Andriy Yarmak, agricultural market analyst with 30 years of experience, analyzes the information about food surplus in Ukraine.

I do not understand the excessive optimism voiced by some agribusiness experts regarding the large stocks of grain and vegetable oils in Ukraine. They are going as far as to say that stocks are sufficient to feed Ukraine for a few years! Therefore, I want to clarify the real situation with respect to the food security of Ukraine are and what it means for the near future.

1. Stocks of grains and vegetable oils in Ukraine, are now also feeding the russian occupiers, because a lot of these stocks are concentrated in the temporarily occupied territories of the country. The occupiers steal it from farmers to feed their army and to profit.
2. The quality of grains and especially vegetable oils deteriorate during storage. If storage conditions are not optimal, this process would accelerate significantly. As we all know, conditions for storing products are far from optimal in many regions of Ukraine now due to lack of electricity and personnel. Therefore, a large part of this food will be thrown away already in May, when it gets much warmer. What kind of “long-term” stocks are we talking about?!
3. The stocks we have represent a heavy burden for the farmers, instead providing them with the money. After all, farmers must ensure a new production cycle with earned from selling these stocks and the loans obtained from the banks. However, instead of getting the money, farmers are spending the money on trying to store grains, oilseeds and vegoils.
4. Without the sea ports, Ukraine will only be able to export only 10-20% of the grains, oilseeds and vegetable oils at the very optimistic scenario. Even if the war ends now, Ukraine is unlikely to resume exports through ports unto the end of the year. Unfortunately, the infrastructure, including bridges, roads, elevators, railroads, etc. has been destroyed in many regions. Accordingly, farmers who are now heroically preparing for the sowing season with very scares resources also have very grim chances of selling their new crop.
5. I hope that we all understand that it is unreasonable to rejoice in excessive stocks of grains and oils.
6. Let also discuss the diet of Ukrainians. I do not expect anyone to be happy eating only bread and vegetable oil. What about vegetables, fruits, meat, milk, eggs, fish?
7. Livestock business is extremely sensitive to ideal logistics solutions: timely regular supply of veterinarian medicine and services, feed components, maintaining a microclimate in the barns, having access to timely financing, timely sales of finished products for processing, fast logistics of chilled finished products – any failure of the system may result in bankruptcy of the business. In most of the regions of Ukraine livestock business is under a serious threat now, especially in the occupied or surrounded territories with active fighting. Some farmers have already been destroyed.
8. As for the vegetables and fruits, this business is very labor intensive. As of today, more than 3mn people have left Ukraine already. Thus, Ukrainian farmers do not know where to find to work in the fields and orchards already. It is even less clear what will they do when the harvesting time comes. And then the harvest should be quickly exported as fresh produce is a very perishable produce. The risks in this already high risk sector in Ukraine are now much higher than ever.
9. Major share of stocks of onions and other vegetables are in the temporarily occupied areas of the Kherson oblast. They are kept in storages without electricity and, naturally, deteriorate very quickly. Also, the marketing season of early vegetables from plastic greenhouses in the south should begin now. This business “feeds” hundreds of thousands of people in the South, and the products are supplied to all other regions. Needless to say that this business is dead now. The planting of the new crop vegetables in this critically important region may also never happen. The irrigation system is broken by russians, and without it, the south will definitely be left without a crop of vegetables and a large part of the crop of grain and oilseeds!
10. As of the imported fish and fruits, I have nothing good to say. They were mainly supplied through the ports, and it is not clear when imports will be resumed. Therefore, for now, people will have to live without them. And this is a very important element of the country’s food balance.
11. Even in the western regions of Ukraine, there are already some food shortages, because many migrants moved there fleeing from the war and because the supply chain from the Center and South of Ukraine is broken. It is impossible to cover the shortages with imports because the EU did not have major stocks and relies in large on imports. Besides, the EU countries now need to feed additional 3 million Ukrainians, which moved there from the war! Moreover, the entire food system of the EU was set up to accept food imports from Ukraine, and not to export to Ukraine. Therefore, it is impossible to import food from the EU right now! Ukrainian supermarket chains are ready to buy products, but the EU wholesalers simply do not have much availability even at a high price. Thus, Ukraine needs to find a solution and source food somewhere else.
12. Europe does not have the ability to increase food production quickly. This process would take years and would hardly be possible at all because the agricultural area is decreasing,  while environmental standards and limitations are constantly rising.

The main conclusion is that Ukraine does have stocks of the very basic products, but I am far from certain that it is good news, and it certainly does not guarantee Ukraine’s complete food security. Farmers and processors, especially these involved in the production of high value products, are on the verge of bankruptcy, and the threat is growing daily.

If you are a citizen of Ukraine and if you can plant a small garden for yourself this spring, it is worth considering. I am sure that the world will help Ukraine survive this year, but as I have mentioned many times, only the Armed Forces of Ukraine can save the planting campaign this year and the whole agribusiness of Ukraine!

Сообщение Food security and agricultural sector of Ukraine during the war появились сначала на EastFruit.

More than a week ago russia cowardly invaded Ukraine. While russian army killed hundreds of civilians in Ukraine and lost around 10,000 of its own soldiers, death rate caused by the russian invasion on the global scale through destroyed global food security is going to be greater than that of Covid-19.

While the developing world will lose lots of lives from growing hunger, the developed countries will lose unprecedented amounts of money directly and indirectly over decades to come. The russians will also slow down the scientific progress worldwide for many years ahead.

I have been working for 18-20 hours each day since the invasion, trying to do my job and helping people in Ukraine survive russian aggression, I do not have much spare time to do the in-depth analyses. However, I will provide only official stats and draw my own rough estimates based on my 30 years of experience in the global food market analytics. They should be very close to the reality, but I need to say that it is not an official position of my employer. I hope they will share their position asap as well. Here are the scary food security facts caused by russians.

1. According to estimates of the best grain market analysts, wheat and corn account for 27% of all calories, or, in other words, for 27% of all food in the world!
2. Ukraine and russia together export more than 25% of all wheat in the world. Wheat is the key food security commodity on Earth. There are no exports from Ukraine now, and exports have almost stopped from Russia due to their issues with SWIFT and logistical risks. Prices are already in the space. Wheat prices reached $500 USD in Egypt and they can’t get it even for this high price!
3. Where does this wheat from Ukraine and russia go? It is mostly exported to third-world countries. It is already becoming difficult to source it in these countries and some are already scared of the hunger riots.
4. Corn is also a critical product (it is an animal feed, critical for producing milk, meat, eggs, and even fish) and Ukraine is the largest exporter in the region by far. Other exporters in the Americas.
5. Ukraine is a #1 global exporter of sunflower oil, and russia is the second. Together they account for 67% of the global exports! Basically, forget about the sunflower oil, for now, nothing is being exported. I will not mention meat where Ukraine is a significant but not a critical exporter.
6. Ukraine is already missing the planting campaign in the south, where huge hordes of russians are ruining the fields with their tanks and shooting randomly at civilians. Also, now it is critical to apply fertilizers, but this isn’t happening either.
7. I wrote a large blog about fertilizers more than a month ago warning that the shortage is imminent even without the war and that it would worsen global food security considerably. Nitrogen fertilizers are the most critical ones and nearly 80% of the production costs there is gas. With gas prices at their record high levels, the situation is already looking very grim for the yields globally this year.
8. Expensive fertilizers mean that all countries of the world, especially the poor ones, will use less or no fertilizers. Without fertilizers, the harvests will be reduced and some will not make it at all.
9. Even if the war ends today, which is certainly not happening, Ukraine will not be able to export for many more months, and then it will take Ukraine another two years to reach the same production and exports levels. The aggressor, russia, will be isolated and will sharply reduce exports as well. They are already short of crop protection and other imported basics. Energy prices will be high for at least a few more years before the civilized world learns to live without russia’s gas and oil.
10. The number of people in the world who do not have access to a minimum set of calories will increase, according to my very rough estimates, by 800 million people this year, and maybe even by 1 billion, totally destroying the UN’s strategic goal to eradicate the global hunger. Please bear in mind that I did not consider the collapse GDP of all countries in these already very shocking estimates!
11. It means a sharp increase in infant mortality rates in poor countries and many deaths from hunger and other diseases caused by malnutrition among adults.
12. It also means that many children in the world will not be able to realize their full potential, make new scientific discoveries, promote human development because the lack of food in childhood cannot be compensated later.
13. These children from poor countries are now the basis for the development and progress in rich countries. Gifted young people emigrate to the United States, Britain, the EU, and to the developed countries in Asia and ensure their progress. All of this will now slow down sharply, only because putin decided to destroy a free, democratic country.
14. In rich countries, the population keeps a significant share of their savings, inclusive of pensions in the stock market. They already have lost hundreds of billions of dollars in recent days due to the coward russian invasion into Ukraine. Guess what? They will lose even more as this war drags on for a while. They will also now spend hundreds of billions more on food, and this will also come from their future savings. So, the losses of rich countries are much greater than the losses of Ukraine or russia.
15. I want people in the NATO member countries and other developed countries to understand that you are already losing much more than Ukraine or the rest of the world. Staying away from the war is actually bad for you and for your children!

Moreover, not helping to end this war quicker, is causing the death of millions of children in the world’s poorest countries. Future Musks and Jobs may die already this year due to the growing malnutrition.

The army of occupiers is weak and rusty although very numerous. They no longer have any reserves after obliteration caused by Ukrainian resistance. Ukraine proved that russian army could be beaten even without much of modern weapons. Getting directly involved in the war means saving hundreds of millions of lives as well as hundreds of billions of dollars of your money.

The opinion of the authors of comments and blogs posted on the website may not coincide with the opinions and position of the East-Fruit.com editors

Сообщение Global food security destroyed by russian invasion in Ukraine could kill hundreds of millions globally появились сначала на EastFruit.

A couple of years ago, I wrote a rather futuristic blog that doesn’t seem as unrealistic today as it did back then. All this already exists on a commercial scale. Today I would like to tell you about the developments in the segment of culinary and aromatic herbs, which is one of the most important for the countries where our projects operate. After all, both Georgia and Uzbekistan export huge volumes.

Russia imports about 50 000 tonnes of culinary and aromatic herbs per year worth more than $50 million. Uzbekistan is the largest supplier to Russia, and Georgia is one of the largest. What is the future of the culinary and aromatic herbs growing and export business, and what does vertical farming have to do with it?

We, the FAO and EBRD, are launching a project dedicated to the newest technological innovations in the production, processing, logistics and marketing of vegetables, fruits, berries and nuts.

We will pay attention only to real technological breakthroughs, which will significantly reduce the risks in the produce business, while resolving the urgent issues for the industry, such as reducing the negative impact on the environment, increasing efficiency and a sharp reduction in production costs, a reduction in product losses, fossil energy sources used and manual labor costs, an increase in product quality, etc.

One of the most advanced and trending technologies are vertical farms. We are well aware that there is a lot of fuss around this trend now. However, the industry is already attracting tens of billions of investments, which means that the world is actively looking for solutions to problems. Therefore, the EastFruit international team also started studying the situation in our region. As for the global experience, we have been studying it for quite a long time.

I already see at least one business format of vertical farms, which is absolutely economically viable today in our region!

This is a format for growing culinary and aromatic herbs right in a good restaurant or in its back room. After all, it is well known that the cost of products is not a key cost element for a restaurant. At the same time, given increasing competition among restaurants, the quality of products can become the main advantage.

I tasted salads at the Café Stamba restaurant in the very center of old Tbilisi, which has its own vertical farm. Culinary herbs were cut just a few minutes before serving. And they were really tasty! In addition, this vertical farm grows a huge range of culinary herbs that cannot be bought on the market, because no one else grows them. With the help of chefs, producers have found the most flavorful herbs for their recipes, and these experiments can go on. It’s incredibly convenient and very effective. Well, the zero use of pesticides cannot fail to impress those who care for their health.

The second unexpected aspect is that vertical farm is very beautiful! This is an excellent interior decoration, and many people come to Stamba to take pictures of the purple-pink farm with herbs.

Other restaurants in Georgia are interested in purchasing such compact solutions for their own purposes. Tusya Garibashvili, the founder of the Georgian company Space Farms, has already developed a prototype of an automated vertical farm for restaurants and supermarkets, where, according to her, up to 25 kg of culinary and aromatic herbs per month can be harvested on 2 square meters.

Of course, this is only the beginning and the first steps. We know that many supermarket chains are working on their own projects of vertical farms for placement both in sales areas and on facades or investing in partner projects (read the article about the $400 million investment of the world’s largest supermarket chain Walmart in Plenty), realizing that culinary and aromatic herbs grown nearby will always be fresher and tastier than those brought hundreds or thousands of kilometers away. In addition, do not forget about the “carbon footprint” that such transportation leaves. Demonstrating a reduction in the cost of transporting products and a reduction in harmful emissions is now the most important task for every retailer worldwide, including supermarkets in our region. This opens up access to many sources of concessional financing, which is an important advantage for the development of the retail business.

Have you noticed another interesting trend? Many large fruit and vegetable companies are starting to abandon air transportation! Let me remind you that culinary and aromatic herbs are usually only transported in this way, as they are an expensive and perishable product. This means that in the next five years, the export of herbs will sharply decline. If we add the development of vertical farms, which will accustom the consumer to much tastier culinary herbs and a wide range of them, in my opinion, it is time to say farewell to the international trade in fresh herbs.

As confirmation of my words, the international trade in culinary and aromatic herbs has already begun to decline. I think that 2021 will be the fourth year in a row when culinary and aromatic herbs exports, even in value terms, are falling. This means that Uzbekistan and Georgia should start looking for other opportunities, as the trend for the development of vertical farms in Russia is also present and gaining momentum.

In conclusion, I want to say that the largest exporters of culinary and aromatic herbs in the world are Italy, the Netherlands, China, Ethiopia and Mexico. Among the countries of our region, Uzbekistan is among the twenty largest global exporters. On a global scale, the international trade in culinary and aromatic is a $3 billion business. It is possible that the volume of such trade will be minimal in 10 years.

Сообщение Will vertical farms kill the international trade in culinary and aromatic herbs? появились сначала на EastFruit.

Global food prices are now at record highs, according to the FAO Food Price Index and consumer perception, especially in the Eastern Europe and Central Asia regions. However, in my opinion, this is far from the limit. Moreover, I believe that there is a high probability that in 2022 food prices, including vegetables and fruits, will rise even sharper, and will set historical records.

Do the representatives of the fruit and vegetable sector in the region rub their hands in anticipation of high profits? No, I don’t think so, and I’ll try to explain why. Although, is possible that for many farmers 2022 may well turn out to be successful.

To begin with, let’s understand why food is so expensive in the world now? 

1.  Macroeconomic
2.  Subsector
3.  Political
4.  Logistics
5.  Energy

I will try to briefly explain them in a random order:

1. 1. Among political reasons, the increasing number of restrictions on the exports or imports of goods, as well as the ongoing trade wars between different countries, have the greatest impact on world prices now. Everything that is expressed in the restriction of the functioning of the free market and the intervention of states in it leads to an increase in the cost of food for the population of these countries. In other words, the process of globalization that we have seen in recent years led to cheaper goods due to lower costs per transaction, but now it has begun to unfold in the opposite direction: states increase duties, introduce various types of government regulation, increase stocks.

    

   2. Macroeconomic reasonsare now having a key impact on the prices of goods in the world. Too much money has been “printed” in the world during the pandemic – this money does not allow demand to decrease, despite rising prices. Inflation in the US at the end of the last year is estimated at 7% – the highest in almost 40 years! Those. if you have savings in dollars, then instead of 100 at the beginning of 2021, now you have only 93 left. Accordingly, inflation leads to higher prices for food too!

    

   3. Logisticsare known to everyone who sells vegetables and fruits. The world is in one of the most brutal logistical crises in history. And so far, it has not been resolved. The cost of delivering food from one country to another is constantly growing, and the possibility of delivery does not always exist even at high prices. The cost of transport has increased by 3-4 times on average, and not only for sea containers, but also for land transportation. In many countries, there is also a huge shortage of truck drivers. Add to that the occasional issue with travel restrictions due to covid-19. And all this, of course, is transferred to the prices of goods for which the consumer pays!

    

   4. Subsector reasonsare those that are important only for a particular sector or product category. For example, if there is an overproduction of apples in the world, and an apple is not a trendy (fashionable) product, then its consumption, even though consumers have money, may not grow, which means prices may not rise either. I will not consider these reasons in detail in this part of the blog, because the situation is very different for each type of product. I will only note that for vegetables and fruits, sectoral reasons are more important than in sectors that focus on the production of raw materials, such as grain, sugar, oil and fat, and, to some extent, meat and dairy.

    

   5. Energy component Rising food prices already have a significant impact but will become key in 2022. Therefore, I will write about it in more detail separately. Let me just say that the energy component affects food prices directly and indirectly. An increase in the price of oil and gas leads directly to an increase in the price of sugar, corn and some vegetable oils, and leads to the price of other products in an indirect way. How is oil pouring in the prices of sugar and corn? Very simply – through bioethanol. The more expensive oil is, the more profitable it is to produce bioethanol and the more sugarcane and corn goes into its production, and therefore less of it is offered for the production of sugar and feed, respectively. It is clear that prices then rise. I will explain the indirect effect on the example of an apple – this “exotic” product for many oil exporting countries is imported in large volumes, when a country starts making more money from energy exports.

Now the average cost of mineral fertilizers in the world has already increased by 70-80% compared to last year. But this is an average. The most significant increase was in the prices of nitrogen fertilizers, which are the basis for the growth of all agricultural crops. In the cost of nitrogen fertilizers, up to 80-90% are the costs of natural gas! And he in Europe is now on average 10 times more expensive than a year earlier.

Accordingly, many plants for the production of nitrogen fertilizers simply stopped, because it is necessary to raise prices for nitrogen fertilizers by 5-8 times in order to maintain the economic feasibility of production. However, at this price of fertilizer, of course, no one will buy.

However, fertilizers, despite some recent weakening of gas prices, continue to rise in price. Precisely because the mass production season is approaching, and the supply of fertilizers has dropped sharply. Demand remains high!

In the cost of production of the same corn, the share of costs for fertilizers reaches 30-45%! Corn is the basis for the production of feed, and this, accordingly, affects the prices of meat and dairy products. And yes, even on the prices of fish, because the bulk of the fish in Asia is farmed.

And this is just an example of one culture. The situation is similar for others. And the same applies to fruits and vegetables, where the need for nitrogen fertilizers per hectare is on average higher than when growing field crops!

What does it mean? This means that now that everyone is buying fertilizer to produce crops in 2022, many will reduce their use of fertilizer, especially in developing countries. It is possible that in the same countries there will be many fake sand sub-standard fertilizers with a discrepancy between the content of the active substance and the declared one.

Of course, a miracle will not happen: the less fertilizer, the lower the yield.

Can we increase the area of ​​land for agricultural production? No, moreover, the area is constantly decreasing, but the population of the earth is growing. Accordingly, in order for food not to rise in price, it is necessary to significantly increase the production of agricultural products every year so that the number of products per inhabitant remains unchanged. If we use less fertilizer on a smaller area, then we should perhaps expect even a decrease in production!

Add to this the factor of climate change , which leads to ever-increasing losses in agricultural crops. Here, of course, you can hope for luck in 2022, but you definitely shouldn’t count on it.

What can help avoid a very sharp rise in world food prices, except luck?

There is also the factor of accelerating the development of technology and increasing investment in more sustainable and efficient agricultural production in the world, as well as the factor of improving the access of those inhabitants of the Earth who grow agricultural. products, to know-how  on more efficient growing technologies and product marketing approaches. These are the things we do at FAO and this is exactly what has helped to avoid food price hikes in recent years.

Why should not the representatives of the fruit and vegetable industry rush to rejoice at a possible increase in food prices in 2022?

I would pay attention to three very important factors:

1) The already mentioned intra-sector factir
2) Deterioration of quality
3) Labor shortage
4) Consumption elasticity

Within each of the subsectors and within regions, the situation can differ radically. If we take, for example, blueberries, then the average selling price for this berry in the leading exporting countries continues to steadily decline from year to year, while the costs of its cultivation continue to grow. The situation is similar with an apple and many other products in this market.

Accordingly, you should not rely solely on inflation if you work in a segment where everyone is increasing production. Moreover, in 2022, production costs will rise very sharply.

Those producers who try to save money by reducing the use of fertilizers or plant protection products will face crop losses and a deterioration in its quality. But it is the quality that determines the price of the goods on the market – a quality apple is sold 10 times more expensive than the one that the consumer does not need. Alas, it is likely that this will happen in the next season quite often.

Well, the labor shortage factor, which has always been very important, will turn out to be key in many countries in 2022. Yes, Uzbekistan and Tajikistan may not suffer so much from it. And in general, for the countries of Central Asia, this is even a certain chance to make themselves known, if, of course, they start thinking not only and not so much about the volume, but about the quality of products.

In Ukraine, Moldova and Georgia, this factor, perhaps for the first time, will lead to crop losses, especially in the berry segment, even without taking into account the almost guaranteed sharp increase in labor costs. I’m not talking about the EU countries and the USA, where already in 2020 it began to have a very serious negative impact on those segments of the fruit and vegetable business that have not yet been fully mechanized.

It should also be noted that transportation market experts do not expect a reduction in logistic costs in 2022. And these costs are shifted not entirely to consumers, but also, in part, to the manufacturer. Accordingly, this factor is also negative for the fruit and vegetable subsector.

Well, one more thing that many people forget. If grain prices rise by 30-40% per year, then this is considered a very serious rise in price. But fruit and vegetable products often become more expensive (and also cheaper) at times. For example, cabbage, carrots, beets, potatoes, onions are now sold in many countries of our region at 3-5 times more expensive than a year earlier. In many countries, fruits were also many times more expensive in season. Raspberries and walnuts have set new price records in 2021.

And here the factor of elasticity of demand is already included – many fruits, berries and nuts are not critical food products, so demand for them may decrease in the event of a sharp rise in prices. And this can already have long-term negative consequences.

In any case, the year 2022 promises to be interesting, but not easy. And we will try to do everything to make this market as transparent as possible. It is not for nothing that the number of unique users of the EastFruit portal in 2021 for the first time exceeded a million people, having almost doubled in a year!

Сообщение Agrifood forecast for 2022: record price increase, fertilizer shortage, declining yields and labor shortage появились сначала на EastFruit.

As soon as the prices for any fruits on the Ukrainian market decrease, people nostalgic about the times when there was a free trade between Ukraine and Russia start to complain. These are mostly farmers who believe that if there was access to the Russian market, Russia would buy all these fruits and prices would not go down.

However, if we put aside emotions and politics and look at the facts, it becomes obvious that it was the loss of access to the market Russian market that allowed Ukraine to make a real breakthrough in the fruit and vegetable business, significantly increasing both the value of exports and the quality of fruit and vegetables.

I want to emphasize that I express my personal point of view, which is based on more than 25 years of experience in international agribusiness and professional analysis of agricultural markets. My experience shows that any protectionism is harmful, primarily for a country that restricts competition. However, the Russian Federation decided to ban Ukraine and other countries from selling food products on its territory, and other countries mostly did not reciprocate. Therefore, we will just take it as a the fact and analyze the actual consequences.

I will consider the main theses of those who believe that Ukrainian farmers would be in a much better position if Ukraine had access to the Russian market and comment on them.

Thesis 1: “The exports of fruit and vegetable products from Ukraine decreased after the loss of access to the Russian market”

This is wrong. The exports of fruit and vegetable products has increased, and it happened much faster than at the time when there was access to the Russian market. Export statistics are available free of charge, for example on Trademap.org. Objections may arise that “statistics were falsified by Ukraine,” but skeptics are mistaken here – this is a statistics system created by the UN and WTO, and the data therein can be verified by requesting mirror statistics. I do this regularly, and there are no significant deviations in the data.

Let’s move on to specifics and consider the dynamics of export volumes from 2009 to 2020.

The red arrow marks 2016, when Russia banned the import of vegetables and fruits from Ukraine. It is easy to compare the indicators of 2020 and 2015, when trade was free.

It turns out that since the ban on supplies to the Russian Federation was imposed, Ukrainian fruit exports have grown by 55% or $ 84 million. 2020 was tough – abnormally late frosts destroyed the berry harvest and sharply reduced the harvest of other fruits, which makes this comparison even brighter, as we do not take as a basis any particularly successful year for exports.

By this we could put an end to the question whether there was growth or decline in exports. Obviously, without access to the Russian market, our fruit exports began to increase rapidly and are now higher than ever before.

However, it is also worth comparing the growth or decline rates of exports before and after the ban on the supply of fruits, berries and nuts from Ukraine to Russia was imposed.

To avoid data distortions, let’s take a long period before the ban, from 2009 to 2015 inclusive, and see what happened to the exports of Ukrainian fruits, berries and nuts. We estimate the trends for this period and find that Ukraine annually exported 10.7% less fruits and reduced export income by $ 17.8 million per year during this period! It means that exports showed a steady downward trend during this time considered favorable by many farmers.

Now let’s look at what happened after the ban. In 2016-2020, the average exports growth rate was 11% per year, and the revenue of Ukrainian farmers grew by $ 22.6 million per year!

What is better – an 11% drop or an 11% increase per year? What is better – minus $ 17.8 million in revenue each year, or plus $ 22.6 million?

It may seem that Russia has not influenced the Ukrainian horticultural business at all, and the growth is a coincidence. Instead, I will later explain that the ban on supplies to the Russian Federation had a huge positive impact on Ukrainian horticulture. For now, however, I will move on to the following erroneous and manipulative theses.

Thesis 2: ” European countries do not need Ukrainian fruit, berries and nuts – without Russia, there is no one to sell them to!”

In fact, such statements do not hold water and the following chart explains why.

The share of EU countries buying fruit products from Ukraine has always been higher than the share of Russia and other CIS countries. Even in 2010, when the two figures were as close as possible, the EU provided 36% of revenue, and the CIS – only 32%. In 2020, 77% of Ukrainian fruits, nuts and berries went to the EU, and only 9% to the CIS. Thus, Ukrainian fruit products were in demand in the EU even during the times of free trade between Ukraine and Russia.

Then why do many Ukrainian farmers have this wrong opinion that their products are demanded in Russia, and not in the EU? The reason is that among horticultural products Ukraine mainly sold apples to Russia. The Russian market accepted low-quality and even unsorted apples, while the EU market doesn’t need them at all.

However, farmers nostalgic about selling low-quality apples to Russia forget about two important points:

1) The Russian market has changed, and several years before the ban on supplies to Russia, the volume of Ukrainian apple exports to the Russian Federation was rapidly declining because Russia also demanded higher quality of apples.

2) Apples have never been the main export commodity of the Ukrainian fruit segment. The share of apples in the exports of fruit products of Ukraine in 2012-2015 was about 3%. By the way, in 2016-2020, the share of apples in exports increased to 5%, even despite the aforementioned overall sharp increase in export earnings!

Thus, the figures once again confirm that only farmers who have poor growing technologies and apple quality think Russian market was essential for the Ukrainian horticultural industry. It is also obvious that they still do not have credible information about the developments on the Russian apple market.

Thesis 3. The Russian market is the most promising one for selling Ukrainian fruits

Undoubtedly, Russia is a huge sales market. However, Ukraine and Russia are located in similar climatic zones, so the range of fruits, berries and nuts grown in these two countries will be similar. Also, if something is grown in Ukraine and is demanded but not grown in Russia, there is no reason why it cannot be grown in the Russian Federation. Therefore, it is more reasonable to target markets where your products can be unique.

Let’s analyze the trends in the Russian market in order to understand whether it is promising, or, conversely, dying?

To begin with, let’s look at the top 10 world importers of fruits, nuts and berries and analyze long-term import trends. Russia became seventh at the end of 2020. Among the 10 largest world importers of fruit products, Russia is the only country that reduces imports of fruits, berries and nuts! We analyzed all the products, including the exotic! This means that among the 10 largest importers, Russia is the least promising fruit market.

Is the global fruit market declining? Do other regions also show a drop? Let’s look at global trade statistics again and get this picture.

The global average growth rate of imports of fruits, berries and nuts is an impressive 4.0% per year, and the top 10 importers are increasing imports even faster – by 4.5% per year. At the same time, Russia is reducing imports by 1.4% per year. By the way, the European Union, which allegedly does not need Ukrainian fruit, is also increasing imports, unlike the Russian Federation, and the growth rates are relatively high – 2.7%, although lower than the world average.

Undoubtedly, the European Union is a more promising sales market for fruits, nuts and berries from Ukraine than the Russian market, given market trends.

Even if these facts, which are easy to verify, are not convincing enough, you can turn to the example of neighboring Moldova that has free access to the Russian apple market. In 2020, apple harvest in Moldova was at a record low for recent years. At the same time, as of June, apple stocks of Moldovan farmers were record high, prices were almost record low, and still there was no demand for Moldovan apples in Russia. As a result, having grown and stored them for 8-9 months, Moldovan farmers were forced to sell high-quality apples for processing at bargain prices.

Why doesn’t Russia need Moldovan apples? The reason is the same for why open access to the Russian market would not solve the problems of Ukrainian farmers having poor fruit quality – there is a wide choice of fruits in the world and Russian consumers prefer higher quality products. In our article on the reasons for the low prices for Ukrainian apples this season we wrote in detail about the rapid expansion of Turkey. And Iran may even become the world leader in apple exports at the end of the 2020/21 season!

Nevertheless, Russia has continued to develop its own production all these years. It also has serious problems with its product quality. Therefore, low-quality fruits remain in low demand in Russia – there are too many of them. And, as you know, the cheaper the product, the less profitable it is to transport it, because transportation has a greater share in the cost of cheap products than in the cost of expensive ones.

5 or 10 years ago the Russian market was completely different. Now it does not need cheap apples of low quality, and if it does, their price is the same as in Ukraine. The picture for any product in the fruit segment will be absolutely the same. For instance, Uzbekistan, despite the damage from frosts, was forced to sharply reduce the prices for cherries supplied to the Russia this year.

Many countries invest in fruit production and quality, so being nostalgic about past is useless. It is better to invest this time in becoming better yourself and finding new, more promising sales markets.

Why do I believe that the loss of access to the Russian market had a positive impact on the fruit and berry segment of the Ukrainian horticulture business?

I convinced Ukrainian farmers to diversify fruit exports even before there were the first signs of losing access to the Russian market. There were several good reasons for this:

1. Business risk is too high if all products are sold at one sales market.
2. The risk is even higher if the requirements and preferences of this market are very different from all other leading sales markets, as in this case you find yourself completely dependent on the buyer. The example of Moldovan apples is a proof of it.
3. Russia has similar climatic conditions and grows or can grow similar products as Ukraine, which makes Ukrainian fruits not unique and weakens Ukraine’s position in this market.
4. Russia has proven itself to be one of the least reliable and predictable trading partners, as evidenced by numerous, often politically motivated, bans on access to its market for Poland, Moldova, Turkey, Georgia and other countries. This means that the business risk is even higher, if you trade only with the Russia.
5. Russia, despite the widespread misconception, paid less for Ukrainian fruits in comparison with what could be obtained in other sales markets, which we subsequently proved many times, helping to diversify Ukrainian fruit exports.
6. Russian population does not have a high level of income, which means it is much more difficult to sell high-quality products at a premium price there.
7. Since Russia has always lagged far behind the global trends in fruit and vegetable consumption, orientation towards this market reduced Ukraine’s chances of receiving higher export earnings due to its rapid focus on trend niches and segments of the horticulture business.

Therefore, when Ukrainian farmers realized that the Russian market was closed, they began to use the information that we provided as part of projects to diversify Ukrainian food exports. We helped organize a number of trade missions, selecting and preparing participants, and found that Ukrainian fresh berries could well reach even Malaysia and Singapore at a premium price, not to mention apples. Having put in 10% more efforts, Ukrainian farmers managed to receive several times higher prices for quality apples in Southeast Asia, Middle East, Great Britain and other countries than importers from Russia paid.

A sharp decline in demand for low-quality fruits forced Ukrainian farmers to change the varietal composition of orchards, invest in storage and processing of products, and, most importantly, in their marketing and export promotion, which has returned a hundredfold. Now Ukrainian apples are sold more expensive than Polish ones in almost all countries of the world, because we managed to convince in our uniqueness and ability to make apples a finished high-quality product.

One of the main breakthroughs in Ukrainian horticulture was active investment in niche crops and the rapid development of the berry segment. Ukrainian berries are almost exclusively exported to the EU fresh and frozen, and this trend will only accelerate.

The focus on higher quality has also benefited Ukrainian consumers that can now buy high-quality Ukrainian apples at an affordable price even in June or July.

That is why the loss of access to the Russian market led to such a rapid growth in the exports of fruit from Ukraine. When access to the neighboring country’s market is resumed, it will only become an additional bonus for Ukrainian horticulture. While there is no access, it would be good for Ukrainian farmers to demand the authorities to open access to new markets where our products would be unique. I often say that it is very important for Ukraine to gain access to the Vietnamese fruit market and improve the access to the Egyptian fruit market. However, this should be covered in a separate article.

Сообщение Russian ban helped Ukraine increase exports of fruits, berries, and nuts появились сначала на EastFruit.

About 15 years ago, I formulated an idea and developed a methodology for auditing supermarket produce departments, which was originally used in Ukraine. Since then, the importance of high-quality fresh produce departments in all retail food chains has grown so much that a good produce department can make the entire chain profitable, whereas a bad one can lead to its bankruptcy. In recent years, our EastFruit retail audits of supermarket chains have already been applied in many countries and they have accurately predicted the fate of the entire retail business many times.

However, the progress of supermarkets in our region has not been very fast. Therefore, I will tell a story that happened to me in Kyiv in mid-February as well as show numbers why presenting rubbish instead of quality fruits and vegetables is a bad idea not only for supermarkets but also a serious deterrent to horticulture development in general. I will present this example for Ukraine, but it is equally relevant for Moldova, Georgia, Uzbekistan, and Tajikistan.

In Kyiv, I entered a supermarket of one of the chains – we’ll call it “Chain A.” When judging Chain A by price level and its strive for the premium segment, I found that out of 10 apple positions, none of them met the minimum quality standards – not my standard, but the standard for the state DSTU. As a result, since apples are a must for me, I decided to leave and go to the competitors even though they were less conveniently located and took extra time. In addition, I must say right away that it was not only the apples that made me refuse to make purchases in this store, but the borsch set vegetables (i.e., carrots, potatoes, cabbage and beets) displayed were also in a disgusting state; even the lemons were sluggish and some were rotten.

The competitor (let’s call them “Chain B”) did not paint a very good picture either, but a couple of apple positions suited me so I spent about UAH 1,000 ($36) in this store and not just on vegetables and fruits. However, I never bought the entire assortment of vegetables and fruits I wanted; I left Chain B and went outside to a stall next door where there are always premium fruits and vegetables. I spent about 400 UAH ($14) there buying fresh arugula, high-quality persimmons, an assortment of tomatoes, and other vegetables and fruits.

What’s the result of a store’s point of view? Chain A lost UAH 1,000 immediately. Moreover, it gave UAH 1,000 to a direct competitor and then another UAH 400 a stall! And Chain B lost UAH 400 to a stall. Thank you supermarkets for supporting small businesses! I’m joking, of course, but there is some truth in this. Why is it that the owner of a stall can provide high-quality displays, but supermarkets cannot?!

Now, we count the losses of Chain A that sold rubbish instead of apples on the shelf. Any similar chain store, according to my rough estimates, should serve anywhere from 2,000 to 3,000 consumers daily. Let’s take 2,500 consumers. Let’s say that such demanding people like me get only 5% and the average bill would be about UAH 200 (I always have much more). So, Chain A with bad apples on the shelf literally ran me out the door and together with me, there were about 125 more people that day, each of whom gave a competitor UAH 200 on average. As you can see, I am taking the lowest possible figure so as not to exaggerate because we know that the quality-conscious customer would spend more. For this example in total, Chain A’s losses per day amounted to UAH 25,000 and in annual terms, it lost more than UAH 9 million ($325,000) to competitors! This is very expensive rubbish!

But that is not all! I know firsthand this apple variety does not sell well so it takes up space. Let’s say it’s only 1 square meter of area, but you have to pay for this area in the centre of Kyiv! And not only for trade but also at a warehouse and even for logistics.

And that’s not all. I have serious suspicions that such terrible quality vegetables and fruits were accepted by the chain for sale for a reason. I am almost sure that if the owner saw these apples at the time of acceptance, he would not accept them under any circumstances! I don’t think the chain has permission to accept rubbish in its internal standards. This means that someone must be strongly interested in turning a blind eye to quality.

What do we have as a result? Minus UAH 9 million of revenue per store, disrespect for the consumer, and violation of even the not super-strict safety and product quality standards that are in force in Ukraine. In principle, these apples would have to either be disposed of or sold for processing.

It is also unprofitable as a consumer as I spent almost an hour more of my time than if I could have bought everything in the nearest store! This time has a cost. Let me explain with numbers.

The latest data that I found about the average wage level is from December 2020 and the average salary in Ukraine is UAH 14,179. If we assume that on average there are 22.5 working days per month and a working day equals 8 hours, then 1 hour of work for a Ukrainian is paid at UAH 78.80. In total, I lost UAH 78.80 to buy the fruits and vegetables I needed. On a national scale, these are huge losses! Yes, some consumers will find such apples acceptable, but in any market and in any stall you can find a higher quality apple that does not cost much more!

Why is this situation unprofitable for a fruit farmer or vegetable grower you ask? After all, instead of selling apples for processing at UAH 1.50, he probably received 7-8 times more for it, which means the benefits are obvious, right?

I, again with numbers, will prove that this is not so. Moreover, I am sure that rubbish on the shelves instead of quality fruits and vegetables strongly hinders the development of fruit and vegetable production. I use apples as an example, but this is true for any fruit and vegetable products. (By the way, I wrote about potatoes quite recently and the situation is the same there.)

Suppose the chains would not accept substandard apples and you cannot find them in the markets. The producer would have to sell it not at 7-10 UAH/kg, but, say, at 1-2 UAH/kg for processing. What would happen to the prices for a quality apple in such a situation?

It would be sold not at UAH 15 as it is now, but at UAH 20-25/kg (this is the minimum), since the consumer would still need to buy apples. This means that the demand for a quality apple would be much higher against the backdrop of the lack of supply of cheap rubbish.

Let’s say there is a producer who has 60% poor quality apples and he yields 50 tons per hectare. The revenue per hectare will be about UAH 490,000. He will receive 91% of the proceeds from a quality apple. Will he still want to spend 60% of the money to get 9% of the proceeds? Of course not!

This means that this producer will actively work to reduce the percentage of non-marketable apples in the orchard by raising the technological level, installing hail protection, etc. As a result of these actions, this producer can double his income, i.e., instead of UAH 490,000 he could get UAH 1 million per hectare and this even if the yield is low at 50 tons per hectare!

Naturally, if supermarket chains stop accepting rubbish then prices for high-quality apples on the domestic market will decrease as their supply will grow. But this is not a problem, because there are also exports.

What is the main problem for the Ukrainian apple export segment now? It is a shortage of quality apples!!! The farmer will not lose anything in income since, in addition to the domestic market, he will be able to sell apples for exports.

What does it mean to get rid of rubbish on supermarket shelves nationwide from a farmers’ perspective? According to the most conservative estimates, this means plus UAH 4-5 billion of additional annual revenue for farmers who grow only apples! This means that the whole business will simply become much more profitable and additional investments will come.

Thus, with a light conscience, we will fight to ensure that there are no low-quality fresh vegetables, fruits, and berries on supermarket shelves. Let’s hope that this information will reach the owners and managers of supermarket chains as well as the owners of horticultural and vegetable farms in the countries of our region.

Сообщение Rubbish instead of fruits and vegetables in produce departments is unprofitable for supermarkets and hinders horticulture development появились сначала на EastFruit.

I was pleased that my blog about dirty potatoes as an indicator of problems in the Ukrainian potato industry has caused such a lively discussion among farmers – and not just potato growers. Although I received full support from many leading potato growers, many still remark that the Ukrainian people are not wealthy and cannot afford clean potatoes because they are supposedly more expensive. However, I claim the reality is the exact opposite – clean, including washed,  potatoes cost much less for all market participants than dirty ones. For the consumer, clean potatoes are cheaper than dirty ones.

I will try to show this in numbers.

First, let’s start with consumers. Because of dirty potatoes, consumers in the supermarket buy…yes, soil or dirt.

How much soil do we buy with dirty potatoes and veggies? Estimates vary widely, but on average, about 5% of the purchase weight for vegetables is dirt or soil. Considering that annually in Ukraine slightly more than 1 million tons of potatoes for consumption are sold for money (estimates of Fruit-Inform analysts), then every year our society sends 50,000 tons of fertile agricultural soil to the cities…and then to garbage dumps.

Let’s take the average retail price for dirty potatoes today, which is about 9 UAH/kg (US $0.32). Of this price consumer paid 0.50 UAH for dirt!

Dirty potatoes have flaws that we cannot see due to the dirt: mechanical damage, diseases, irregularities, etc. As a result, after washing it, you have to remove the damage. Here, too, everything depends on luck, but the average percentage of losses of the actual weight of the potato after removing all defects will be close to 15%. So, after washing and finishing our kilogram of potatoes, we have only 800 grams left. Hence, for dirt and defects, the consumer paid 1.8 UAH/kg (US $0.06) and immediately threw this money into the trash can.

In total, 800 grams of dirty potatoes cost consumers 9 UAH/kg, which means that the cost of a kilogram is already at the level of 11.25 UAH/kg (US $0.40). Now, washed loose potatoes in Ukraine can be found at the same price and even cheaper. For example, in Metro Cash & Carry in Kyiv, one kg of washed loose potatoes costs 9.90 UAH/kg (US $0.35) – it is already cheaper!

But that’s not all! In Ukraine, people do not like to take into account their personal time, but it also has a cost that is easy to calculate. The latest data I found for the average monthly salary in Ukraine was for November 2020 at 11,987 UAH (US $424.30). If we assume there are 22.5 working days per month and 8 hours in a workday, then 1 hour of work for a Ukrainian is paid at 66.50 UAH (US $2.35). If we spend 5 minutes on washing and cleaning 1 kg of potatoes (probably even more, because then we will also need to wash the kitchen, but we will take only 5 minutes into consideration), then the cost of these 5 minutes is 5.55 UAH (US $0.20). That is, only the consumer’s time hit him at 5.55 UAH, and not even for 1 kg, but 800 grams, of potatoes. Therefore, for 1 kg, only the time spent is 6.94 UAH (US $0.25)!

In the end, 1 kg of dirty potatoes costs the consumer 18.2 UAH/kg  (US $0.64) at a nominal price of 9 UAH/kg, which means dirty potatoes actually cost the consumer twice as much as the clean ones. Having paid 9 UAH/kg for dirty potatoes, we will additionally pay 9.2 UAH in our own time and waste and then to throw the 9.2 UAH in the trash! This is using the most conservative estimates. In reality, the difference will be even more significant.

Is it possible to buy washed potatoes by weight for 18.2 UAH/kg? As I showed earlier, now you can find washed potatoes even cheaper than 10 UAH/kg.

Consumer losses throughout the country (if we assume that we sell slightly above 1 million tons of potatoes per year) would amount to an incredible UAH 10 billion (US $350m)! And that is not even taking into account the additional consumer costs for health care and losses due to temporary disability from poisoning associated when using dirty vegetables and dirty potatoes?!

Recall the Ukrainian proverb about why people are poor? In this scenario, yes, the Ukrainian consumer simply cannot afford to buy dirty potatoes because the (personal) costs are too high!

Second, let’s switch from consumers and talk about those that grow potatoes – the farmers. Again, in my blog, I explained that the focus while growing potatoes has been on the production of raw materials (i.e., dirty potatoes without processing), which makes this product completely restricted from exports because such potatoes can be sold only on the domestic market. What does this lead to? This leads to the fact that even the slightest overproduction of potatoes lowers the price of potatoes and it becomes almost impossible to sell them. Some potatoes are then disposed of and some are sold at a price that does not cover production costs. In Ukraine, there were several such years in a row before the country began to massively import potatoes.

In such years, a farmer on average lost about 1 UAH on each kilogram of potatoes grown. However, a farmer with an export product can find an alternative to the local market and sell in the local market, as a rule, for a profit.

EastFruit researched the possibilities of supplying washed potatoes and carrots from Ukraine to the UAE, where a lot of these goods from the United States and Australia are already on their shelves. It is quite realistic, promising, and profitable and this is just one example. There are many more possibilities.

However, my focus in this blog is not about those opportunities, but about the losses to a farmer who does not have clean high-quality potatoes in the range. On 100 hectares, such a farmer’s losses would amount to UAH 3 million in a bad year (US $110,000). This is money that could improve the quality of products or install washing equipment. But no, farmers in most cases prefer to dispose of potatoes in landfills. I will not even begin to count how much money everyone spends on transporting dirt and garbage, which the consumer then, at the expense of his time and money, will put into the trash can. This garbage, by the way, will then also need to be removed and disposed of and this is a terrible, non-ecological solution for the country.

Even if we assume that there will be only three such unprofitable seasons in a ten-year span (when in fact it would be more), then the losses for the entire industry with the sale of around 1 million tons per year will be from UAH 350 to 450 million (US $12-16m). How many potato growers are asking for subsidies from the state or, we should say, from taxes paid by consumers who already lost 10 billion UAH on dirty potatoes?!

Finally, let’s discuss those who lose the most on dirty potatoes – supermarket chains in Ukraine. EastFruit analysts have been writing about this issue for a long time in our retail audits (retail audits also available in Russian).

According to the study “Surprises in Store: Fruit Logistica Trend Report 2019” by Oliver Wyman which was based on a representative survey of consumers in 14 countries (mainly EU countries, Canada, United States, and Russia), supermarket chains with high-quality fruit and vegetable departments receive on average 45% more revenue per square meter than supermarket chains with low-quality departments.

I will not count the additional labour costs when operating a supermarket chain with dirty potatoes and vegetables even though they are also very significant for additional tasks of washing, partitions, sorting, waste disposal and are direct losses. For this example, I’ll just factor the difference in sales since it is impossible to name a quality department with dirty vegetables and potatoes. Such shops literally push shoppers out the door, who are forced to look for other stores with quality washed products or go to the bazaar. In all bazaars, by the way, potatoes are more expensive than in the store because they are clean and of high quality!

Let’s assume for the purity’s sake in this experiment that for Ukraine, accustomed to these unpleasant images in stores, the difference in sales will not be 45%, but half as much – say 22.5% (although our preliminary estimates show that this difference could even be higher than 45%, but we will take it to a minimum). The annual retail turnover in Ukraine in 2020 is estimated at UAH 800 billion (US $28.3b). According to rough estimates, self-service chain stores that have a produce department, and therefore sell potatoes, account for at least half of the turnover, or about UAH 400 billion (US $14.1b).

The average classic supermarket in Kyiv has sales in the range of UAH 150-350 million per year (US $5.3-12.4m). In smaller cities, it is much less. Accordingly, if we assume that the average sales in Ukraine per supermarket will be at the level of UAH 100 million (US $3.5m) per year, then the lost profit of those who offer dirty vegetables and potatoes will reach UAH 20-25 million ( US $0.7-0.9m) per store every year. In Kyiv, such a supermarket will lose about UAH 50-55 million (US $1.8-2.0m) per year.

The conclusions are obvious – dirty potatoes and dirty vegetables are a huge blemish on the development of the horticulture sector in Ukraine. These are colossal losses for the entire country. This is a huge loss for already poor consumers and an annual waste of tens of billions of hryvnia that could be reinvested in the development of the industry.

Let this blog not become another sensation because many countries have already gone this way. I saw this transformation in Poland. I saw this transformation even in Russia where the majority of chains abandoned dirty vegetables and potatoes about 10 years ago. This, too, will happen in Ukraine and the sooner, the better to ensure that billions of honestly earned money by Ukrainians will not go to the landfill.

Сообщение 10 billion to a landfill? Why cheap dirty potatoes are expensive for consumers, farmers, and supermarkets появились сначала на EastFruit.

In the construction of wholesale markets, wholesale distribution centers, or whatever they are called, there are no dogmas. The market is dynamic and everything changes quickly, so you need to always keep your eyes open.

More precisely, there is one dogma – before you start planning investments in such objects, you should very carefully analyze the commodity flows and the structure of consumption of FRESH products (vegetables, fruits, meat, fish, dairy products, perhaps even fresh flowers) and understand whether you can dramatically and radically improve the business of people who are already buying and selling these products.

“Cardinally” means not by 5-10-15%, but at least twice. And here we are not talking about profit but about the possibility of increasing sales volumes, or increasing the speed of product sales, turnover, reducing the loss of time by customers, etc. Then the chances of success could theoretically be.

I wrote this blog following my speech at the first international online business forum “Infrastructure of Agrology” on August 4, 2020. Given the limited time, within the framework of my speech, I was not able to fully disclose all these issues, which has already led to a considerable number of questions. I will try to answer them in a more detailed format.

The errors that I want to talk about now, are errors in the vast majority of cases. However, what I will write now is also not a dogma. There are undoubtedly different conditions and there are exceptions to these rules.

– Copying wholesale markets from other countries or cities – it is not the market that needs to be copied but approaches to planning and market management. Yes, this is the case when the bicycle has to be reinvented every time in order for it to ride. Even in different cities of the same country, which are comparable in size and population, it is likely that different market models and different approaches to their planning and functioning will be needed.

– Construction of the wholesale market “in a better place” than the existing one – the best place is where, even in unorganized and poor conditions, but traditionally, trade was and is carried out. The only way to move the market to a new location is to close the old site. If possible, it is best to create a more convenient and modern market in the old place without interrupting trade.

The task of every investor planning to launch a wholesale market is to ensure that on the first day of work, a lot of sellers and a lot of buyers come to the market. If this does not happen, then inviting them a second time will be many times more difficult and much more expensive. Therefore, we do not forget that professional work with specialized media from the moment of the start of construction is also the most important and completely non-trivial task.

I saw many more markets that never took off than those that did. And the conditions, infrastructure had nothing to do with why the market did not start.

– Creation of a wholesale market where it does not significantly improve anything. Where everything works well without a new market, the market may not be needed. The wholesale market investor tries to look into his or her business plan, but you need to start by studying the business plan of those for whom the wholesale market is being created, that is, wholesalers, representatives of the HoReCa segment and, of course, manufacturers. If the availability of the site being created does not allow them to earn significantly more, does not create new prospects and opportunities for them, then no one will need it, and the money will be wasted.

– Creating an export-oriented wholesale market is a bad idea in most cases. Especially if you are building a market outside the European Union, where “export” is a purely technical category and there are no borders, and the distance between countries is less than in Kazakhstan between cities of the same region. Export-oriented markets have two key disadvantages:

1) Seasonality. You have built a property that only operates 3-6 months a year. And it needs to be kept for 12 months a year. The return, in this case, will be 2-4 times lower than that of year-round markets, which means you cannot afford the same quality management, etc.

2) Narrow assortment. The wholesale market should be the “king of the assortment”. There should be more product names in each group than in all supermarket chains combined. The wholesale market selling 10 or even 50 positions, as a rule, will not be interesting to trade. Of course, there are exceptions, such as specialized wholesale markets in specific regions. But that’s another story.

– The inattention of the management to the main wealth of the market – market information, which is literally underfoot. Markets often do not monitor prices, assortment, and trade volumes, or do it formally, carelessly. If information is collected, not everyone knows how to use it correctly. But this is a real treasure because such information allows you to create a uniqueness that no one else can repeat. Those who know how to use such tools get clients who never leave and the capitalization of investments is growing at a record pace. Therefore, I am pleased to see how the market information systems that I created many years ago still work and help to make market infrastructure objects not only sustainable but also economically successful and absolutely unique.

– The participation of the state or city in the authorized capital and management of the wholesale market dramatically worsens the prospects for creating a quality facility with quality services. Such a market becomes clumsy, the motive for making a profit is lost, and the attitude to the market and strategy changes with the change of political courses and elites that govern the country, city, or region.

If the market is created as an initially unprofitable object, then it, most likely, will not be able to be aggressive enough in attracting operators, will not improve the conditions for them, and, over time, will become a burden on the budget. Therefore, any partnership with the state or municipal authorities is best avoided at all costs.

– Creation of wholesale markets near small towns and cities with an undeveloped HoReCa segment. Wholesale markets are tied to consumption, not production! In addition, it is a mistake to think that every city, even a relatively large one, needs its own wholesale market. And to understand this is quite simple – you just need to study the trade flows of the entire region. As a rule, a successful market serves the entire region with a pronounced consumer center and it should be as close to this center as possible.

Also, if even in a fairly large city there is no culture of food consumption outside the home (tourism, hotels, restaurants, cafes, etc.), the market’s chances of success will be much lower.

– The creation of a specialized fruit and vegetable market is usually a bad idea because the largest segment of buyers who represent the HoReCa segment is immediately lost. It will be more profitable for them to pay more for products in the supermarket, where they can buy fish and meat and other fresh products. After all, the restaurant needs not only vegetables and fruits. Therefore, I repeat, the wholesale market should be the “king of assortment” so that no supermarket could offer such a choice for HoReCa.

– Creation of expensive infrastructure in the wholesale market, where there is no need for it. As a rule, this error is caused by the fact that an investor listens to a solution provider who is directly interested in over-budgeting and selling many things that are unnecessary for the market. Therefore, an investor should focus, first of all, on the needs of a potential client – a buyer (i.e. HoReCa and representatives of small retail), as well as a potential market seller, but not a supplier of equipment and technologies.

By the way, this is what often becomes the reason that the market “does not take off”. After all, the prices for market services are, in fact, too high, and the range of services includes things that are not needed by real market operators.

– Creation of a wholesale market “for cooling, finishing, processing, and packaging products”. This is a common mistake that costs investors a lot. These operations should be carried out as close as possible to the field where vegetables and fruits are grown. There is no point in cooling, for example, of an apricot that was not cooled immediately after harvesting and then transported 300-500 km or even 50 km. The cold chain does not like such temperature fluctuations, so it is better not to touch such an apricot. It is advisable to cool the product as quickly as possible after cleaning, literally within minutes.

In addition, compare the feasibility of placing sorting or cooling of fruits and vegetables right next to the field in a production region where land costs a penny and labor is also inexpensive and the location of the same processes in the capital, where land is hundreds of times more expensive and labor is also. The conclusions are clear here.

The market must engage in trade, that is why it is called the “market”. If there is a revision service there, it must first of all be based on the real needs of the trade, if any. However, revision can in no way be the main idea of ​​creating a wholesale market.

By the way, many have probably already noticed that the mistakes I have listed like to accumulate in one investment project. For example, an export-oriented market, with expensive infrastructure, is a very good example of a failed business idea.

– Long-term storage or processing on the wholesale market is an even worse idea than the actual completion of fruit and vegetable products placed on the market. The market should give the maximum turnover per meter, and long-term storage should always be as close to the field as possible. For example, every hour of delay in laying an apple for storage after harvest is minus a week of the shelf life of this fruit.

And again, back to the cost of land and real estate – what is the point of storing cheap potatoes in the capital of the country for 8 months a year? How much does this storage cost compared to using the same area for retail? Obviously, this is complete nonsense from an economic point of view.

Immediately, an ideal example of a hopeless wholesale market is obtained – an export-oriented wholesale market for fruit and vegetable products, with modern storage facilities with controlled atmosphere (CA) storage technology for long-term storage of products, expensive processing infrastructure, located in the center of production and far from consumption centers, without a market information monitoring system, and even with the state as the main shareholder!

Therefore, any storage on the wholesale market should be short-term – 1-3 days, maximum a week. By the way, the lack of infrastructure for long-term storage immediately reduces the investment in 1 m2 of the wholesale market and therefore increases the return on investment.

By the way, investments in modern expensive storage facilities, without changing other aspects of the business (growing technologies, varieties, protection systems, etc.), can be a complete failure. I included this item for those who really want to put a storage facility at a retail facility – there are a lot of such people. So, if a variety of vegetables or fruits is not intended for storage, if it was grown without protection focused on long-term storage, it was not harvested correctly, it was not loaded correctly, it did not provide proper nutrition during the growing season, then the product will not be stored even in ideal conditions and in the most modern storage facilities. The store is not a sanatorium – it cannot improve the quality of the product, but it can help to preserve it.

– Since we are talking about storage, I will repeat the thesis that I have been repeating for about 15 years many times and every year, but there are still those willing to take the risk – “Investments in storage as a separate business are completely unpromising.”

Long-term storage of vegetables and fruits is an integral part of the fruit and vegetable growing business. After all, we cannot eat all the cabbage, potatoes, or all the apples in a week – we want to consume them all year round. So, they need to be stored. It is very interesting to watch how people plant 40 hectares of the apple orchard, but they are not going to build a storage facility with CA storage, for example. Usually, they simply do not understand what 2 thousand tons of apple is and who can buy and ship it even in a month of round-the-clock work.

By the way, storage as a business can still be earned in countries with a really huge shortage of storage capacities and only when building cheap and not very high-quality storage facilities. It is also desirable for this country to be highly closed and high import duties on goods. But even so, the storage business is still a lottery. And once every three to four years, even in such countries, you have to lose up to 100% of the purchased products, because they are not sold at all at any price.

By the way, if the manufacturers are too small, then each of them should not build their own storage, because there is an economically viable storage size, given their high cost. Indeed, in addition to the actual storage chambers, you need to provide the required number of containers, purchase equipment for loading and unloading operations, make all the necessary connections to networks, etc. Moreover, it is best to place the sorting, finishing, and packing lines right there. If you build a storage facility with a capacity of 10 tons or even 100 tons, all these costs per 1 ton will be too high.

Therefore, according to my calculations, depending on the product category, storage facilities for fresh vegetables and fruits should be at least 1,000 tons in size, but better than 1,500 tons.

So what about small producers who can’t build their own storage? The answer will be cooperation, of course, provided that the country has appropriate legislation and business traditions. Otherwise, if the storage facilities are in the hands of third parties, the efficiency of the entire system will be significantly lower than in the case of farmers’ cooperation.

– Participation in trade and creation of own trading companies by the management or owners of the market. It is a very common practice, which usually leads to losses on all sides. In such a case, trading does not work out normally, and operators’ confidence in the market decreases. So, the temptation to create special conditions for themselves, worsening them for others, always grows. Thus, this is a classic conflict of interest. As with any business, only the right strategy and reputation will ensure sustainable development. And so, creating their own trade, the owners or managers of the market are losing the reputation of the main business.

It turned out a little more than 10 errors, but this list is certainly not exhaustive. I hope that he will help at least one investor avoid multi-million dollar losses.

Сообщение Planning the infrastructure of the fruit and vegetable market (wholesale markets, storage facilities, distribution centers): Top 10 mistakes появились сначала на EastFruit.

Let’s take a look at two things that will define the future shopping trends: the evolution of fruit and vegetable trade, and the development of the real estate market and urban farming.

Let’s start with real estate and urban farming.

In the Eastern Europe region, “smart home” is still something very futuristic. In comparison, in the USA, according to various estimates, almost every third house is equipped with such a system. It includes all aspects of managing all home systems: heating, lighting, power supply, ventilation, electrical appliances, security, watering the lawn, and much more. Besides, many houses and apartments have automatic watering of home plants, and the humidity sensors give a signal to the Smart Day system to water the plant when necessary. 

Yes, this is the new trend: urban agriculture in private houses and apartments. What might it look like? 

Many houses are already sold and advertised as “property with fruit trees and shrubs,” but many fear these options since taking care of them is expensive. But what if the property has its own fully automated urban farm for growing salads, herbs, strawberries, and other berries? Imagine the green wall of a house or an apartment with beautiful and entirely environmentally friendly berries hanging from it, with decorative lighting that can become a fancy decoration to any room? By the way, why not implementing this in offices? Urban farming walls could create an exciting cozy space and provide clean and useful products for employees. Such production requires a minimum area, and it will be possible to order a ready-made set of everything necessary for a new production cycle in any store.

Of course, now, it is not economically feasible. There is still a necessity to improve the growing technologies, reduce the cost of lighting systems and their efficiency, work out the issues of providing plants with food, and much more. But this is only a matter of time if someone will systematically work on this. In this case, each person will be able to provide their family with fresh herbs, salads, and, possibly, berries, even living in an apartment of a multi-story building, regardless of the climatic conditions.

This will have a positive impact on human health and the ecology of the Earth, and allow people to save much money on food when technology becomes more accessible. Indeed, salads, herbs, and berries are delivered over very long distances, often by air, which leads to a significant amount of harmful emissions into the atmosphere and increases production cost. The products themselves are still not perfectly fresh. Picking greens or berries at home will add a lot to freshness and taste. Moreover, as the selection process evolves, new delicious varieties appear.

As you can guess, with time, the autonomy of houses will increase significantly, and they will learn how to store electricity better. The cost of solar panels will decrease even more, and their efficiency will improve. Therefore, many houses will charge their home batteries during the day and become self-sufficient in electricity, without the need to connect to city networks. Using part of this energy to grow products directly in the house will be a logical next step. Besides, when connected to the smart home system, the plants can easily survive if everyone went on vacation for a week or two. Watering and light will work without interruption.

This can have severe consequences for the businesses that supply greens and salads. The industry, of course, will not disappear at all. Still, many will have to change from producing greens and berries to delivering everything one needs for their cultivation in urban conditions.

As for the real estate, a fully self-sustaining house or even an apartment with its own farm can be an absolutely unique advantage in the real estate market.

As for the future of the fruit and vegetable trade, the COVID-19 crisis showed us that having food delivered to our homes is a good option. However, it also became evident that companies who deliver cannot handle a large assortment of fruits and vegetables, because there are many problems with perishable products like greens, lettuce, and berries. At the same time, oranges, apples, bananas, tangerines, and other fruits, which remain fresh longer, are easier to sell in online formats. 

Accordingly, if greens, lettuce, or berries are grown at home, the demand for them in online shops may decrease. Thus, it will also indirectly contribute to the development of e-commerce in fruits and vegetables.

Will salads be sold in ordinary grocery stores? Most likely yes, but it is possible that the stores themselves will become smaller and people will visit them much less frequently. Moreover, even grocery stores may have their production of greens and salads. That is, greens and salads will be grown on shelves rather than put there by the supplier. The example from today’s realities is the Albert Hein supermarket in the Netherlands.

Therefore, it is possible to note the following trends in the long term:

1. a decrease in the volume of commercial production of greens and herbs, as well as some berries;
2. a sharp decrease in the distance that an average bunch of greens or lettuce travels before it reaches the consumer;
3. the transition from city farms to home farms;
4. an increase in the supply of solutions for providing home farms with everything necessary and connecting them to smart home systems;
5. reducing the cost of greens, salads, and even berries by consumers and reducing the retail trade of this category of goods.

These trends will be most relevant in countries with a cold and temperate climate, where people spend much more time indoors than in countries with a warm or tropical climate. Besides, in these countries, people pay more for fresh products, and companies deal with the problem of excess emissions of CO2 and harmful substances in the delivery of these products to consumers.

Сообщение Shopping at a grocery store to buy berries, salads and greens? What old-school nonsense! появились сначала на EastFruit.

In the first part of the blog, we have analyzed global trends for the entire agribusiness and its sectors. In this part, we will talk about how coronavirus and the global economic crisis have already affected the production, export, import, and processing of vegetables, fruits, berries, nuts, herbs, and other fruits and vegetables in the world and the countries of Eastern Europe.

However, forecasting something in this situation is extremely difficult. Therefore, we will build on the most likely scenario. It is worth noting that the world’s level of uncertainty is now the highest in the last hundred years.

Thus, let’s start with the general trends and move on to the situation in the countries.

1. First of all, the consumption structure of food products has changed under the influence of the following factors:
   • Demand has grown for products that can be stored longer because people are less likely to go shopping to reduce the likelihood of becoming infected with the coronavirus. Thus, citrus fruits, apples, vegetables of the so-called “borsch set” (onions, carrots, beets, potatoes) turned out to be in a winning situation, and those that quickly go bad (berries, herbs, cucumber, tomato) are in a less advantageous position.
   • Demand for cheaper products has grown, and demand for expensive products has declined, as household incomes have already dropped. And this trend will only strengthen in the coming months. Again, local products win in this situation, and imported ones lose because national currencies devalued. Also, more expensive products, such as berries and nuts, asparagus, exotic fruits, as well as all products certified as organic, became less popular, while cheaper ones are in high demand;
   • Demand has grown for products that, according to the public opinion, can fight viruses or strengthen immunity. These are, first of all, products such as garlic, onions, lemon, and ginger;
   • The demand for packaged products has grown, despite the fact that it is more expensive because people unreasonably fear that the chances of contracting a coronavirus will be lower if they buy the product in a package;
   • The population’s demand for processed products and frozen products has grown because they can be stored longer, while demand from HoReCa (the foodservice industry) has fallen to almost zero. In particular, this industry was the primary consumer of these products in the countries mentioned above.
   • Demand on products that were grown specifically for HoReCa fell. For example, the main consumers of asparagus in Ukraine are restaurants. It is entirely incomprehensible who will buy it at all this year. For example, in India, a farmer feeds cows with strawberries, broccoli, and salads, because there is no one to even give out for free since these products have always been delivered to restaurants, and local people are almost unfamiliar with them. Even if the restaurants open, it is obvious that many people will not go to them in the first months because caution and lack of money will restrain them. Similarly, HoReCa was a major consumer of frozen foods, fresh-cut products, as well as bulk products. Their production now has to be stopped or urgently reoriented.
   • Demand for many types of imported fruits and vegetables fell due to the devaluation of most countries’ national currencies and an increase in the value of imports relative to local products.
2. Product sales channels have changed.
   • In many countries of this region, authorities have banned food markets. This catastrophic decision led to the loss of sales markets, primarily by small and medium-sized farmers, because the availability of supermarkets in all countries, including the leader in this indicator, which is Russia, is extremely low. In addition, networks in almost all countries in the region sell significantly higher volumes of imports than local products. After all, it is possible to apply the same safety rules that are in supermarkets for open food markets and trays. Moreover, governments should have created a simple procedure for temporarily permitting the work of non-food businesses and restaurants in the format of grocery stores. This would have reduced the concentration of people queuing in supermarkets.
   • Again, HoReCa is the most important sales channel. In the USA, for example, more than half of all fruits and vegetables were consumed by restaurants, hotels, cafes, and other representatives of the HoReCa industry. In many large cities of this region, the share of HoReCa in the consumption of fruits and vegetables was also very high.
   • Import and export in many countries are blocked due to restrictions on travel. Therefore, those countries that are heavily dependent on exports or imports now have big problems. At the same time, countries like Ukraine that do not depend heavily on imports or exports benefit. A striking example is hazelnuts and greens in Georgia. Export has stopped. At least hazelnuts can still be preserved, but the greens must be removed from the greenhouses before the end of the season, and cucumber and tomato have to be planted. These are direct losses.
3. Labor force, its efficiency, and cost have changed:
   • In countries that hoped for an incoming workforce, including Poland and other EU countries, there will be problems harvesting berries and fruits, as well as some vegetables. Even if the local workers who have lost their jobs agree to harvest fruits and vegetables, their effectiveness will be significantly lower than that of immigrants, because the immigrant is always more focused and motivated. As a rule, a worker goes abroad to work, because he or she can earn 2-3 times more than at home. Accordingly, a worker values ​​this work more. At home, he or she will receive less and will be less motivated.
   • In many countries, if there is quarantine at the time of work, problems may arise with the transfer of workers to the fields. These problems are already in place, and farmer labor costs have risen significantly.
   • Countries from which people commuted to work are more likely to benefit, especially in those segments where harvesting requires a lot of manual labor. The positive effect will be achieved if farmers can solve logistic problems and ensure the safety of employees.
4. The difference in prices for fruits and vegetables in different countries has grown significantly due to the emergence of new logistical barriers, more expensive and complicated logistics. Most likely, this trend will continue. Consumers in countries with a shortage of certain products will be forced to pay more to ensure their imports and exporting countries may have too low prices on the domestic market for export items that will not cover production costs. By the way, it is already obvious that both farmers and the population in many countries of Eastern Europe and Central Asia will expand the area under traditional vegetables. And this means that the supply of such products can rise sharply and there is a threat of falling prices.
5. Logistics has become more complex, and shipping costs have risen sharply due to high risks throughout the delivery chain. This severely limits the capability of export and import, especially when it comes to the inexpensive positions of vegetables, fruits, and berries.
6. Losses in vegetables, fruits, and berries grew throughout the entire value chain for the following reasons:
   • People make larger one-time purchases, which leads to an increased percentage of spoiled products at home, which means that demand will be higher to compensate for the loss;
   • Losses also increased at the level of supermarket chains, as the previous information on the demand structure is useless and they have difficulty in predicting the correct volume of product purchases;
   • Another reason for the losses is the inability of the networks to work with local products in developing countries and the lower quality in terms of safety due to the lack of proper post-harvest refinement of products;
   • Losses are possible at the level of farmers and traders due to labor shortages, as well as the inability to timely ship certain types of products. In many countries, huge volumes of products that cannot be sold through conventional distribution channels are already being thrown away.
7. The costs of production and the cost of growing vegetables and fruits can increase significantly in countries that depend on imported material and technical resources: fertilizers, plant protection products, seeds, seedlings, packaging, and those that rely on the foreign seasonal workforce.
8. The mechanization and automation of all production processes will become more relevant than ever before because this will guarantee uninterrupted production.
9. Processing of fruits and vegetables may increase due to higher demand for processed products with longer shelf life, as well as a higher supply of cheaper raw materials in specific segments, making it difficult to sell fresh.
10. Online sales of fresh fruits and vegetables have already risen sharply, both in the B2B and in the B2C segment. This will be the starting point for a faster transition of the business to digital dimensions, which will ultimately reduce the cost of transactions. In response to difficulties with selling early vegetables in Ukraine, EastFruit helped create a UkrOpt trading group based on Telegram, in which almost 1 thousand participants were registered in a week. Our other EastFruit Trade Platform group continues to be the largest among all platforms and already has more than 6.7 thousand participants from 25 countries of the world!

Now, let’s talk about the situation in individual countries.

• Uzbekistan will receive a lot of problems associated with a fall in demand in Russia and a rise in the logistics cost. Besides, Uzbekistan products had previously hardly hit the supermarket shelves in the Russian Federation, being sold mainly in markets. If the work of the food markets is complicated or limited, this will become an additional problem. Therefore, the season for Uzbekistan fruit exporters may not be the best, but processors will receive a lot of available raw materials. After all, the local market is not able to consume such volumes of fresh fruit. There may also be problems with the export of greenhouse vegetables and herbs, even in the next season. Nut exporters are also now forced to cut prices, and the long-term forecast remains negative. At the same time, the country is not particularly dependent on imports. Only the availability of potatoes can be at risk, and prices can be high.
• Ukraine found itself in a rather comfortable situation, since it does not substantially depend on imports or exports, and its domestic market is rather large. The most considerable losses may be experienced by exporters of walnuts, who take the leading position of the country’s fruit and vegetable export. The difficulties of blueberries producers and producers of other berries are also possible, especially if quarantine is not completely canceled until the season starts. But the processors of cultivated berries are likely to receive a more substantial offer of more affordable raw materials. If the crop does not suffer from frost, apple producers are likely to encounter low prices, approximately as in the season 2018/19. Most likely, Ukraine will dramatically increase the area of ​​potatoes and vegetables, and next season their prices may drop significantly.
• Moldova has already suffered significant losses. In particular, apple prices have fallen, and this spring, when they usually rise, and contracts with buyers in the Russian Federation were broken because they were not ready to pay the previously agreed prices due to the devaluation of the ruble and the decline in incomes of the Russian population. Walnut exporters have similar problems since prices are falling, and with them, demand, while the cost of logistics is growing. In the new season, a decrease in demand for table grapes is also possible. But a genuine incentive will be given to the development of local vegetable growing and potato growing, as the country is now almost completely dependent on imports. In the meantime, before the start of the new season, the prices of these essential goods (onions, potatoes, garlic) can be very high.
• Georgia experiences problems with the export of hazelnuts and greens. In addition to these two positions, Georgia also exports significant volumes of tangerines, persimmons, and peaches. There may be some problems with the export of peaches, and the persimmon and tangerine seasons are already over. Georgia already has problems with onions, potatoes, and other vegetables at affordable prices, but early production will begin soon.
• Tajikistan annually exports significant volumes of onions, table grapes, dried apricots, and other dried fruits, as well as, to a lesser extent, fresh stone fruits. The country imports mainly small volumes of citrus fruits, bananas, and greenhouse vegetables. Most likely, problems may arise with the export of fresh table grapes if the borders are still closed by the beginning of the season or due to lower consumer incomes. There is also a threat that many countries will dramatically expand onion areas, which could harm prices and demand. At the same time, Tajikistan can take advantage of a favorable situation in the lemons market and increase exports, though their volume of production in this country is not very large. Dried fruits are likely to continue to be in demand since Tajikistan has a competitive price for them, but perhaps exporters will have to agree to even lower prices.
• Russia and its fruit and vegetable business will find themselves in a rather favorable situation since the devaluation of the ruble, and a decrease in household incomes will increase the demand for those products that are grown in the country and reduce the demand for imports. Russia is a net importer of all types of vegetables and fruits, so the situation for farmers will be generally favorable. The prices for all goods have already risen sharply, and this will ensure the desire, at least, not to reduce the farming area. As for importers, they can drastically reduce business volumes and profits, because imports of fruits and vegetables to Russia are tied directly to world oil and gas prices. Accordingly, we can expect a collapse in imports to levels close to 2015.

Thus, the situation will change very dynamically, so farmers will have to pay attention and track the most important factors. Uncertainty in the contracting of products will increase; therefore, in order to minimize the risk level of the business, farmers should significantly increase the efforts to market and promote their products. Those who will have several options for selling products are likely to be able to go through this crisis as painlessly as possible, which will definitely be very protracted.

Сообщение COVID-19, the global economic crisis and their impact on the fruit and vegetable business of Uzbekistan, Ukraine, Moldova, Georgia, Tajikistan and Russia (Part 2) появились сначала на EastFruit.