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.

The greenhouse industry is one of the agricultural business sectors in Russia to receive active government support in recent years. According to Technology Growth, the total investment in the greenhouse sector for the last 5 years has exceeded 200 billion rubles. About 120 greenhouse projects received soft loans with an interest rate of 5% and/or reimbursement of investments made in the construction, renovation, and equipment of greenhouses. Thanks to government support and investment from the commercial sector, the country’s greenhouse vegetable production increased from 600,000 tons in 2012 to 1.3 million tons in 2019.

In 2019, the state program for reimbursing investments in the construction of greenhouse farms was completed in most federal districts of Russia. Due to the fact that the level of greenhouse business development in the regions remains uneven, the focus of the state program has shifted to greenhouse development projects in Siberia and the Far East. For the gross harvest of vegetables grown in protected soil in Russia, the Siberian Federal District occupied only 7% and the Far East 2% in 2019. The state announced 20% reimbursement for investment costs in the development of greenhouse production of vegetables from investors in the Far East. As for federal-level support, farms will receive financing on preferential loans for projects and support for projects such as seed production.

According to Technology Growth, 1,000 hectares of winter greenhouses with assimilation lighting were in operation in 2019; 490 hectares of them were for the cultivation of cucumber under photo-culture conditions. The total area of ​​5th generation greenhouses in Russia reached 100 hectares for 2019. The Russian share of Ultra-Clima greenhouses reached 18% globally. Despite the active renovation and development of the greenhouse industry in recent years, 50% of industrial greenhouses in Russia are still 3rd generation greenhouses.

In recent years, the Central Federal District (CFD) where 20% of the country’s population lives has become the leader in terms of greenhouse vegetable production. This region is also a leader in launching modern 4th and 5th generation greenhouses. A significant part of the new greenhouses built in the Central Federal District is equipped with modern assimilation lighting systems, which significantly increases the average yield of the district. The gross harvest of protected ground vegetables in the Central Federal District amounted to almost 30% of the total gross harvest in Russia, that is, about 400,000 tons.

According to Agroinvestor, there is a gradual increase in the average yield of greenhouse vegetables in winter greenhouses. In 2019, the average yield was 43 kg/m2 per year, which was an increase of 42% since 2012. The highest average yield in the country was recorded in individual farms of the Siberian and Central Federal Districts of more than 100 kg/m2. At the same time, the opposite trend was observed due to the diversification of the assortment from high-yielding cucumbers towards assortment positions. More and more greenhouses are growing niche varieties of tomatoes, peppers, eggplants, and herbs. Thus, greenhouse farms, although they reduce the average yield, are moving away from the growing competition in mass categories.

Despite the economic recession, the average per capita consumption of greenhouse vegetables in Russia is growing. Healthy eating trends are driving consumer demand for fresh vegetables year-round. According to AB-Center, the per capita consumption of cucumber in 2019 was a record 5.7 kg per year, against 4.9 kg in 2014. In 2019, the consumption of industrial-grown protected ground tomatoes amounted to 7.4 kg per year. For comparison, the indicators were at around 6.8 kg in 2018 and 4.9 kg in 2016. It is expected that by the end of 2020, the indicators will exceed the value of 2019.

The growth in consumption is due to an increase in the production of local greenhouse products. In 2019, Russia’s self-sufficiency in cucumbers was estimated at 90%. In total, Russia imported 99,900 tons of fresh cucumbers and gherkins in the amount of $105 million in 2019. The imports of cucumbers are gradually decreasing the average annual import rate in 2015/2019 at -5.43%. The season for active imports of cucumbers begins in October with a peak in January. The list of major suppliers in 2019 included Iran (18,000 tons), Belarus (18,000 tons), Armenia (8,000 tons), and Azerbaijan (7,000 tons).

Self-sufficiency in tomatoes increased from 25% in 2015 to 50% in 2019, although tomatoes are still the most imported vegetable in Russia. The average annual import rate for 2009-2019 was -1.97%. In 2019, Russia imported 557,000 tons of tomatoes worth $637 million. From July to October, Russian tomatoes dominate the market. At this time, prices for them are also falling, including due to significant competition from personal subsidiary plots. More than 80% of tomato imports are to Russia from November to June. In 2019, the market was dominated by products from Azerbaijan (172,000 tons), Turkey (94,000 tons), and Morocco (54,000 tons). The developing agro-industrial complex and relatively low production costs in the Central Asian republics create significant competition for other international suppliers and Russian producers. Exports of tomatoes from Uzbekistan increased from 1,400 tons in 2014 to 18,300 tons in 2019.

Greenhouse production of sweet peppers in Russia is still limited, although an increasing number of greenhouse complexes include peppers in their range. More than 60% of sweet peppers are imported between November and April. Active suppliers in 2019 were Israel (55,000 tons), Turkey (17,000 tons), and Iran (11,500 tons). Historically, Israel has been the largest supplier of peppers to Russia. After the devaluation of the ruble in 2014, shipments to Israel dropped from 75,900 tons in 2014 to 55,100 tons in 2019. Supplies from Uzbekistan are growing with an average annual rate in 2015-2019 that amounted to 91% and the growth of supplies continues.

The level of competition for domestic vegetables is affected by the Russian embargo, which began in August 2014, on the imports of vegetables and fruits from the EU, the United States, Canada, Ukraine, and some other countries. For comparison, tomatoes supplied to Russia in 2013 were 110,000 tons from Spain, 102,000 tons from the Netherlands, and 52,000 tons from Poland. In 2016/2017, there was a temporary embargo on the import of selected fresh produce from Turkey, including tomatoes. Before the embargo was imposed, the import of tomatoes from Turkey to Russia was 323,600 tons, but in 2018 it was only 38,800 tons. In 2019, it recovered to 113,000 tons.

Against the background of increasing production in recent years, the average profitability of Russian industrial greenhouses has declined. Profitability is negatively impacted by increased competition and production costs, including ever-increasing energy costs. Approximately 50% of the costs in greenhouses with assimilation lighting systems are for energy resources. According to the Association Market Council, the cost of electricity in Russia at the end of 2020 rose to its maximum values ​​over the past five years and the rate of price growth exceeded inflation. The greenhouse industry’s dependence on imported components and technologies has decreased from 100% in 2014 to 60% in 2018. The dependence remains significant, and the devaluation of the ruble also affects the growth of production costs. According to the Central Bank, from January 2014 to February 2021, the ruble lost 110% of its value from 35 rubles for 1 US dollar to 75 rubles for 1 US dollar. On the other hand, the depreciation of the ruble enhances the competitive advantage of Russian products over imported ones.

According to experts, the Russian greenhouse market will continue to develop. The Russian Ministry of Agriculture forecast that in 2021 at least 1.45 million tons of vegetables will be grown in winter greenhouses, which is 7.6% more than last year. By the end of 2021, it is planned to commission about 500 hectares of new greenhouses, while the total area of ​​greenhouses should be 3,300 hectares.

Сообщение Russian greenhouse business is booming – 18% of all 5th generation greenhouses built in Russia 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.

I first arrived in Ukraine in 2018 and lived in a city about two hours west of Kyiv. Around the corner from my home was a Ukrainian supermarket chain store. On my first visit there, I was shocked to find vegetables covered in dirt or caked-on mud that dried creating an outer shell making quality impossible to detect. “Maybe it’s just this store?” I thought and left without buying anything.

As my weeks, months, and years in Ukraine rolled on, dirty vegetables persisted regardless of which supermarket or grocery store I entered. I found this to be true in towns and cities both large and small throughout Ukraine. Now, three years later, I still dread purchasing any potatoes or borscht set vegetables (i.e., carrots, onions, beets) because it means my hands will get dirty at the store and my kitchen will get dirty once home. Recently, my mother called from the United States. I shouted she had to wait a moment because I had been in the process of peeling potatoes, my hands were covered in mud, and I needed to wash my hands to pick up the phone. “Why mud?” she asked.

Exactly. Why mud?

Produce sections of supermarkets I have seen in the United States and Europe are colourful displays of quality produce. In turn, this requires very little thought and effort for me to select what I want to buy because everything simply looks beautiful. Also, my brain does not need to question if a product is safe to eat because the cleanliness leaves no room for doubt. Nice produce displays and assortments even make me wander in that section longer, usually finding a few more items I had not originally intended to buy. Stores that implement good quality and safety standards will have success in sales and return customers.

Images from a Whole Foods Market in the United States

I have felt similar excitement while shopping in Ukraine only twice – Silpo in Forum Lviv in February 2019 and Metro in Ivano-Frankivsk in October 2019. That Silpo’s displays and design reminded me of the stunning Whole Foods Market in the US and Metro’s wide assortment even for items in the off-season caught my attention. The main thing I noticed in both – no dirt. After three years living in the Zhytomyr, Khmelnytsky and Ivano-Frankivsk Oblasts of Ukraine, these experiences should be much more.

To be fair, despite the unpleasant sight of dirt-coated vegetables, to me, Ukrainian fruits and vegetables taste better than anything I have eaten in the United States, even organic. It is probably the rich black soil that makes an incredible difference in the outcome of its produce. Ukrainian potatoes actually have taste whereas I do not recall noticing much of anything back home in the way of taste for potatoes unless drowned in butter and other toppings. Ukrainian carrots and onions have much more flavour. However, consumers, especially foreign ones like myself, simply will not buy them if they are covered in dirt.

Purposefully buying dirty vegetables took a while to get used to, but I also live here so I had no choice. Yet, when clean vegetables are being offered, even if the price is higher, I will buy the clean ones. For example, last week I needed to buy carrots for a recipe. The display at the ATB offered a 1kg bag of clean/washed carrots or individual dirty carrots sold by weight (photo below). Which one would you prefer?

Сообщение Why mud? – Consumer viewpoint about dirt on vegetables in Ukrainian supermarkets появились сначала на EastFruit.

“Ukraine remains the only country in Europe where supermarkets continue to sell potatoes with dirt. This is one of the key problems of the industry where, as in Soviet times, volume and price is put at the forefront instead of quality,” according to Andriy Yarmak, an economist at the Investment Centre of the Food and Agriculture Organization of the United Nations (FAO). Mr. Yarmak expressed his opinion in the blog for Mirror of the Week.

“These facts are important for understanding why the ‘Breadbasket of Europe’ in 2020 was unable to provide itself with ‘second bread’ and even bought potatoes not just anywhere, but from Russia! It would be nothing if these imports were small, but almost half a million tons of fresh potatoes were imported for consumption (excluding seed potatoes) in just one season of 2019/2020 (from July 2019 to June 2020)! This makes Ukraine one of the world’s largest importers of potatoes for the fresh market because other leading import countries such as Belgium, the Netherlands, Spain, and Germany import potatoes mainly for processing or re-exports. Yet, Ukraine is officially considered one of the three largest potato producers in the world behind China and India. Why, then, are we suddenly becoming the country with the biggest potato deficit? Maybe the catastrophic climatic conditions of 2019 led to this when there was a poor harvest of potatoes and then everything will get better?” asks the FAO economist.

Andriy Yarmak went on to explain why, with a high probability, the problems of growing sufficient amounts of potatoes and other traditional vegetables for local market will not be solved in the near future in Ukraine:

Potato growing is a separate industry, but it has much in common with the cultivation of traditional vegetables, also called in Ukraine the “borscht set,” which includes onions, carrots, beets, and cabbage. I will talk about potatoes but it is mostly true for all these vegetables as well.

Do consumers who have come to a store want to touch potatoes in a pile of dirt? Most will say no. However, if you visit farms that grow potatoes, even professional ones, the vast majority of them do not have the PHH equipment for bringing potatoes to the marketable condition – cleaning, washing, sorting, packaging, etc.

Ukrainian farmers would rather plant an extra 100 hectares of potatoes than invest in its post-harvest handling. After all, if you start to clean and sort the potatoes grown, it turns out looking even worse when cleaned. Therefore, it is necessary not only to install the PHH equipment but also to completely change the growing technologies. This means investing in a more expensive farm equipment, changing varieties, and installing drip irrigation; that is, to change the entire production system, which is very inconvenient and costly.

Let’s go back a little in history. Ukrainian potato growing in Soviet times was aimed at production volume with no regard to quality because the Soviet consumer was unpretentious and would eat anything. Almost thirty years have passed since Ukraine gained independence and almost nothing has changed in the mentality of the Ukrainian producer. What has changed is that a significant part of the production is now located in households rather than at the professional commercial farms, and there the quality (and let it not surprise anyone) is even worse.

Why is that? Because in order to obtain conditions for growing high-quality potatoes in Ukraine, one would need to have an ideal technology, high-quality seeds, expensive equipment, and irrigation. Without this, even by hand, it is extremely difficult to grow high-quality potatoes.

Up until 2019, everyone was still concentrated on the volume instead of quality and farmers scolded and still continue to scold supermarkets that demanded quality from them. After all, they are accustomed to the fact that they need to sell everything, even rot, because “where to put it?” During one meeting with farmers, I asked if they would insist on selling everything that has grown even if each potato had their photo or at least a name on it?

Nevertheless, you can’t just blame the farmers. The qualifications of produce department managers at supermarket in Ukraine are also not always at the required level. In addition, they often turn a blind eye to the fact that they accept the outright rubbish. Of course turning the blind eye makes them wealthier. They also try to sell potatoes cheap, but people prefer to go to the bazaar and pay more for carefully selected high quality potatoes with no rot. It is precisely due to the poor quality, supermarkets sell fewer potatoes than they sell oranges.

This is no joke. I personally checked the prices and quality of potatoes in supermarkets and bazaars of Kyiv several times on the same day. The most expensive loose potatoes have always been in the bazaars. It was more expensive there than in the premium supermarket chains. Thus, the cheap potato strategy, as we can see, does not work.

After all, neither the representatives of the supermarket chain nor the producers in Ukraine can understand the fundamental difference between the raw material and the final product. Potatoes become a final product only when they are delivered to the supermarket shelf in the form in which the consumer wants to buy it. 99% of what is sold in supermarkets in Ukraine is raw materials and it should not be in the retail at all.

From 2008 to 2014, I also actively monitored the situation in Russia. There, after 2010, no supermarket chain could offered dirty potatoes, carrots, or beets. Yet, in Ukraine supermarkets today at the end of 2020 – that is, 10 years later – they are still trying to sell such products to our consumers. In fact, this pushes consumers away from the store to the bazaar.

What happened in 2019/20 and why did potato imports increase so rapidly?! Why did its prices soar? Why did the import of onions so rapidly increased in the previous season?

Here, of course, there was the influence of the bad weather, but several other factors played a cruel joke on us as well:

• Change of consumers. Consumers who did not live in the USSR are beginning to play the first violin in the market – they have broader views and are not ready to buy dirty potatoes for the sake of dubious savings.
• Urbanization. During the crisis, the economically active part of the population massively moved from villages to cities. They stopped growing potatoes and at the same time became consumers, so it was a double blow to the market.
• Emigration. Since 2015, many people in search of better fortunes went to work in other countries, and this was mainly the population of small towns and villages; that is, those who grew potatoes but stopped doing it.
• Ageing rural population. People who remained in the village were mostly older and could not cultivate a large area of ​​potatoes.
• The annexation of Crimea by Russia and the loss of control over part of the Donbas. It was in these two regions that there was the greatest shortage of potatoes and traditional borscht vegetables, and sales to these regions made most of the money to professional producers of various sizes . After the opportunity to sell food there was lost in 2015–2016 but production remained almost unchanged, prices for potatoes and vegetables were kept at very low levels for several years in a row. These prices did not even cover the costs of production, let alone the profit to be reinvested in production and PHH. Of course, no one wants to grow products at a loss so the massive exodus of professionals from potato production took place at the turn of 2018–2019.
• Low prices. This also demotivated the rural population and they refused to grow potatoes on their private plots, and really, why, if you can buy it for a penny?

The sum of these factors manifested itself in 2019 in the potato market and we got sky-high prices and huge imports.

Why not export potatoes if they are cheap and we have a surplus of potatoes on the market, you ask? I will answer that question with a question: Who needs our dirty and low-quality potatoes? By the way, when I say ‘dirty potatoes,’ I mean not only the dirt, but also its uneven shape, damage from machinery, and damage due to the spread of pests and diseases, etc.

Such potatoes were not and will not be needed by anyone. Besides, potatoes that are grown in the EU for processing usually have higher quality parameters than potatoes grown in Ukraine for fresh consumption.

I want to remind you that in the Russian Federation, there have been no dirty potatoes on store shelves for 10 years so the farmers focused on the highest quality standards. Furthermore, since 2015, farmers in Russia have received huge subsidies from the state. They even have full protection from imports from the EU, Ukraine, the United States, and a number of other countries after the introduction of the so-called ‘counter-sanctions.’ In such comfortable business conditions Russian growers bought high-quality equipment and built modern storage facilities, whole factories for post harvest handling the products, and packaging lines.

Then, in 2019, farmers from Russia found out for themselves that even unwashed potatoes can be sold to Ukraine without spending money on PHH and, of course, they took full advantage of this. Coincidentally, the 2019 potato harvest in Russia was a record one and prices were correspondingly low. In fact, the Ukrainian consumer saved the Russian potato farmers from losses by importing large volumes of potatoes from Russia in September 2019 through May 2020.

In the spring of 2020 and COVID-19 pandemic, another factor was added. In the EU, where potatoes are consumed mainly in the form of french fries, a lockdown was introduced and restaurants, hotels, and others in the HoReCa industry stoped buying. Potato processing plants stopped because lockdowns were everywhere, even in those countries where the EU exports frozen french fries (including Ukraine, by the way). Thus, in Belgium, the Netherlands, Germany, and other countries, millions of tons of very high-quality potatoes turned out to be superfluous. In order not to take these potatoes to a landfill, they sold it for almost nothing (prices were 3-5 cents per kg!) By April, Ukraine began to import industrial potatoes and in Ukraine, prices by that time were the highest in Europe! Even today, potatoes are also being imported by Ukraine from the EU for the same reasons – surpluses and lockdowns due to the coronavirus pandemic.

Why didn’t we restore production in 2020 enough to provide ourselves with potatoes and have no need for imports? The fact is that it is not so easy to start potato production. Equipment for growing potatoes is expensive, irrigation systems are even more expensive, but all this costs pennies compared to how much you need to invest in storage and PHH of potatoes. It is absolutely normal if a businessman and farmer ask themselves, why make all these investments if we can just plant corn and sunflowers? Therefore, our producers are not in a hurry and will not be in a hurry to enter the potato and vegetable segments of the business and we will continue to buy imported vegetables and potatoes.

Here is a very simple formula for Ukrainian farmers: if you produce vegetables with quality insufficient for the supermarket chains of the EU-15 countries, then you should drop out of this business now. After all, if suddenly our harvest is at least 5% more than what is needed in the domestic market, prices will fall below the costs of production because there are no exports and the extra volumes of products can only be thrown away.

In a final comment for EastFruit, Andriy Yarmak also explained why people in other countries are investing in growing potatoes and why this business is very successful in Poland and other EU countries:

“The main headache for Ukraine is a very bad investment climate, which has been kept at a low level for many years. Accordingly, even in a seemingly competitive agribusiness, we can say that there is no competition at all when compared with what we see in other European countries. Even Ukrainian investors prefer to invest in other countries if they have such an opportunity.”

Сообщение Dirty potatoes on supermarket shelves as an indicator of problems in the Ukrainian vegetable business появились сначала на EastFruit.