space, mainly due to the lacking stores that would specialize in fish and seafood
A steadily growing overall inland fish consumption increase over the last three years, with 2005 appearing to be an upturn point;
Canned fish production going 70-80% for export and further growing;
Tangible demand seasonality, with traditionally low fish consumption in May to August period ;
Yearly prices raises (10-20% over the last three years) are linked to a rather popular diet that starts in February and forbids eating most of the nutritious products, but allows eating fish. The tradition is due to orthodox religious persuasions;
Consolidation of domestic enterprises, especially within fish trading business;
Substantial growth of demand and supply in regard with packaged fish products (including sliced fish, fish preserves, fish snacks and delicacies).
Ongoing diversification of the supplied products;
Ukraine now exports increasingly more canned fish to the CIS countries
Highly unmet demand for fish products storage facilities and related equipment
At present the number of enterprises of Ukrainian fish processing industry amounts to around one third from the one left from the former USSR. Out of eight large fish processing plants located in the Black and Azov Seas coastal zones, six are operating though not at the full capacity. However last three years investment started in the plants. This is a sign of demand-driven overall sector recovery start.
Among the leading processors is Interrybflot Corporation possessing both coastal and floating facilities. Floating facilities allow processing seafood of distant catch without preliminary freezing. In the recent years Kerch plant grew by establishing ‘Yuzhnaya manufactura ‘Proliv’
From more than 20 regional associations for fish processing (like Poltavaryba or Chernigivryba) only 10 are still operating as before. The rest were split for small and medium private enterprises that are operational though reduced production volumes, with an obvious trend, however, of a counter-process of consolidation.
Unlike some fishing countries, in Ukraine the state support for the fish catching and fish processing sector is virtually absent. Ukrainian companies are forced to find own ways or coming to a bankruptcy.
For example, Kerch fish enterprise stopped the production of fish canned food as a result of inefficiency of its production. Production costs significantly grew because of rose in price on electricity, fuel and other components of the cost price. Besides that enterprise experienced difficulties with sales of their canned production.
Taking into consideration the size of fish cannery market, which according to the experts opinion reached
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 8 of 38
USD 200 million in 20073, this segment of food industry remains interesting.
The following development in the sector are to be mentioned:
9 In 2006, after three-year break Genichesk fish cannery renewed its operations.
9 In the last year the largest Ukrainian company ‘Interrybflot’ (products under TM “Aquamarine”) significantly increased its coastal production facilities and widened its assortment with blanched fish and red caviar (tin, glass). Company has big plans for nearest future in the segment of preserves, where still ‘Fish processing factory ‘Pleyadi’ (TM ‘Pleyadi’, ‘Arkom’, ‘Rybnyi tyzhden’) is leading.
9 At the end of 2006 company ‘Aquavit’ opened new factory for production of crabmeat sticks (TM ‘Vodnyi mir’). Already in 2003 company introduced international standards HACCP and in 2007 was cedrtified ISO22000, which at present have only few enterprises in Ukraine.
Last years were characterized also by the continuation of branch restructuring:
Recently Dnipropetrovsk-based CMK Corporation (fish-processing), took over Crimean enterprise Yuzhribkholod (fish storage), thus becoming the most significant industry player on the Crimean peninsula, that operates by storage capacities in Kerch and Sevastopol of 7 and 5 thousand tons respectively.
In 2001 CMK also acquired Kerch fish canning plant Proliv (production capacity six million cans a year, TM ‘Proliv’, ‘Vilnas’ and ‘Bospor’) that reported over USD 20 million revenues in 2006.
2.3 Products’ assortment
The following fish and fish products are offered to the final customers:
live and chilled fish - fresh pond and river fish
frozen fish - sea and pelagic (oceanic) fish
- fish fillet
seafood - squids
- shrimps
- mussels
salted fish - herrings
- anchovy and small herring fish
- Far East salmons
3 ‘Food & Drinks’, No3, 2008
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 9 of 38
- pelagic mackerel
- spicy salted fish (sprat, sardine, herring, mackerel)
- fish in marinade
- other salted fish
smoked fish - cold-smoked
- hot-smoked
- hard-smoked
canned / preserved fish - fish in tomato sauce, in oil, in marinade
- fish with additives (spices, vegetables, sauces)
- caviar, liver
- fish preserves
fish snacks - dried fish
- dried caviar
- dried squid
fish pre-fabricates - fish / salmon burgers
- fish / salmon sticks
other fish products - chilled and frozen crab sticks, rolls and meat
- butter, cheese and other mixes/pastes with fish additives
- sushi sets
- seafood salads
2.4 Main problems of the branch
9 Fairly long fish-processing production cycle
9 Little governmental support for both state and privately-owned fish businesses (no interest-free credits)
9 Still non-transparent schemes for inland acquisitions in the field would require potential investors to be rather adaptable and flexible in regard with institutions that may put red tape on the business activities of
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 10 of 38
international companies in Ukraine
9 Lacking storage facilities that could potentially save the market from seasonal prices deviations
9 Rather complex branch management system and structure with too many state organizations, associations and committees delivering little results
9 Shortage and further decrease of technical and financial assets critical for fish breeding
9 Dependence of domestic processors on raw fish imports
9 Complications of fish imports due to incompliance of Ukrainian sanitary requirements and related regulations to the world standards
9 Inconsiderable state support in terms of financing research and development within the industry
9 Ageing of fishing vessels within Ukraine’s fleet and steady reduction of their number
9 Ukrainian fleet can only catch fish on a rather limited territory of the Ocean
9 Land sale moratorium is still stagnating the development of inland fish-farming, providing no guarantees for land ownership.
9 Growing production costs with compound feed prices going up 40% 2004-2007.
3 Committees, associations and other organizations that form the branch structure
Due to the nature of fishing activities, there’s always been a need for a special governmental body to manage and coordinate the activity of fishery enterprises and organisations. For this purpose the Ministry of Fisheries of Ukraine was established in late 1994 and later on substituted by the State Committee of Ukraine for Fish Industry (DerzhComRybGosp).
In 2000 by a resolution of the Cabinet of Ministers of Ukraine (# 487, March 15, 2000) State Committee of Ukraine for Fish Industry was replaced by State Department for Fisheries of Ukraine (UkrDerzhRybGosp). Activities of UkrDerzhRybGosp are regulated by the resolution of the (# 1226 of August 4, 2000).
UkrDerzhRybGosp is subordinated to the Ministry of Agrarian Policy of Ukraine. It has both vertical and horizontal divisions (see Attachment 1). Such stages of the fish production cycle as breeding, catching and processing compile the vertical structure, while the horizontal line deals with external (ocean and sea) and domestic (sea, river and pond) fish resources.
UkrDerzhRybGosp plays the main role in the management of fisheries and stocks, issues state licenses to fisheries, elaborates scientifically justified catch quotas and allocates them between business entities, carries out management and control of commercial, amateur and sports fisheries, controls within its competency fisheries activities of the legal and natural entities of Ukraine, and regulates distant water fisheries.
In addition, UkrDerzhRybGosp participates in preparation and implementation of international and bilateral agreements of Ukraine, and signs international and bilateral agreements with fish industries of the parties; represents the Government of Ukraine in international fisheries organizations; has the right to exercise inspection control for fishing operations of vessels under the Ukrainian flag by means of the Marine Inspectorate of GolovRybVod; and collects fisheries’ statistical information.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 11 of 38
UkrDerzhRybGosp controls:
9 UkrRybGosp (domestic fish breeding and catch)
9 Ocean fleet of Ukraine (ocean industrial catch and processing facilities)
9 Fish processing enterprises
9 GolovRybVod (Chief Administration for the protection and reproduction of aquatic living resources and fisheries regulation)
9 Research institutions.
Within the structure of DerzhComRybGosp, UkrRybGosp is responsible for domestic fish breeding and catching. It integrates 52 fish plants, 36 cooperatives, and 21 fish rearing and irrigation stations. Ukrainian Union of Fishing Organizations UkrRybSpilka unites fish processing plants and independent fisheries of Dnipro cascade.
UkrRybGosp and UkrRybSpilka take part in decision-making processes concerning stock management in inland fisheries and aquaculture.
Main research institution within the structure of the fish industry is Institute for Fish Industry of Ukrainian Academy of Agrarian Science. Lead design body is UkrRybProect – Ukrainian State Institute for Design of the Fish Industry Enterprises.
The Southern Scientific Research Institute of Marine Fisheries and Oceanography (YugNIRO), is also subordinated to the State Department for Fisheries of Ukraine and is in charge of such tasks as monitoring of marine commercial ecosystems, performing stock valuations, determining target species, developing drafts for catch quotas, and maintaining fishing statistics.
Ukrainian Association of the Fish Industrialists (UAFI). Established in 2004, it unites the largest operators of the Ukrainian fish market. The main tasks of the association are as follows: advocating the interests of the fish market operators, and communicating their messages to the media. At present, UAFI is the key newsmaker within Ukraine’s fish market. In the nearest future UAFI plans to start active campaign for fish image promotion, aiming to raise fish consumption among Ukrainians for it to, at least, reach the minimum level of the EU standards (21 kg). Since UAFI has close contacts with the key fish importers and traders, it can be a useful contact for market newcomers.
With all the ambitions of the above mentioned organizations and unions, UkrDerzhRybGosp appears to be the only organization that operates an easily-accessible web-site, sadly offering visitors little-to-no analytical or statistical data.
The major part of fish canneries and fish-processing enterprises has been privatised. The detailed data on the leading enterprises of the branch is presented in Attachment 2.
Contact details:
UkrDerzhRybGosp (State department for fisheries of Ukraine of MAP)
45a, Artema St.
Kyiv 04053, Ukraine Mr. Volodymyr Volkov Head of the Committee Tel.: +380 44 486 6243 +380 44 272 2032
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UkrRybGosp (Union of fish enterprises of the Ukrainian inland waters)
45a, Artema St.
Kyiv 04053, Ukraine Mr. M. Mukvych Director Tel.: +380 44 486 1744
Ukrainian Association of the Fish Industrialists
1d, Bogatyrska St.
Kyiv 04665, Ukraine
Mr. Yuriy Osmak President Tel.: +380 44 539 1440
4 Distribution
Fish and seafood sales have few specific features:
9 both retail and wholesales are strongly seasonal, with winter months showing highest sales volumes, summer season seeing 70-80% decrease in distribution;
9 demand for exotic seafood and more expensive fish will be further increasing on the back of booming HoReCa businesses
9 increasingly harsh struggle for seafood and fish retail sales space will likely lead many of the market operators in the field towards development of specialized fish retail outlets
9 a steadily growing overall inland fish consumption increase over the last three years, with 2005 to 2008 experiencing multifold distribution increase;
9 yearly prices raises (10-20% over the last three years) are linked to a rather popular diet that starts in February and forbids eating most of the nutritious products, but allows eating fish. The tradition is due to orthodox religious persuasions;
9 substantial growth of demand and supply in regard with packaged fish products (including sliced fish, fish preserves, fish snacks and delicacies). Ongoing diversification of the supplied products;
Wholesale trade
As the market becomes increasingly more consolidated, the number of fish wholesale operators shows further decrease, with current top four (Scandinavia, International Seafood Group, Moreprodukt and Atlantika-Trade) players accounting for over 70% sales, importing over 200 thousand tons of frozen fish per year.
Some small to mid-size companies, such as Jahn General Products Ukraine (Denmark) import fish products in small volumes and supply directly to retail and to HoReCa sectors.
The main deliveries of conserves to Ukraine are controlled by the limited number of big traders and trade houses
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 13 of 38
of foreign producers, like ‘Vicinai Ukraine’, ‘Santa Ukraine’, ‘Integral M’, ‘Simor’, ‘International Seaproducts Group’, ‘Atlantic Fish’, etc.
Retail trade
The following retail channels are used for sale of fish and fish products: retail outlets (supermarkets, specialized shops, grocery stores), street markets and stalls.
Ukraine’s major retailers, having got spoiled by intensively competing fish and seafood suppliers, doubled rental rates for fish products in 2007.
Table 3. Average retail prices for selected products (Apr 2008)
Type of product Amount Price (USD)
Red caviar 1 can (130 g) 6 - 11
Black caviar 1 can (90 g) 130 Mussels 1 jar (200 g) 2 Shrimps (frozen) 1 pack (500 g) 8 - 10 Bream 1 kg. 3.5 Halibut 1 kg. 21 Herring (marinated) 1.kg. 5 Herring (preserves) 1 pack (500 g) 4 Capelin (salted) 1 kg 3.5 - 5 Makerel (marinated, smoked) 1 kg 6 – 10 Hake (frozen) 1 kg 3.5 - 5 Sardine (conserves) 1 tin (250 g) 2 Krill (conserves) 1 tin (250 g) 2.5 Sprat conserves 1 tin (160 – 240g) 1 - 2 Zander (salted) 1 kg. 11 - 14(filet) Salmon stake (salted) 1 kg. 16 Salmon fillet (salted) 1 kg. 18 - 24
Sushi set 1 pack (185 g.) 3.5 Crab sticks 1 pack (240 g.) 2 Salmon butter 1 pack (100 g.) 0.6 Caviar butter 1 pack (100 g.) 0.6 Marinated sea cabbage 1 kg. 2.4
Source: Market Study
As Ukrainian consumers demonstrate growing demand for higher-quality fish and seafood, the market is likely to react with assortment widening.
Foreign investors may see rather attractive opportunities of launching specialized fish and seafood stores in Kyiv,
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 14 of 38
Donetsk, Odessa and Sevastopol, cities that show highest sales.
Both, large cities’ and regional markets also saw retail prices for domestically farmed fish annually going 20–25% up over the last three years.
5 Production analysis
In 2007 in Ukraine it was produced 101.1 thousand tons of conserved and preserved fish and fish products. In the group of ready products, according to Ukrainian classification, the following products are positioned: conserves, preserves, crab sticks, fish paste, liver and fish-vegetable conserves, caviar and its substitutes.
In 2007 69.3 thousand tons of ‘classical’ fish conserves (in oil, marinade, tomato) was produced, what by 17% exceeds the production volume of 2006, 31.4 thousand tons of crab sticks and fish paste (21% of production growth) and 0.4 thousand tons of caviar and substitutes (54% growth).
Table 4. Fish conservation production in Ukraine in 2006-2007.
2007, 2006, Reference, Product name 2007 : 2006, % thousand tons thousand tons 2006 : 2005, %
Conserved fish, caviar and its substitutes, 101.1 85.6 118 110 including: Ready fish and fish conserves in vinegar, 69.3 59.4 117 111 oil, marinade, tomato, namely: Ready products and conserves from sardine, sardinella, sprat, anchovy, 48.5 44.2 110 68 wholes or pieces Fish products ready and conserved minced, 31.4 26 121 107 spreads, homogenized, namely: Spreads, pasts, crab sticks, surimi 20.0 16.6 120 127 Preserves, fish-vegetable conserves, etc 11.4 9.4 122 79 Ready fish and fish conserves in vinegar, 0.4 0.2 154 100 oil, marinade, tomato, namely: Source: ‘Food and Drinks’, No3, 2008
The lion share of local production of classical fish conserves in Ukraine belongs to 5 producers: ‘Interrybflot’, ‘Inrybflot’, ‘Southern manufacture ‘Proliv’, ‘Istok’, ‘Favorit’. Important contribution in the total increase of production was done by ‘Interrybflot’. In 2007 company launched a new ‘sprat’ line of production capacity 700 thousand cans per year.
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Table 5. Output of canned fish products in Ukraine
Description 2000 2001 2002 2003 2004 2005 2006 2007
Canned fish*, mcu4 121 167 168 140 216 227 225 252
* - including canned seafood Source: State Statistics Committee of Ukraine
In 2007, by estimation of market operators5, Ukrainian market of conserves exceeded USD 200 million in money terms. The greatest shares belong to conserves from Atlantic fish (32%) and caviar (24%).
Figure 3. Structure of production of fish conserves in money term, 2007.
Ready fish products Premium fish types 4% 9% Atlantic fish 32% Sprats 14%
Small-size f ish types 17% Salmon caviar 24%
Source: Estimation 'Interrybflot-Ukraine', available in 'Food & Drinks', No3, 2008
Regional location of main production facilities can be described as follows: 35% - Crimea, 30% - separately in Sevastopol, 10% - Odessa region, 6% - Cherkassy and Dnipropetrovsk region each.
4 Mcu – million conventional units, one conventioal unit = 400 g. 5 ‘Food & Drinks’, No3, 2008
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Table 6. Main Ukrainian producers of fish conserves
Production Volumes Location Company name 10 – 20 thousand tons Sevastopol (Crimea region) ‘Interrybflot-Product’ Ltd. Crimea region ‘Southern manufacture ‘Proliv’ Ltd. Crimea region ‘Trade house ‘Favorit’ Ltd. 5 – 10 thousand tons Crimea region ‘Inrybflot’ Ltd. Odesa region ‘Istok’ Ltd. Cherkasy region ‘Alfa-Eteks’ Ltd. Crimea JSC ‘Inrybflot-Product’ 1 – 5 thousand tons Vinntsa region ‘Vinter’ Dnipropetrovsk region ‘Simor’ private company Kharkiv region ‘Fish conserve factory ‘Equator’ Ltd. Source: ‘Food and Drinks’, No3, 2008
In 2007 the leader in preserves production is fish processing factory ‘Pleiady’ (Kyiv region). The leader is followed by ‘Sam Fish’ (Zhitomit region), ‘Gals-2000’ (Chernivtsi), ‘Silverfood’ (Cherkassy region), ‘Tekhnologiya-M’ (Zhitomir), ‘Tri Kita’ (Dnipropetrovsk region), ‘Moreproducty’ (Lutsk), ‘Akvavit’.
One of the leading producer of crab sticks in Ukraine is ‘Akvavit’ company (TM “Vodnyi Mir”), with share of 40%. Other Ukrainian producers together are controlling about 5% of the market. The rest 55% are imported and by estimation of ‘Santa Bremor’ company are distributed as follows: 30% - TM “Vici”, 5% - “Santa Bremor”, 20% - producers from China, Denmark, France, USA, etc.
Profitability of the industry enterprises depends on the manufactured products: the more technologically complicated are the products, the higher is its profit margin (as there is no dumping from illegal producers). Thus, averaged profitability indicators for some products are as follows:
- ordinary salty and smoked fish products – 14%;
- fish salty and smoked delicacies – at least 13%;
- fish preserves and canned fish – 15%;
- canned ordinary caviar (from herring, pike-perch, capelin) – up to 15%;
- canned delicacy caviar (from salmon fishes) – up to 10%.
6 Market demand and consumption
In 2007 the fish and sea-products consumption in Ukraine reached the level of 15 kg per capita taking the last place in the food consumption structure of the Ukrainian family with 2%. Black and Azov sea costal regions, Kyiv, Donetsk, Dnipropetrovsk and Sevastopol show highest consumption rates.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 17 of 38
Figure 4. Fish consumption, Ukraine compared to some European countries
100 90 90 80 70 60 54.5 50.8 50 38 40 kg per kgper capita 30 23.7 19 20 20 15
10 3.4 0
Island 2 007 Spain 200 7 Norway2007 Ukraine 1990 Ukraine 1994 Ukraine 2007 Lithuania 2007 Ukraine 2010f Recommended
Source: State Statistics Committee of Ukraine, Open sources
Herring consumption level in Ukraine is among the world’s highest, with Norway accounting for 93% exports, whilst salmon consumption in Ukraine has a clear growth potential, as demonstrated by the Figure 5, although, salmon consumption posted 20–30% increase in the Western European countries in the last years.
Figure 5. Salmon consumption in Ukraine, 2007
4 3.45 3.5
3
2.5
2 1.83 1. 36 1.5 kg capitper a 1
0.5 0.05 0 Ukraine Finland France E ngland
Source: State Statistics Committee, Open sources data
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 18 of 38
As to the preference in consumption, market operators state that herring reaches 40% share in total consumption, capelin – about 30%, mackerel – approximately 10%, and other types of fish – 20% (as shown in figure below). Importers also mention that demand for new (for Ukrainian market) types of fish like ice-fish, Peter’s fish, Australian salmon, dory, natatenia is growing.
Figure 6. Preferences of Ukrainian consumers
Other types of fish 20%
Herring 40% Mackerel 10%
Capelin 30%
Source: State Statistics Committee
Live or fresh fish
At present, Ukrainians express rather high demand for live or fresh (chilled) fish, mainly for carp, freshwater bream, and roach, which are delivered to the domestic outdoor markets and retail stores from freshwater bodies. All these fish products are sold quickly due to reasonable prices (USD 3-5/kg) at relatively high quality.
Frozen, salted and smoked fish
Some of the highly-demanded fish products are still delivered from Azov and Black Seas: sprat, anchovy, as well as demersal and bottom fishes – mullets and flounder, while imported products account for a lion’s share of total sales.
The volume of imported products from Norway alone, largest fish products importer to Ukraine, increased tenfold over the last eight years and among other, included Atlantic mackerel, Baltic herring and capelin.
Alaska pollack and Atlantic cod are in little demand due to poor quality and rather high prices. Importantly, Alaska pollack is known in the former Soviet area as a feed fish – it was sold at low price for feeding domestic animals; cod has never been in demand in Ukraine.
Attempts to sell farmed salmon were of little success due to the exceedingly high retail prices, with analysts, however, forecasting multi-fold salmon sales increase in the coming years.
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Canned fish
Sprat in tomato sauce, oil, along with sardine in oil hold the biggest piece in sales. There is traditional demand for Ukrainian canned fish (mackerel, pilchard, sardinella, and horse mackerel) produced from fresh fish aboard Ukrainian factory vessels on the high seas. See Table 4 for canned fish production growth over the last years.
At the same time, Ukrainian consumers tend to buy increasingly more premium-class canned fish, driving inland canned fish producers to products’ diversification, while inland production growth is also being strongly supported by growing exports to Russia, Georgia, Kazakhstan and other CIS countries. A portion of fish canned products are purchased by the government for the army and for the state reserves
Thus the amount of canned fish inland production decreased from 352 million cans in 1990 to 85.9 million in 1995, fortunately, the business recovered and showed 252 million by 2007.
Canned fish sales grew by 40% in Kyiv 2007 with similar consumption increase being expected 2008. Relatively low entrance level enables entrepreneurs to enter the growing fish-canning business. See
Market experts expect at least five more companies will be established in the short-term. Thus, crab sticks TM ‘Vodniy Mir’, for example, has entered the segment recently, investing USD 400 thousand in production of 300thousand cans a year. Wholesale prices for selected fish products are given in Table 5.
Table 7. Wholesale prices for selected fish products, USD/kg (Apr 2008)
Products Type of pack UAH per kg (incl. VAT)
Herring, frozen (Norway) 20 kg 1 - 2 Herring fillet, frozen (Iceland) 20 kg 1.6 - 2 Mackerel, frozen (Norway, Scotland) 20 kg 2.5 - 4 Capelin, frozen (Iceland, Norway) 15-20 kg 1.4 Trout, frozen (Norway) - 6 -6.5 Trout fillet, frozen (Norway) - 7 - 8
Salmon (Norway) - 6 – 6.5 Squids (Argentina) - 2.6
Shrimps (Estonia) - 3 – 3.5 Source: Market Study
Fish snacks
Soon after first fish snacks, such as dried fish and seafood first appeared on the Ukrainian sales platforms, market saw rather dynamic products diversification.
Thus, the share of dried fish and seafood within the snacks segment currently reaches 25% in Kyiv. Dried fish (capelin, perch, anchovy, smelt, and roach) is leading in this regard – up to 50% in the fish snacks offered in Kyiv market, followed by the dried squids (32%) and chilled crab sticks. Dried bread with fish additives and species have also successfully entered the market in 2005. Overall fish and fish-tasting snacks sales surged 400% over the last two years and are expected to further grow in double digits in the coming years.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 20 of 38
By experts estimation in 2006 it was consumed in Ukraine about 30 thousand tons of crab sticks and other surimi products, 16,5 thousand tons of which were imported.
7 Raw materials and packaging
Raw materials
As little as only 20-30% of raw fish is supplied by domestic enterprises and while Ukraine’s fish-farming industry overall shows signs of development, inland share in supplies is unlikely to increase.
The import duty rates for fresh, chilled and frozen fish that can serve as a raw material for further processing are presented later in this chapter.
Packaging
Recently, market saw leading retail companies launching sales of fish cans under private labels (Furshet, Silpo, Velyka Kyshenya). The example demonstrates overall trend of packaging and promotion gaining on importance over the recent years. Thus, presently 80% of fish products sold through retail outlets is packed. Unpacked fish is sold mainly through non-organized outdoor distribution channels and through the special counters in the shops.
Special attention is paid by the manufacturers of fish products to the leak-proofness of the packaged fish what explains high demand for glass and plastic packaging. Large domestic packaging producers supply of virtually all the packaging a fish-processing enterprise may need.
At present, the following types of packaging are mainly used in the fish industry for final products:
9 polymeric films (for vacuum packaging of frozen fish and fillet, salty fish and fish slices)
9 polymeric trays covered by adhesive film (for smoked fish)
9 polymeric containers (for fish preserves, fish butter and pastes)
9 tins and glass jars (for canned fish and caviar).
For transportation of fish products used mainly corrugated cardboard boxes for finished products, polymeric buckets for salty fish and caviar, and polymeric boxes for smoked fish.
8 Foreign trade
The changes made to the customs tariffs in 2005 simply cancelled the entrance duties for all kinds of fish that are not being caught or bred in Ukraine or brought them to 2-10% minimum.
Although Ukraine’s fish processing industry, basically, became available for FDI since revolutionary import duty rates decrease in 2005, current Ukrainian government keeps pushing through further bills in order to harmonize business climate in the field with WTO standards.
Given world prices for fish products steady yearly growth and the further expected 10% increase in 2008,
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Ukrainian fish processing companies concentrate more on cutting their distribution chains as short as possible, along with establishing their own storage facilities. As of yet Ukraine only has two high-scale logistics centres of this kind. As soon as three more ongoing projects get completed, seasonal fish prices fluctuations will not be the issue anymore.
Figure 7. Foreign trade in fish and seafood products in Ukraine (2002-2008f)
700 590 600 467 500 426 397 400 298 300 250 205
thousand tons 200
100 20 18 15 15 13 20 20 0 2002 2003 2004 2005 2006 2007 2008f
Import Export
Source: State Statistics Committee, Open sources
Figure 8. Foreign trade in fish conserves in Ukraine (2001 – 2007)
70 60
50 61.4 57.4 52.4
40 46 43 42
30 37 19.8
thousand tons thousand 20 12.6 11.7 11 10 10 9 5 0 2001 2002 2003 2004 2005 2006 2007
Import Export
Source: State Statistics Committee
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 22 of 38
8.1 Export
Export of Ukrainian fish products are insignificant compared to import, with canned fish products holding majority stake within export pie. In 2007 it was exported 19.8 thousand tons of fish conserves to the amount of USD 23.4 million, which is by 84% higher than in 2006. The volume of exported conserves from seafood remained on the same level (0.5 thousand tons), at the same time showing the 21% increase in money terms (USD 3.4 million in 2007 compared to USD 2.8 million in 2006).
Table 8. Export of fish products by types of products in 2003-2007, USD thousand
Products Code 2003 2004 2005 2006 2007
Live fish 0301 36
Fresh or chilled fish (except for fillet) 0302 257 426 237 215 144
Frozen fish (except for fillet) 0303 1,502 3,357 4,748 3,859 2,202
Fish fillet and other fish meat (including minced 0304 1,160 4,125 4,193 984 1,442 fish)
Dry, salty or in brine, hot and cold smoked fish 0305 250 174 12 203 1,047
Crustaceans 0306 29 427 64 168 271
Molluscs 0307 85 286 415 354 571
Extracts and juices of fish 1603 - 0 0
Ready-made or canned fish products 1604 3,990 7,337 10,704 12,674 23,452
Ready-made or canned crustaceans, molluscs 1605 1,702 2,248 3,168 2,812 3,427 and others water invertebrates
Source: State Customs Committee of Ukraine
More than 70% in the export structure of Ukrainian conserves holds Black Sea anchovy in tomato, 13% - Azov bullheads, 8% - Atlantic sardines, 3% - krill meat (TM ‘Aquamarine’).
Also are exported, although in small portions: herring preserves, conserves from, saury, salmon, trout, fish pastes, crab sticks.
About 98% of fish and sea products conserves export from Ukraine goes to Russia. Remaining part is exported to Izrael, Moldova, Kazakhstan.
The main Ukrainian exporting companies are: Trade House ‘Supoy’, ‘Proliv’, ‘Istok’, ‘Interrybflot’, ‘Novyi Standard’.
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8.2 Import
The decrease of catch volumes of sea products with the same traditionally high standards of consumption will each year increase the dependency of domestic fish processing industry on import.
For the investigated period import volume has grown from 250 thousand tons in 2003 to 467 thousand in 2007, with hake and herring leading the way in terms of increases. Market also saw stunning tenfold shrimps import increase in 2006.
In 2007 it was imported 57.4 thousand tons of fish conserves or by 7% less than in 2006, while in money terms 5% growth was observed. Import of seafood conserves grown by 38% in volume (from 2.4 to 3.3 thousand tons) and by 28% in money terms (from USD 7.1 million to USD 9.3 million).
Table 9. Import of fish products by types of products in 2003-2007, USD thousand
Products code 2003 2004 2005 2006 2007
Live fish 0301 49 45 87 99 82
Fresh or chilled fish (except for fillet) 0302 108 409 2,269 11,440 26,653
Frozen fish (except for fillet) 0303 74,412 88,572 178,950 249,388 270,929
Fish fillet and other fish meat (including 0304 5,749 9,270 28,180 65,811 96,470 minced fish) Dry, salty or in brine, hot and cold smoked 0305 4,571 1,788 4,587 9,844 10,235 fish
Crustaceans 0306 2,195 1,645 4,725 17,867 28,314
Molluscs 0307 920 1,572 2,872 6,793 11,769
Extracts and juices of fish 1603 - 26
Ready-made or canned fish products 1604 21,038 29,622 61,831 84,036 88,276
Ready-made or canned crustaceans, 1605 123 779 6,415 7,135 9,312 molluscs and others water invertebrates
Source: State Customs Committee of Ukraine
Norway and Island are major herring exporters to Ukraine. USA, Canada and Argentina bring in 38 thousand tons of hake, while Denmark and Estonia export over 8 thousand tons of shrimps. Norway and Chili account for nearly 2.5 thousand tons of salmon.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 24 of 38
Figure 9. Fish import to Ukraine structure in 2006-2007 by country
Others Russia 5% Spain 5% 5% Baltic States 5% Argentina 5%
Norw ay 75%
Source: State Statistics Committee
Periodically Ukrainian Association of the Fish Producers and Norwegian fish suppliers faces complications in import caused by changes in certifications licensing rules from State Department of Veterinary Medicine of Ukraine. The WTO entry is set to cancel any forms of licensing for the internationally certified companies before 2011.
If in 2005 all the leading positions in import deliveries of canned fish and sea products were taken by Russian producers, then in 2006 Estonian producers pressed Russians in deliveries of fish conserves, while Chinese and Danish producers - in the segment of canned/ready sea products. More than 50% of deliveries of Russian fish conserves make up production made of surimi meat, the rest – sprat of spiced salting, pilchard/sardinella, saury, cod’s liver, sprats, fish paste etc. Leading positions in Russian deliveries are still taken by enterprises that are located in Kaliningrad area (‘Kreon’ Ltd., ‘Vichunyay-Rus’’) and also ‘Russkoye more’ Ltd., joint-stock company ‘Baltiyskiy Bereg’ etc.
Such a regrouping in shares distribution of import of fish conservation operators explain as partial redistribution of flows of Baltic production from Russian market to Ukrainian as a result of implementation of Russian embargo (20 October 2006) on production of particular fish canneries of Baltic States.
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Talking about fish conserves and preserves, according to representatives of retailers, the biggest share in import hold the following products:
Sprats – 12% or around 8 thousands tons. In this segment major part of imported deliveries belongs to Latvian (Gamma-A, Zvani, Lata, Kolumbija, Brivais vilnis, Ventspils Zivju Konservu Kombinats, ‘Randa’ ltd., ‘Zentenskiy fish enterprise’ ltd. Etc.), Estonian (Maseko, Hiiu Kalatoostuse OU etc.) and Russian (‘Russkiy rybnyi mir’) producers.
Pilchard/sardinella – 7%, more than 4 thousands tons in year 2006 is presented mainly by Estonian (Maseko), Latvian (Gamma-A), and Russian producers (‘Kreon’ Ltd., ‘Russkiy rybnyi mir’ Ltd).
Herring – 5% or around 3 thousands tons. Wide assortment of tinned herring (mainly preserves) are coming to Ukraine in the form of fillet, rolls with different fillings (in oil with spices and herbage, pickled cucumbers, pepper, mushrooms, onion; in yoghurt, mayonnaise, with prunes and dried apricots, smoked etc.). In retail chain imported tinned herring is presented mainly by Belarusian company ‘Santa Bremor’ under the brands ‘Matias’, ‘Moryachok’, ‘Fishpiknik’. Imported tinned food and herring preserves are also presented by Russian producers among which are ‘Kreon’ Ltd., joint-stock company ‘Baltiyskiy bereg’ and ‘Russkiy vodnyi mir’ Ltd.
Caviar – 6% or around 3.6 thousands tons. Legal deliveries of salmon caviar significantly increased and according to the assessment make up around half of imported deliveries of caviar production, including capelin, cod and herring caviar. Caviar butter, which is delivered to Ukraine by Belarusian company “Santa Bremor” is also falling under this category. It should be mentioned that main legal caviar and caviar products deliveries to Ukraine are coming from Belorussia (more than 30%) and Russia (29-30%) If Russian deliveries are mainly salmon caviar, then Belarusian are capelin, cad and herring caviar. Around 20% of caviar products deliveries are coming from USA. Insignificant batches of caviar are coming from Germany, Latvia, Canada, Norway etc.
Figure 10. Structure of import of ready fish and seafood products, 2007
Structure of import of ready fish Structure of import of seafood products
Other Fish sticks, Fish paste 10% Other burgers 2% 14% Herring 2% Baltic anchovy Sea Cocktail 5% 29% 1% Craw fish Squid Caviar 2% 37% (salmon, cod, capelin) Mussels 6% 17% Sardine/sardin elle 7% Sprats 12% Surimi Schrimps 27% 29%
Source: State Statistics Committee
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 26 of 38
8.3 Regulations on import
The import duty rates for fish and fish products were decreased for all the fish products that are not being farmed in Ukraine by the Customs Tariff of Ukraine in 2005.
Next duties decrease happened just after Ukraine entering to WTO on 16 May 2008. For some products 2 years transition period is foreseen, when the customs duties will be finalized.
As mentioned above, on the back of Ukraine’s ongoing legislative transitions in regard with WTO entry, government is expected to cancel any certifications or sanitary checks for the internationally certified products in the short-term, thus promoting further imports increases.
Table 10. Customs duties for fish and fish products in Ukraine
Before WTO Code Product type After WTO entering entering Bound Bound Final, % % Accession, % (year)
0303 74 30 10 Frozen mackerel 2 0 0303 80 90 00 Fish liver and caviar 5 0 0304 10 15 00 Fresh water trout fillet 5 0 0304 20 53 10 Frozen mackerel fillet 5 0 0304 90 31 00 Sea perch fillet 5 0 0305 41 00 00 Smoked salmon 10 5 0305 42 00 00 Smoked herring (incl. fillet) 10 5 0305 49 10 00 Smoked mackerel (incl. fillet) 10 8 5 (2010) 0305 49 20 00 Smoked trout (incl. fillet) 10 8 5 (2010) 0305 49 45 00 Smoked eel (incl. Fillet) 10 8 5 (2010) 0305 61 00 00 Salted herring 10 7.5 5 (2010) 0305 69 50 00 Salted salmon 10 5 Source: State Customs Committee of Ukraine
9 Foreign presence in the Ukrainian fish market
Fish-processing and fish production have not seen much FDI that, at the most optimistic estimations, currently comprise as little as is 1% or USD 9.3 million in money terms, with Baltic countries, Russia and Israel pioneering in regard with first investments into the industry.
Fish processing is, obviously, of more value to the investors than fish production that is still being viewed as too risky and time-consuming.
Norwegian investors show more interest in fish storage infrastructure establishment, market insiders say. While being a leader in frozen fish imports to Ukraine, Norwegian suppliers may also be interested in Ukraine as a
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transit country for re-exporting their products to neighbouring countries, mainly to Russian Federation, allegedly because of quotas Moscow put on Norwegian trout and salmon.
Export of the mentioned kinds of fish to Ukraine went up more than twofold, numbering nearly 9 thousand tons per year, with a trend of exporting increasingly more fresh fish (90% in 2007), as opposed to annual 60% over the last years.
Previously the absence of foreign capital in fish supply and processing was related to high risks due to frequently changed legislation and relatively low profitability of the business, but the situation is changing along with developing legislation and rapidly growing FDI.
10 Equipment
The main groups of equipment used in fish industry are:
9 cooling equipment to store fish
9 machines for washing
9 sorting equipment
9 machines for eviscerating and finishing
9 equipment for salting and smoking
9 lines for canned fish manufacturing
9 lines for production of fish preserves
Majority of the Ukrainian enterprises specialised in manufacturing of fish-processing equipment are located in the Black Sea coastal zone, while others concentrate in and around big cities, namely:
AtlA (Sevastopol) - http://www.atlaltd.com/ - Manufacturing and repair of the equipment for fish processing and manufacturing of technological lines for krill and fish products, fish canned food;
YugRybTechCentre (Sevastopol) – design and equipment for fish processing companies;
KrymProdMash (Simferopol) – equipment for canning.
Both AtlA and YuzhRemMash (Sevastopol) provide repair for ocean fish vessels.
High demand in the Ukrainian market is marked for cooling equipment for cold storages, and processing equipment (for production of fish preserves, pastes and other delicacies).
11 SWOT analysis
Strengths
¾ growing demand for fish and seafood products (diversification)
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¾ state finally putting some of its investment-friendly legislative reforms into action
¾ booming HoReCa businesses
¾ strong presence of international banks
Weaknesses
¾ still little investments poured into the sector
¾ although actively reformed, still a lot of barriers for FDI
¾ ageing of Ukrainian vessels and lack of financing for purchasing new or repairing old
¾ poor infrastructure, enhanced by modern storage facilities shortage
¾ outdated and depreciated fish processing equipment
Opportunities
¾ growing demand for premium products
¾ virtual absence of established fish products retail stores
¾ growing demand for canned products
¾ parnership-open projects for storage facilities, as well as for fish-farming projects
Threats
¾ excessive state regulation of the activities in the sector
¾ pollution of domestic ponds and estuaries
12 Conclusion and forecast
9 The market of fish conserves is under property restructuring process. Specially this concerns shore fish processing stations, where Russian an Baltic assets are involved.
9 Although political instability in Ukraine still increases risks for FDI, country’s economy in general is growing along with personal incomes and will eventually bring inland fish consumption rates to those of Western European countries.
9 State official plans for fisheries development in Ukraine and expansion of domestic market for fish products will eventually create investment opportunities.
9 On the back of Ukraine’s recent official WTO entry in the short-term, all or most of the licensing and sanitary procedures for fish importers with internationally acknowledged certifications will be simplified, or most probably cancelled.
9 For the nearest perspective the stable demand for Ukrainian fish conserves, preserves, frozen semi- ready products (fish sticks, burgers, surimi, etc.) will be kept.
9 Fish market will further grow driven by inland farming and processing activities increases, as well as by
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 29 of 38
HoReCa businesses development and increasing imports.
9 The demand for tuna conserves will grow from end consumers, as well as from HoReCa sector.
9 Still, the market will maintain attractiveness for importers, particularly in the segment of premium fish products. Therefore the greater part of the demand for pricey fish products will be almost exclusively satisfied through imports. Intensive development of new and adaptation of available technologies for commercial farming of valuable species - sturgeons, salmon, turbot, shrimps, molluscs - are anticipated to partially satisfy the demand for few product groups.
9 As for the raw materials, Ukraine will remain the import-dependent country. Taking into account world price increase and limiting of world catch quotas, the development of modern and efficient national aquaculture became of great importance.
9 In the nearest future the import of Russian and Belorussian fish and seafood conserves will grow.
9 Taking into account recent big investments into fish processing sector of Far East countries, like China, Vietnam, Thailand, it is worth to expect the import increasing from these countries in the nearest future.
13 Opportunities for Dutch technology and equipment
Foreign investors may see rather attractive opportunities of launching specialized fish and seafood stores in Kyiv, Donetsk, Odessa and Sevastopol, cities that show highest sales.
As Ukrainian fish processing industry suffers from shortage of raw fish for further processing the imports of frozen fish and fish fillet from the Netherlands can become a good possibility for Dutch fish exporters to enter the Ukrainian market.
Modern equipment for fish processing is of high demand, especially when supplied to Ukrainian enterprises on terms of long-term leasing or loans.
Set up of cold storages infrastructure is another possibility for cooperation between Ukrainian and Dutch companies.
The import of quality feeds or feed components for fish can be a considerable contribution of Dutch partners to the fish products improvement.
Supply or rent of small and medium ships to Ukrainian fisheries may likewise find its way onto Ukrainian market.
Besides cooperating with already existing, mainly located in Crimea, fish processing and fish-farming companies, Dutch investors may likewise be interested in participating in state privatization and fish breeding industry development projects, such as Donuzlav lake development on the Crimean peninsula. Projected ROI might come in four years with the lake having potential for breeding of numerous fish kinds, mussels and oysters.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 30 of 38
Attachment 1 Organizational structure of the branch
M A P
UkrDerzhRybGosp
UkrRybGosp
Ocean Fleet GolovRybVod plants institutes
Feed plant Large-scale fish Medium-scale fish UkrRybSpilka for fish industry fish for
Fish rearing and processing enterprises processing enterprises irrigation stations irrigation Design and Research Cooperatives and fish
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 31 of 38
Attachment 2 Leading companies of fish sector
No. Company General information Description of production Trade Mark Address Telephone Fax e-mail web-site Contact person name 1 AKVAVIT LLC The only producer of Crab sticks and rolls, fish and "Vodny mir" 1, Zaliznychna +38 04868/ +38 04868/ crab sticks in Ukraine. salmon sticks str., Ilichevsk, 34949; 34949 The plant was opened Odessa region 34959; in September 2001 34962 with the processing equipment from Japan. Installed capacity was 2 t per day, and plans were to increase it to 6 t per day. The plant introduced GMP and HACCP standards. 2 ATLANTIKA - Wholesale trader Frozen fish and seafood 14, Morehidna +38 051/ TRADE LLC str., room 404523 331, Mykolaiv 54010 3 Belgorod- The plant found in Smoked and salty fish, canned 36, +38 04849/ +38 04849/ Dnestrovsky 1934. The capacities and preserved fish Kishinevskaya 26903 26903 Fish Plant allow to produce up to str., 04849/ 20 mn cans per year Belgorod- 24307 and to store in the Dnestrovsky, low-temperature Odessa conditions 700 t of region 67700 fish. At present, the plant introduces new kinds of products (12 types of fish preserves).
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 32 of 38
No. Company General information Description of production Trade Mark Address Telephone Fax e-mail web-site Contact person name 4 CJSC The company started as Frozen fish fillet, fish paste, Nasha 22, +38 056/ +38 056/ www.gold.d BASTION exporter of fish products gutted frozen fish Fishka Komsomolska 3778287; 3778287; n.ua/catalo in mid 90's. The factory str., 3778288; 3778288; g/18/16508/ producing fishery Dnipropetrovs 3778289 3778289 products was launched k 49000 in May 1999 in the city of Dnipropetrovsk. Currently the factory can produce from 90 to 120 t of fish fillet per month and 80 –100 t of other fishery products, and is the largest producer of fish fillet in Ukraine. The factory uses 'shock- freezing' technology. 5 CJSC Regional fish processing Fish preserves; smoked, salty Poltavaryba 51/2, +38 0532/ +38 0532/ slpfish@kot Mr. Ruslan Zhuravlev, POLTAVARY enterprise and dried fish Zelenkivska 509023; 509023; .poltava.ua General Director BA str., Poltava 500506; 610474 36009 610474; 222833 6 Collective The enterprise belongs Fish (carp, channel sheat- Mirniy, +38 06262/ www.drc.co Mr. Sergey Alimov, Agricultural to UkrRybGosp; fish, trout, etc - 10,000 t/year) Slaviansky 76963; m.ua Chairman of the Board ; Fish Breeding employs 1,309 workers. and fish breeding materials, district, 32269 Mr. Viktor Ampilov, First Enterprise cold smoked products of Donetsk Deputy Chairman DONRYBKO pond fish (300 t/year), region 84173 MBINAT canned pond fish (4 mn cans) 7 DYUNA LLC Fish preserves in tinware and Dyuna 7, Vyzvolyteliv +38 044/ duna@ukr. Mr. Oleksandr Muntyan, glassware (herring and str., Kyiv 5439145 net Director caviar) 02125 8 International Fish importer 1, Bogatyrska +38 044/ +38 044/ managers www.seafo Mr. Mukola Mukhayliuk, Seafood str., Kyiv 5373800; 5373800 @mgm.kiev od.com.ua Manager group LLC 04655 5373802 .ua roznica@m gm.kiev.ua
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 33 of 38
No. Company General information Description of production Trade Address Telephone Fax e-mail web-site Contact person name Mark 9 INTERPRODSE Former Fish products and preserves Inetrprod 1, Tupikova +38 0382/ admin@inte www.interpr Mrs. Nadiya Sokol\s\ka', RVICE LLC Khmelnitskryba. The service str., 784078 rprodeservi odservice.c Director company supplies fish Kmelnytsky ce.com om products to Ukrainian 29000 market for more than 6 years. For the moment range of products consists of 200 names, 25 of which are preseves. 10 Irkliiv Fish breeding Fresh herbivorous fish (plate, carp, Irkliv village, +38 04739/ +38 Mr. Grygoriy Piddubnyj, herbivorous fish enterprise white amur) Chornobayivs 55187; 04739/ Director breeding ky district, 55501 30013 nursery Cherkasy region 19950 11 JSC 17, +38 048/ +38 048/ antarktika- Mr. Anatoliy Kabalchinsky, ANTARKTIKA Ekateerinska 7223973; 2496334 [email protected] Commercial Director str., Odessa 7223973 t 65026 12 JSC Regional fish Hot and cold smoked fish, dried 191, +38 0472/ +38 0472/ Mr. Viktor Strashko, CHERKASYRY processing enterprise. fish, fish preserves, semi-finished Smelianskaya 639192; 660526; Director; Mr. Ivan BA The company has a fish products str., Cherkasy 632407; 662529 Shmagaylo, Head of staff of 141 18036 660526; Marketing Dpt. employees. 662529 13 JSC UKRRYBA The enterprise was Cold and hot smoked fish, pickles, 66, +38 044/ +38 044/ ukrryba@sk Mrs.Glotova Viktoria, Ukrainian established on the cookery, fish semiproducts, hard Povitroflotsky 2490286 2490286 if.com.ua Director Commercial base of Kyiv Fish- smoked products (cured fillet of ave., Kyiv Fish Processing Processing Integrated sturgeon and the like); fish 03151 Works (has roots in preserves and canned fish 30's); produces and offers for sale the wide assortment of fish products (appr. 120 t per month); has powerful refrigerating equipment; has a network of representative offices.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 34 of 38
No. Company General information Description of production Trade Address Telephone Fax e-mail web-site Contact person name Mark 14 LYPOVA The company supplies Fish products, seafood, fish Lypova 34, +38 044/ +38 044/ Mr.Oleg Bilodid DOLYNA LLC fish products to delicacies Dolyna Beletskogo, 4048782; 4044425 Ukrainian market for Kyiv 03126 4048089; more than 6 years. 4045665 15 MOREPRODUK Wholesale trader Frozen fish (mackerel, herring, Morepro 66, more@prod Mr. Igor Zhukovsky, T LLC. capelin, halibot, cod, and other dukt Povitroflotsky uct.mk.ua Director Mr. Oleksandr types), crab sticks, other fish ave., Kyiv fish@zeos. Kachny, Founder products 03151 net 16 NORMAN Ltd. The company was Fish preserves NORMA 58, Zovtneva alan_gr@ki Mr. Kostyantyn Akulov, founded in 2000. N srt., Obuhov evnet.com. Senior Manager Number of empoyees - 08700, Kyiv ua 80. region 17 NORVELITA- Ukrainian-Lithuanian- Fish preserves 169, Schorsa +38 0412/ +38 0412/ oleg@norv UKRAINE Norwegian JV; one of str., Zhytomir 253612; 253612 elita.zt.ua the enteprises of 10031 253540 Norvelita company. The plant founded in March 2003. Assortment includes 87 items. 18 OJSC One of the leading fish Canned fish IRF ` +38 0692/ [email protected]. www.akvam Mr. Oleksandr INTERRYBFLO processors. The 545350 ua arin.com.ua Slovachevs\kuy, Director T-UKRAINE corporation possesses both coastal and floating facilities. Floating facilities allow processing seafood of distant catch without preliminary freezing. 19 OJSC Ismail The plant found in Fish preserves; smoked, salty, 4, Portova str., +38 04841/ +38 rmaster@te Mr. Petr Kachalaba, Fish Plant 1946, employs 150 dried and frozen fish, herring Ismail, 68600 67218; 04841/ .net.ua Director workers. The plant Odessa region 53454; 78218 equipped by 6 51008 smoking ovens (capacity is 1.2 t/day), 1 curer (capacity 600 kg/day), 1 preserving line (capacity 8,000 cans/shift)
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 35 of 38
No. Company General information Description of production Trade Address Telephone Fax e-mail web-site Contact person name Mark 20 OJSC Kerch The enterprise is More than 30 kinds of products: 8, +38 06561/ +38 krk@kerch. Mr. Mykola Shatalov, Fish Plant catching and processing smoked and salty fish, canned and Tselimbernay 43250; 06561/ crimea.ua Director fish. In 1998 the plant preserved fish a str., 43255; 20547 employing 320 workers Opasnoye 43604 caught 1,862 t of fish. village, Kerch, The fish and fish Crimea 98307 products are sold through the own retail network. 21 OJSC Lviv Fish breeding Fresh carp, plate, crucians 6 Sechevuh Mr. Vasyl' Romanovsky, Regional Fish enterprise Strel'cov str., Director Plant Ivano-Frankovo village, Yavoriv District, Lviv Region 81070 22 PLEYADY LLC Company processes Hot and cold smoked fish, frozen "PLEYA 2, Sosnovyj +38 04498/ +38 office@pley Mr. Roman Kozak, Director fish using modern fish, fish preserves, semi-finished DY", lane, Boyarka, 42800; 04498/ ady.com.ua technologies and fish ARKOM Kyiv region 42801; 42800 equipment. Production 08150 42820 site located in Kyiv region. Range of products consists of about 300 names. 23 S.O.V. GAVAN One of the leading fish Caviar in various sauces; fish S.O.V. 32, +38 044/ +38 044/ marketing http://www. Mr. Anatoliy Chumak, LLC processing preserves (herring, mackerel, Gavan Molodogvardiy 2462686; 2411287; @sovgavan sovgavan.c General Director companies. mussles) in marinade; fish ska str., room 2411287 2462686 .com om/ delicacies, dried and smoked fish, 33-36, Kyiv butter with fish additives, laminaria 03151 salads; fish snacks 24 SKANDINAVIA- The company was Import of fish products 5, PLUS Ltd. founded in 1995 as Zroshuvalna Ostriv LLC. In 1997 str., Kyiv the name was 02099 changed to Skandinavia 25 Ukrainian Fish 63-B, Pobedy +38 044/ olesha@do Concern ave., Kyiv 4900174; virafm.kiev. "UKRRYBPRO 03113 4909173; ua M" 4902173 aqvavirgo@ aport.ru
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 36 of 38
No. Company General information Description of production Trade Address Telephone Fax e-mail web-site Contact person name Mark 26 Yuzhnaya Former Kerch fish dried fish snacks 'Proliv'', 41, Kirova str., +38 06561/ proliv@cmi. www.proliv. Mr. Roman Chizhevsky, manufaktura cannery. For the "Vilnas" Kerch 98312, 51509; dp.ua com.ua Sales Director PROLIV LLC moment Yuzhnaya "Bospor", Crimea +38 0562/ Manufactura Proliv is ''Laatsa'' 33A, 380044 one of the largest Reshetilivs'ka canned fish producers str., in Ukraine. In 2004, Dnepropetrov the factory proved that sk 49026 its production process is in compliance with international quality standards and was therefore granted ISO 9001:2001 certificate 27 Trade house 19, Homenka, +38 047/ +38 047/ Mr. Skrypnik Vitaliy "Supoi" Ltd. Charkassy 2635848 2636747 18006, Ukraine 28 "Santa Bremor" Caviar in various sauces; fish Matias, 28 A, +38 044/ info@santa- www.santa- Mr. Katyuk Aleksey, preserves in marinade; fish Fishpicni Molodogvarde 2433352; ukraina.com. ukraina.co Director delicacies, dried and smoked fish, c, yskaya Str, 2462697; ua m.ua butter with fish additives, laminaria Moryach Kiev, Ukraine 2462771; santaregion salads; fish snacks ok 2462951; @ksv.net.ua 2433352 29 "Sam Fish" Frozen fish and seafood, 2, Zavodskaya +38 0412/ +38 processing of fish, preserves, str., village 495668 0412/ canned fish Novoguivinskoe 495693 , Zhytomyrs'ky region, Ukraine 30 "Gals-2000" Salted, smoked and frozen fish, 43 B, +38 037/ +38 037/ office@gals http://www. laminaria salads; fish paste, fish Hotyns'ka Str, 2542744; 2542745 2000.com.u gals2000.co preserves Chernivtsi, 2570000 a m.ua/index. Ukraine php 31 Fish conserves Marinated fish, canned smoked 55, +38 0692/ Mr. Klimenko Sergey, plant "Novyi" fish Komyshovkoe 410757; Director highway, 411106 Sevastopol 99029, Ukraine
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 37 of 38
No. Company General information Description of production Trade Address Telephone Fax e-mail web-site Contact person name Mark 32 Trade house One of the leaders in Canned fish "Favorit", 1/1, Subhi Str, +38 0652/ +38 0652/ soffice@fav http://favorit Mr. Gorbunov Sergey, "Favorit" Ltd. canned fish production "Priliv" Simferopil' 512050; 510618 orite.in.ua e.in.ua/inde Head of the Sales in Ukraine. The 95015, 512051; x.html Department (working company operation is Ukraine 512058; hours:9:00-18:00 every provided by the work 512244 working day) of more than 500 512255 employees. 33 JSC Canned fish 24, +38 0652/ +38 0652/ Ms. Yakubova Alla, Simpheropil Vorovskogo 274054 255489 Director conserve factory Str., named after Simferopil Kirov" 333053, Ukraine 34 Fish conserve Canned fish +38 057/ Ms. Zhdanova Tatyana factory 7571916 "Equator" Ltd. 35 Fish cannery Was created in 2004, Big variety of canned fish 40 A, +38 056/ meotida@ Mr. Ivanov Igor factory investor is Prospekt 2313560; meotida.co "Meotida" Dnepropetrovk Gazety +38 097/ m.ua company "Soyuz Pravdy, 4857878 Capital" Dnepropetrov k, Ukraine 36 Integral M Canned fish 4, Bogdana +38 09562/ +38 Khmelnytskog 343405 09562/ o str., ap.407, 343405 Dnepropetrov sk 49051, Ukraine 37 Chernigovryba Frozen fish, salted herring 69, +38 0462/ +38 Starobelouska 651145 0462/ ya 651145 Str.,Chernigov 14021, Ukraine
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: 71613.G-R Revision: 1 Date: 29 May 2008 Page: 38 of 38
No. Company General information Description of production Trade Address Telephone Fax e-mail web-site Contact person name Mark 38 "Viciunai Frozen products from surimi mear 69, Frunze +38 044/ +38 044/ http://www. Ukraine" and fish str., Kiev 5372815 5372815 vichiunai.be 04080, /index2.html Ukraine 39 "Simor" Canned fish in oil and tomato, 1A, +38 056/ +38 056/ sprats and sprats paste Kuybysheva 3702385; 3702385; Str., 16, 2314939 2314939 Dnepropetrov sk 49027, Ukraine 40 "Tri kita" Fish preserves 1-2A, Voennyi +38 056/ +38 056/ gorodok, 4278912; 4284079 Krivoy Rog 4284079 50001, Ukraine 41 ATLANTIKA The largest enterprise Catch and processing of fish on 10, Pravdy +38 0692/ +38 0692/ atlant@ukrc Mr. Alexander Kobzar, Sevastopol of DerzhComPybKhoz, the fishing ships str., 412425; 412202 om.sebasto Director; Mr. Alexander State Enterprise has 34 large-capacity Sevastopol 412438 pol.ua Terekhov, Technical ocean fish vessels and 99048 Director large shore-based subdivisions (incl. fish factory, storage, transport dpt, ship maintenance dpt.). The enterprise employs 4,973 workers. 82.7 % of products is exported.
Market Study Food Sectors in Ukraine – Part G: Fish Processing Industry Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 1 of 9
Table of contents Page
1 Introduction 2
2 UEFA requirements for host countries 2
3 Assessing the costs and benefits of EURO 2012 3 3.1 Basic assumptions 3 3.2 Long-term effect. Developments in HoReCa sector 4 3.3 Short-term effect. Increased food and drinks consumption 8
4 Conclusions and prognosis 9
5 Opportunities for Dutch technology and equipment 9
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 2 of 9
1 Introduction
In December 2006 UEFA took the decision about Poland and Ukraine will be the host countries for Football Championship EURO 2012.
The joint sports mega-events like the Olympic Games, the Soccer World Cup and the UEFA Championship, have important impacts on the host regions. These events are very popular, drawing large numbers of spectators and television audiences.
To date, most mega sporting events have been held in developed countries. In this respect Ukraine represents an interesting contrast to typical regions that host sports mega-events in economic, political and cultural terms. Ukraine, like Poland, is transition economy but unlike Poland is not an EU member.
In the current study possible effects on Ukraine’s food processing industry in course of preparations for EURO 2012 have been examined.
2 UEFA requirements for host countries
UEFA has developed an extensive list of requirements that any host country or region of European Football Championship must meet1. These requirements dictate a wide array of economic, legal, cultural and political prerequisite conditions for the host countries. Many of these conditions are still absent and would clearly be beneficial in the case of their fulfillment.
UEFA requires the host regions to provide a significant amount of capital and labour to host EURO 2012, including 8 ‘state-of-the-art’ stadiums with skyboxes and capacities of 30,000 to 50,000 spectators, parking in proximity to the stadiums, hospitality facilities for VIPs, multiple five-star hotels in each host city for the exclusive use of UEFA officials and participating teams, sixteen training facilities for the participating teams, ‘modern, well- developed, high-quality’ transportation infrastructure linking host cities and public transportation networks within each host city, extensive security at venues and other factors. The cost of all infrastructure improvements must be paid for by the host country.
UEFA requires a large number of five-star hotels in the host cities that must be reserved exclusively for the use of UEFA officials and support staff and the participating teams, for the duration of the tournament. UEFA requires one entire five-star hotel with at least 400 bedrooms in the city that will host the championship match for the duration of the tournament. UEFA also requires one five-star hotel within a 45 minute drive from the stadium and with at least 40 beds in all cities hosting matches. 16 hotels, most five-star, must be provided for each of the 16 participating national teams. UEFA also requires a five-star hotel near the stadiums for the referees and another five-star hotel with at least 20 rooms ‘in the countryside’ for the exclusive use of the doping control doctors. The bid requirements explicitly limit the prices charged for these five-star hotel rooms in 2012 to the average rate charged in 2005 in inflation adjusted terms. Finally, UEFA requires between 1,000 and 5,000 beds in four and five-star hotels in cities hosting matches for UEFA’s ‘commercial partners’. The bid requirements also state that the host cities must have suitable accommodations for the spectators who will attend the matches.
According to the bid requirements, the accommodations for spectators should range from ‘five-star hotels to simple campgrounds’, and will have ‘moderate price levels that will not put potential guests off’. Furthermore, the bid requirements explicitly prohibit hotels from imposing ‘onerous terms and conditions, such as the enforcement of minimum overnight stays on spectators.
1 UEFA (2005) Phase I Bid Requirements, available at: http://www.uefa.com/newsfiles/279728.pdf
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 3 of 9
3 Assessing the costs and benefits of EURO 2012
The economic benefits generated by hosting EURO 2012 can be classified into four broad groups, which are as follows:
1. Direct and indirect benefits generated from spending by foreign tourists who visit Ukraine to watch or participate in the championship.
2. Direct and indirect benefits generated from spending by foreign tourists who visit Ukraine after it is awarded EURO 2012 who would not have visited these countries if it was not host the championship.
3. Benefits generated by the upgrades to the transportation, hotel and stadium infrastructure.
4. Household benefits accruing in Ukraine from hosting a prestigious sporting event.
Tourists arriving to the country will purchase hotel rooms, meals, drinks, transportation, tickets to the matches and other goods and services.
An a priori cost-benefit assessment for a sports-mega event like UEFA 2012 in a transition economy must be viewed as a highly speculative undertaking. Transition economies represent difficult forecasting environments because of the potential for widespread changes in political and economic institutions and basic social conditions like the social welfare system that tend to be more stable in developed economies.
In the current study the possible effect on food processing industry from direct spending by tourists who will visit Ukraine and the effect from the expected development of HoReCa sector have been examined.
3.1 Basic assumptions
UEFA estimated that half a million fans traveled to Portugal for the 2004 tournament and that 75% of these fans stayed for at least four days in the country. Presumably, a similar number of fans are to be expected to attend the 2012 tournament, and these fans will require accommodations.
By estimation of Ivan Fedorenko, director-executive for Ukraine EURO 2012 preparation, it is expected about 500 – 600 thousand visitors only in Kyiv2. Which is 1.3%-1.6% from the number of adult population in Ukraine, or 3.8-4.5% of the adult population of host cities of Euro 2012.
By estimation of Donetsk authorities it is expected 50 – 100 thousand visitors in the city.
About 800 thousand tickets for football matches will be sold in Ukraine. 300 thousand of them will be distributed between Ukrainian fans. The rest, or about 500 thousand tickets will be sold abroad. Together with Polish part of spectators it will make 0.26% of the population in countries, neighboring with Poland and Ukraine (UEFA warned about maximum quantity of 1%). The amount of visitors is restricted also by the capacity of hotels planned to be reached by 2012 (about 326,000 places for 4 host-cities or 375,000 including 2 cities that are currently in reserve).
2 http://for-ua.com/football/2007/05/22/124612.html
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 4 of 9
Table 1. Stadiums in Ukraine hosting matches of EURO 2012
Total Capacity Matches tickets Kyiv 77,000 5 385,000
Lviv 36,000 3 108,000
Dnipropetrovsk 50,000 5 250,000
Donetsk 31,000 3 93,000
Total 194,000 16 836,000
Source: UEFA (2005) Phase I Evaluation Report
The estimation of food consumption by visitors is based on estimation of the total number of man-days spent by tourists in Ukraine. Applying UEFA estimation from the number of tickets planned to be distributed between foreign spectators we get an amount 1.6 - 2 million man-days. This figure corresponds to the situation when 1 tourist per ticket will spend in average 3 - 4 days in the country, what is a reasonable estimation for the optimistic scenario.
3.2 Long-term effect. Developments in HoReCa sector
Hotels
According to the Head of Ukrainian Department of Executive Direction EURO 2012, Mr. Andrey Stavenko, to meet the requirements of UEFA, the total number of hotel rooms that must be available in host cities of EURO 2012 is about 375,000.
Table 2. The need in hotel rooms for EURO 2012
Needed Available Deficit Rank of Hotel 4-5* 2-3* 1 -2* Total
Kyiv 2,815 3,000 200,000 205,815 183,815 22,000
Dnipropetrovsk 810 600 40,000 41,410 27,410 14,000
Donetsk 930 1,000 35,000 36,930 19,430 17,500
Lviv 810 1,000 40,000 41,810 29,810 12,000
Kharkiv 710 1,000 25,000 26,710 12,710 14,000
Odesa 890 1,000 20,000 21,890 9,390 12,500
TOTAL 6,965 7,600 360,000 374,565 282,565 92,000
Source: http://www.turnovosti.com.ua/ru/articles/28437.html
According to the Ministry of Culture and Tourism of Ukraine, currently the base for the tourist accommodation is composed of 1,269 hotels, owned by companies – legal entities and 2,144 hotels, owned by private persons. As of 01.01.2008 1,576 hotels have been full scale certified, the rest has received safety certificates. Among full scale certified hotels are to be mentioned: seven of 5-star hotels (‘Premier-Palace’, ‘Hyatt Regency Kyiv’, ‘Opera’
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 5 of 9
(Kyiv), ‘Ukraine’ and ‘San Ray’ (Dnipropetrovsk), ‘Donbas Palace’ (Donetsk), ‘Otrada’ (Odesa), forty four of 4- star, 128 of 3-star, 63 of 2-star, 73 of 1-star.
Kyiv holds the leading position in hotels quantity – 9.2% from the total number, Lviv – on the second place with 8.7%, Dnipropetrovsk – on the third place with 8.4%.
Recent study of hotel market performed by Tebodin Ukraine, has shown that the amount of rooms available in already operational 4 and 5-star hotels in Kyiv and rooms that are planned for operations in coming years, corresponds to the requirements of UEFA.
Figure 3. List of 4 and 5-star hotels, that are operational or planned to be operational in Kyiv
Developer / Managing Start of Hotel Name Rank Rooms company operations 1 Premier Palace 5* Premier Hotels 2003 289 HCM Group, «System Capital 2 Opera 5* 2006 140 Management» Hyatt Regency Saint 3 5* ISD 2007 237 Sophia Kiev 4 InterContinental Kyiv 5* Yaroslaviv Val 2008 280 5 Leipzig 5* SKM, Ukraine 2008 209 St.Sophia Homes (Ukraine) 6 Hilton 5* International Business Centre 2009 420 (group 'Privat') Developing company 'XXI 7 Sofitel 5* 2010 290 century' Developing company 'XXI 8 Posolsky Dvor 5* 2010 315 century' First Ukrainian Development 9 Hotel Complex 5* 5* 2009 257 Holding 10 'Radisson SAS' 4* Rezidor Hotel Group 2003 255 11 Riviera 4* Yaroslaviv Val 2007 71 12 Podil-Plaza 4* n/a 2007 57 13 Hotel 4* 4* n/a 2007 30 Developing company Asdministrative hotel 14 4+* 'Dominion-M' (Peresvet group, 2009 104 complex 'Pan Ukraine' Russia) Total 2,954
Source: Data of Tebodin Ukraine
In other host-cities the situation is more difficult, but not critical:
In Donetsk it is planned to build 10 of 5- and 4-star hotels (3,000 rooms extra) and 15 of 2- and 3-star.
In Dnipropetrovsk it is planned to build 12 hotels (including four of 5-star hotels with 1,000 rooms extra)
Kharkiv and Odesa are considered together as reserve cities. These cities have developed plans of preparation for EURO 2012 where construction of new hotels and reconstruction old ones are included.
Till now the FDI into hotel infrastructure amounted to USD 183 million, what is as little as 0.9% from total FDI into Ukrainian economy. Taking into account that big international hotel networks (Hilton, Hyatt, Radisson) are building already or declared the intention to build new hotels in different regions of Ukraine in the coming years
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 6 of 9
this figure will surely be increased.
The development of hotels sector most likely will not affect directly and significantly on production of traditional food products.
Here one can assume rather the increasing of demand for food in unit-dose packs – butter, sauces and dressings, fruit jam, cream, honey, widely used for breakfast buffet in hotels. Some of these products are not produced in Ukraine and imported (cream, sauce), some of them are produced locally (jam) but in small volumes, some of them are absent at all.
Restaurants and cafes
During the last three years restaurant market showed continuous growth at average rate of 11% and in 2007 the market size reached USD 2.45 billion in money terms. This growth is coherent with the increase of paying capacity of Ukrainians – more people can afford the breakfast, lunch and dinner at the restaurant.
The extension of consumers base became a trigger for the active development of low and middle price restaurant segment (the average bill value UAH 100 (~USD 20) and less).
Still Kyiv is a leader in quantity and quality of meal stations. From the total amount of about 5,150 restaurants and cafes, currently operating in Ukraine3, about 2,500 are located in Kyiv, market size of restaurant sector in Kyiv is about USD 680 million. The dynamics of the Kyiv market development is the highest in Ukraine.
Other regions, like Dnepropetrovsk, Donetsk, Kharkiv, Lviv, Odessa, where population revenues are also quite high, show quite remarkable results.
Figure 2. Regions - leaders in restaurant market development in 2007, USD million
Lviv Kharkiv 110 190 Kyiv 680 Donetsk 190
240
330 Odesa
Dnipropetrovsk
Source: 'Restaurant Consulting', 'Business'
3 By estimation of ‘Restaurant consulting’, ‘Business’, No50(777), 10.12.07, No10(789), 10.03.08
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 7 of 9
Figure 3. Kyiv restaurant market size by price segments, 2007
Low 1,200 500 Middle 445.7 1,000 418.7 411.9 1,176
High 1,148 400 1,126 995 976 800 958 300 600 number
USD million 200 171.5 152.5 150.5 400
100 58.4
55.4 200 53.8 58 63 56 0 0 2005 2006 2007 2005 2006 2007 Source: 'Restaurant Consulting', 'Business'
Figure 4. Ukraine’s restaurant market size
7,000 6,125 6,000 5,390 4,928 5,000 4,655 4,285 3,920 4,000 3,726 3,185 3,240 2,818 3,000 2,450 USD, million 2,200 2,000 1,800 2,000
1,000
0 2004 2005 2006 2007 2008f 2009f 2010f 2011f 2012f Market size by 'Restaurant Consulting' Forecast McDonalds Forecast other experts
Source:'Business' w eekly new spaper, open sources
According to Jan Borden, General Director McDonalds Ukraine4, restaurant market is growing by 10-15% a year and this trend will be keeping on for few coming years. According to this estimation to 2012 restaurant market will grow 1.9 times. By other estimations, restaurant market in cities-millionaires is saturated on 40%. Full saturation of the market is expected by 2012, this means 2.5 times growth from the current status.
By the opinion of market operators5, the market will be developing mainly on the account of low (fast foods) and middle price segments. Fast-foods are mainly oriented on serving of high man-flows.
4 http://news.finance.ua/ru/~/1/0/all/2008/03/05/120269 5 http://www.sostav.ua/news/2007/09/12/8/2272
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 8 of 9
According to the information received from open sources: McDonalds Ukraine, counting 60 restaurants in 2007, is planning to extend the network up to 100 units by 2012-2014. ‘Puzata Khata’ (Ukrainian fast-food restaurant chain, 27 units in 2007), in the nearest future is going to operate in Kyiv, Donetsk, Dnipropetrovsk, Zaporizhzhya, Kharkiv, Odesa, Lviv by at least 40 restaurants, also in the sectors of fish fast-food and chicken fast-food that are practically absent at the moment. Franchising network ‘Fast food system’ (Lviv), that owns brands ‘Pizza Celentano’, ‘Potato House’, ‘Coffee Point’ and ‘Yappi’ in coming years is going to extend the existing network from 115 till 200 restaurants.
Along with fast-food such formats as beer restaurants, coffee houses, art-cafes, etc. as expected, will be developing6.
As for the middle and high price segment, they will also be developing, although not so intensively. Restaurants of these segments are considered as good places for business dinners and are popular with gourmands.
Table 4. Share of restaurant food set* turnover in the total retail turnover
2005 2006 2007
In money terms 9.1% 8.6% 8.5%
In natural units 10.1% 9.2% 9.5%
Source: State Statistics Committee of Ukraine * all types of food products - without bakery and potato
It should be noted that retail sector grows faster than restaurant sector. As a consequence the share of restaurant food set turnover in the total retail volume is decreasing constantly. Food processing and retail sectors are developing in close intercourse and food producers are trying to meet the demand of retail in volumes and assortment of products. The missing volumes and assortment are covered by import. So, remarkable increase of food production related to the development of restaurant sector before 2012 is of low probability.
Here, like in the case of hotels, one can also expect the development of unit-dose packs niche, already used in fast-food restaurants like sauces, cream, jam or that are absent in the market but definitely have own market perspectives.
Sauces, dressings and mayonnaise in special containers-dispensers represent another empty market niche. Widely used in HoReCa sector in developed countries, such kind of products are absent in Ukraine.
3.3 Short-term effect. Increased food and drinks consumption by tourists
The direct and tangible effect from hosting of EURO 2012 will be in increasing of products and services consumption by tourists.
Among other products the group of packaged food (ice-cream, confectionery, sweet and savory snacks, potato chips, nuts) is supposed will take the lead in sales increase.
Different experts agree that the biggest profit will receive companies – producers of beer and tying products
6 http://who-is-who.com.ua/bookmaket/hotrest2008/11/2.html ; http://who-is-who.com.ua/bookmaket/hotrest2008/11/1.html
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012 Tebodin Ukraine CFI Order number: 71613 Report number: Revision: 1 Date: 23 May 2008 Page: 9 of 9
(potato chips, nuts, etc.). Based on estimation of man-days, spent by foreign spectators and the daily beer consumption by every tourist equal to 5 liters, total amount of extra beer will be 10 million liters, what is equal only to 4.29% from the current monthly beer consumption in Ukraine and about 3% from consumption forecasted in 2012. Brief estimation for such products as snacks, ice-cream, etc. shows the similar effect.
According different open sources, food producers will not invest into production extension especially for the short- time event, like EURO 2012, they rather will follow the consumption market trends.
So the increased food and drinks consumption during EURO 2012 will be covered both by local production and by import.
To the point – according to the requirements of UEFA, open air pubs in ‘fan zones’ with big TV screens with promo materials of EURO 2012 will be allowed to arrange only for general sponsor of the tournament. This means the beer of only one brand will be present there. At the moment the main beer supplier for EURO 2012 is not nominated yet (on EURO 2008 such a company was Carlsberg).
4 Conclusions and prognosis
The results of the study can be summarized as follows:
The direct effect on the development of traditional food products caused by the development of HoReCa infrastructure in the course of preparation to EURO 2012 will not be significant. Most likely food producers will follow the market demand, expressed also in the development of retail sector.
As the most probable effect of the HoReCa development one can assume the development of new sector - products in unit-dose packs (butter, cream, sauces, dressings, mayonnaise, fruit jam, honey, etc.) and special containers-dispensers. Some of these products are not produced in Ukraine and imported (cream, sauces), some of them are produced locally (jam) but in very low volumes.
Short-term effect on Ukrainian food processing sector from hosting the EURO 2012 will be expressed in the increase of consumption of food and drinks, specially beer and tying product. About 500,000 of tourists as expected will visit Ukraine. The consumption of packed food products (such as ice-cream, confectionery, sweet and savory snacks, potato chips, nuts), beer and soft drinks as expected, will grow maximum by 5% compared to the forecasted monthly consumption level without taking into account EURO 2012.
5 Opportunities for Dutch technology and equipment
Above stated brief analysis provides grounds for the following opportunities for Dutch companies:
Supply of modern equipment for bars, restaurants and cafes;
Supply of technology and know-how for the production of unit-dose packs and containers-dispensers
Investments in the development of HoReCa market of Ukraine
Market Study Food Sectors in Ukraine – Part H: Expected Developments in the Food Processing Industry in the Course of Preparations for Euro’2012