A 15 year-long negotiations on a free trade zone between Ukraine and Turkey ended on February 3, 2022 with the signing of the FTA agreement in Kyiv. This news stirred up the produce business of Ukraine, many representatives expressing fears that Ukrainian vegetables and fruits would no longer be able to compete with Turkish ones. EastFruit experts decided to find out whether these fears are justified and whether Ukraine will benefit from the agreement?

Firstly, let’s figure out what the trade in vegetables and fruits between Ukraine and Turkey looks like now. The exports from Ukraine to Turkey is simple – among fruits and vegetables, Ukraine exports only walnuts to Turkey, although there were serious problems with their export in the last 1.5 years. However, we will talk about this below. Periodically, Ukraine exports onions, apples (for re-exports to Egypt) and occasionally potatoes.

Of course, Ukraine imports much more from Turkey than it exports, and it is Turkish imports that are most feared in Ukraine. Let’s analyze the imports of Turkish products to Ukraine.

In 2020, Turkey supplied Ukraine with fresh fruits and vegetables worth $315 million, which corresponded to 30% of all Ukrainian imports of vegetables and fruits. According to the results of 2021, the import of fruits and vegetables from Turkey to Ukraine is estimated at $340-350 million.

For comparison, the largest volume of fruit and vegetables Ukraine exported to Turkey (mainly walnuts) was noted in 2019. It was worth $37 million, which accounted for about 12% of Ukraine’s export earnings in this category of goods. Thus, Turkey is an important sales market for Ukraine, as well. However, let us return to the import of fruits and vegetables from Turkey.

The main position of fruit and vegetable imports from Turkey to Ukraine was citrus fruits accounting for 54% of all deliveries. Another 18% were greenhouse tomatoes, 9% – table grapes, 5% – cucumbers, and 4% – fresh strawberries. All other positions together gave about 10% of the value of imports. They included various exotic fruits that are not grown in Ukraine, dried fruits, as well as fresh apricots, peaches and bell peppers.

Turkey dominated among the suppliers of greenhouse tomatoes and cucumbers to Ukraine – Turkey accounted for 75% and 77% of all imports, respectively. Turkey also dominated in the segment of citrus fruits (53%) and table grapes (63%). By the way, the main position in the category of citrus fruits was Turkish mandarins, while the share of Turkey in lemon, orange and grapefruit imports was noticeably lower.

Ukraine cannot grow most of the fruits and vegetables that it currently imports from Turkey, except for greenhouse cucumbers and tomatoes. Meanwhile, there is a zero import on the import of citrus fruits and other fruits that are not grown or are grown in insufficient volumes in Ukraine from Turkey. As for greenhouse vegetables, we need to go in more detail, since Ukraine grows them. Moreover, record high gas prices in the winter of 2021/22 have already put Ukrainian greenhouse complexes in a very challenging environment.

What will the signing of the FTA between Ukraine and Turkey change for Ukrainian greenhouse growers?

Imports of greenhouse cucumbers, tomatoes and peppers are currently subject to an import duty of 10%. After the entry into force of the FTA agreement, the rate should be zero, although we have not yet seen the full document and do not know this for sure. However, this is the most likely scenario.

How important is this and how will it increase competition in the market?

First of all, Turkish greenhouse vegetables are supplied to Ukraine mainly when Ukrainian ones are not available on the market or are available in small volumes. In addition, as a rule, Turkish vegetables are sold cheaper than Ukrainian vegetables. Consumers still pay more for Ukrainian vegetables, mainly because they are tastier, as they were grown close to the consumer and harvested ripe.

Reducing the duty by 10% to zero, will give Turkish tomatoes about 1.0-1.5 UAH (about $0.05) of an additional advantage in the peak sales season, and this is a lot. In our opinion, other factors will have a greater impact on the competition between Ukrainian and Turkish greenhouse products, namely, a sharp increase in energy costs and the devaluation of the Turkish lira. The first factor will impact Ukraine more than Turkey, and Turkish exporters will benefit from the second factor, too. Although there is one more point – Turkey imports many inventories for growing greenhouse vegetables and their costs will also increase.

It is obvious that the FTA with Turkey is, at first glance, bad news for greenhouse growers in Ukraine. However, they have far more compelling reasons to worry than a 10% cut in import duties on Turkish tomatoes, cucumbers and peppers.

One should look at this from the other side. Ukraine has its own season, when growing greenhouse vegetables is cheaper than in Turkey, and it lasts from mid-June to September.

“Turkey is one of the most “protected” economies in the world. Traditionally, import duties are quite high here. Therefore, it would be very interesting for Ukraine to get free access to this huge market. Since Turkey is located in a different climatic zone, the two countries perfectly complement each other in the food industry and food products. Cucumbers, tomatoes and peppers are very difficult to grow in greenhouses in Turkey in summer, because it is too hot there. Now, if Turkey cancels import duties for Ukraine on greenhouse vegetables (and the duty before the FTA ranged from 40% to 100%, that is, it was actually prohibitive), then Ukrainian exporters may well try to arrange the exports of greenhouse tomatoes to Turkey in summer,” – economist at the Investment Centre of the Food and Agriculture Organization of the United Nations (FAO) Andriy Yarmak, says.

Horticulture business expert and FAO international consultant Fedir Rybalko also believes that the FTA with Turkey can bring Ukraine some benefits. “Turkish market can be very interesting for Ukrainian suppliers, especially in case of direct deliveries to retail chains. After all, we have very efficient logistics, because Ukrainian citrus importers are now paying for the return freight. In other words, the cost of exporting to Turkey will be very low. For example, if prices for some products start to rise in Istanbul, Ukrainian products will fill this niche in just 48 hours. Also, Turkey is a very interesting market for suppliers of fresh blueberries from Ukraine. The consumption of blueberries is growing there, and Ukraine exports them when Turkish local blueberries have long ended and neighboring countries cannot supply the market either. We think that Ukraine could export up to 200 tonnes of blueberries to Turkey per season,” says Fedir Rybalko.

He also notes that Turkey is an important transport hub in the region, and Turkish Airlines have direct flights to a record number of cities in the world. Therefore, by entering the Turkish market, Ukraine will be able to use more opportunities of transportation by air. “We can use all existing ferry crossings from Skadovsk and Odesa. For example, a refrigerator loaded with fresh blueberries in the Zhytomyr region for delivery to Singapore, Malaysia or other Asian countries can arrive by ferry to Istanbul airport. This will reduce the risk of loss of quality during exports and will be more cost-effective than delivery by air from Ukraine with reloading in Istanbul,” Fedir Rybalko says.

An even greater potential opens up for Ukraine in fruit and vegetable trade with Turkey if Ukraine ever starts using its largest transport corridor, the Dnipro River, for this. Ukraine could well become a major transit hub for the supply of Turkish products to Belarus and, through Belarus, to the EU market. Trade and transit bring new trading places and budget revenues.

Andriy Yarmak says that the main good news for the produce business will be the opportunity to return to the Turkish walnut market. “Walnuts have been the main export position of Ukraine in the fruit and vegetable segment for many years in a row. However, due to the fact that competitors could supply walnuts to Turkey duty-free, and Ukraine had to pay duties, Ukrainian suppliers lost this market. I estimate Ukraine’s losses from the absence of an FTA in Turkey at $40 million a year. Now Ukraine will definitely return to the Turkish walnut market and will be able to successfully push out competitors there due to cheap logistics,” says the FAO expert.

He also notes the indirect benefits that a free trade zone with Turkey gives Ukraine. “Turkey is one of the largest re-exporters of agricultural products in the world. By supplying products to Turkey, Ukraine will open up new markets. Ukrainian companies already had a similar experience – after their goods entered the Turkish market, they were found in the markets of Africa and Asia, and then exporters directly contacted suppliers in Ukraine. This is an important aspect that should not be underestimated. I think that Turkish and Ukrainian companies may experience synergy in re-exporting fruit and vegetables to the countries of the Middle East and Africa,” notes Andriy Yarmak.

It should also be noted that any increase in trade and reduction in transaction costs is always a direct benefit for any country. These include new jobs, growth in budget revenues, and increased access of consumers to a wider range of products at a competitive price. However, it is obvious that the fruit and vegetable business of Ukraine as a whole is most likely to benefit much more from the free trade zone with Turkey than Turkey.

Сообщение Ukraine and Turkey have signed a Free Trade Agreement – what should the Ukrainian produce business expect? появились сначала на EastFruit.

Unusual developments in the market of cabbage in Eastern Europe and Central Asia may lead to severe price shocks in the market in the coming weeks. EastFruit experts draw attention to the fact that cabbage prices in the region have stabilized at a record high level, but growers that have stocks of high-quality cabbage are in no hurry to take advantage of it and get super profits.

“Prices for quality cabbage in Russia reach $0.75 without VAT in Russia, about $0.60 in Belarus and Ukraine. At the same time, vegetable growers have stocks, but they do not sell them. Due to this, the import of cabbage from Poland to Ukraine has now begun. Egypt is already exporting cabbage to Russia. Russian importers are forced to buy cabbage even in Kyrgyzstan, Iran and Uzbekistan, but the supply from Uzbekistan and Kyrgyzstan is now limited, and prices are also record high. The customs terminals in Iran are overcrowded, as everyone wants to export cabbage, but the logistics are quite expensive,” Fedir Rybalko, international consultant of the Food and Agriculture Organization of the United Nations (FAO), says.

According to the expert, logistics issues create difficulties in exporting to Russia, where there is still a severe shortage of cabbage. “North Macedonia partially covered this deficit, but there is a break in harvesting between varieties of super-early greenhouse cabbage now, and there will be no tangible supplies from this country until mid-February,” Fedir Rybalko explains.

“Ukrainian farmers remember the years when cabbage prices exceeded $1/kg by spring and expect similar developments. Therefore, they are in no hurry to sell. Growers of cabbage in Russia and Belarus also wait for a price increase and do not sell. However, if we assess the volume of sales of cabbage seeds in Uzbekistan, we should soon expect a record high supply of cabbage from Uzbekistan. In Kazakhstan, officials also talk about successful mass planting of early cabbage in the southern regions of the country,” the FAO expert adds.

Will cabbage prices rise in February 2022 and reach the records by spring, or will farmers miss the opportunity to make good money and face an oversupply of cabbage? Andriy Yarmak, economist at the FAO Investment Centre, believes that the second, negative scenario on the cabbage market cannot be ruled out either.

“Cabbage is the riskiest product in the fruit and vegetable sector. Prices for cabbage on the same date in different years in real prices can differ by 20 times! According to my experience, the “jackpot” on cabbage can be hit on average once every 5-7 years. There are relatively reasonable prices for cabbage every 3 years, and 1 year out of 3 brings losses. However, the situation has recently begun to change, and the changes are associated with a sharp intensification of export-oriented vegetable production in Uzbekistan, Kazakhstan and Iran. Tajikistan and Kyrgyzstan are also gradually catching up to them. We also expect surprises in the coming years from the dark horse of the region, Turkmenistan. These countries have been seeing record high prices for cabbage and massive purchases by importers from the Russian Federation for several months now. It is easy to understand how local farmers react to them,” says Andriy Yarmak.

He notes that the first early cabbage in the southern regions of Tajikistan and Uzbekistan will be harvested next week. Thus, the wholesale batches will reach the European regions of Russia by the second week of February. “Uzbekistan will ship cabbage, primarily to Russia, since prices are much higher and logistics is easier in Russia. However, I think shipments to Ukraine will also start by mid-February. By the same time, early cabbage from the southern regions of the EU and the Balkans will become available on the Ukrainian market. The main question here is how much Uzbek cabbage will cost after it is delivered to the Ukrainian market? It is also interesting to see how local farmers will react to imports – will they continue to keep cabbage in storages, or will they sharply increase the supply on the market?” Andriy Yarmak explains.

If forecasts of a sharp increase in cabbage production in the Central Asian countries come true, the cost of cabbage delivered to Ukraine and Russia may be much lower than current prices, even taking into account the margin of importers. This will probably make local producers to start selling, putting even more pressure on prices. In April, local early cabbage becomes available on the market in Ukraine. Thus, it is quite risky to count on a further rise in cabbage prices by spring, given the factors mentioned above.

Сообщение Will growers keep the record expensive cabbage in stocks for too long? появились сначала на EastFruit.

During the First International Retail Forum, held within the #FTrade Club 2021 in early December 2021, much attention was paid to new formats of fruit and vegetable retail. In particular, Fedir Rybalko, an expert on the fruit and vegetable market and an international consultant to FAO, made many interesting statements. Together with the FAO and EBRD Project team, he completed the first study of the retail trade of fresh produce in 2021, which revealed a number of noteworthy and unexpected trends.

“The question that has become relevant during the COVID-19 pandemic is whether online sales will become a new trend in the produce market. When we discussed this issue at the conference of the APK-Inform: Vegetables and Fruits project in 2016, it seemed to be a look into a very distant future. However, the share of online sales of fruit and vegetables in Ukraine reaches about 1.5% today, and this segment is growing many times faster than the rest. Dozens of delivery services operating on various platforms were formed in Ukraine during lockdowns, and almost all large market operators entered this segment, trying to take their niche in it,” Fedir Rybalko notes.

He believes this trend will be fundamental in the future, as investments in online sales continue to grow. Kyiv region will remain the driver of online sales in Ukraine in the next 5-7 years.

Nonetheless, taking into account the development of the retail market, Ukraine is not yet of interest to large players in the online sales market who are ready to present innovative solutions, Fedir Rybalko says.

“For example, investments in a project to create a competitive delivery service amount to about $100 million. I believe that the Ukrainian market is not yet ready for these large investments. However, I think such a project can be implemented in 3-5 years,” the expert explains.

In addition, the increase in the fiscalization of non-chain retail continues. In particular, it takes the form of an increase in wages and rental costs. This puts pressure on the business of small retail operators in the market, which are forced to increase their margins and, consequently, prices. According to Fedir Rybalko, it can be assumed that the share of non-chain retail in the market will decrease.

Another important trend Fedir Rybalko notes in the development of the market, is that Ukraine may become attractive for immigrants in the future. “This will happen when the average salary reaches $800 in the country. They will be new consumers of fruits and vegetables, about whom we do not know much so far.” the expert sums up.

Сообщение Online sales of fruits and vegetables in Ukraine will grow, while the share of non-chain retail will decrease появились сначала на EastFruit.

According to EastFruit analysts, only about 5% of the potatoes consumed in Ukraine were sold in 2019 by retailers. Only a little more than half of them were sold in supermarket chains. The rest of the potatoes are sold in markets and at uncontrolled sales outlets, produced by consumers or their relatives and are not traded. For comparison, retail chains sell up to half of all bananas consumed in Ukraine.

Fedir Rybalko, an international consultant to the Food and Agriculture Organization of the United Nations (FAO), disclosed this data from the first  study of retail trade in fresh fruit and vegetables during the First International Retail Forum. It was held within the #FTrade Club 2021 in Kyiv in early December 2021.

“Potatoes are the leader in sales in volume, but they did not even make it to the TOP-5 products in terms of revenue, despite the high price level. On the contrary, bananas became first in terms of sales revenue”, – Fedir Rybalko says.

Why do consumers prefer to buy potatoes in uncomfortable conditions of uncontrolled trade, and not in supermarket chains?

Andriy Yarmak, economist at the Investment Centre of the Food and Agriculture Organization of the United Nations (FAO), believes that it is the supermarket chains who are to be blamed for this. “Obviously, the management of supermarket chains that does not care about such a basic product as potatoes does not realize that they lead to the loss of billions in revenue. Consumers, seeing something dirty and low-quality instead of potatoes on the shelf, go to the market in search of a quality product. We have seen this many times – the prices for potatoes in the markets of Ukraine are always much higher than in supermarkets. So, consumers even in such a poor country as Ukraine, are frightened off not by the price, but by the quality of potatoes in supermarket chains. They are ready to go to the market, waste their time and pay more for better, cleaner and sorted potatoes! ” – says the FAO expert.

The expert notes that dirty potatoes in supermarkets in Ukraine do not even meet the basic state product safety standards, not to mention international ones. The supermarket chains in Russia have abandoned dirty potatoes on the shelves more than 10 years ago, which led to the dynamic development of local production. Therefore, Ukraine has imported potatoes from Russia in recent years.

According to Andriy Yarmak, it is the low quality of potatoes in Ukraine that is the main reason for the periodic collapses in their prices and the unprofitability of growing, alternating with periods of massive imports. In his high-profile blog, he even gives detailed calculations of how many billions both supermarkets and potato growers are losing due to careless approach to potato quality management.

“Obviously, it is the supermarkets that should take the first important step – ban substandard and dirty potatoes on the shelves. I am sure that they will increase potato sales. Moreover, the average bill in the chain as a whole will increase, as buyers will no longer go to the markets for high-quality potatoes. Potato growers will have to improve the quality, since most of potato quality problems occur in the field during cultivation, and even earlier – because of the poor quality of seed potatoes,” Andriy Yarmak says.

We often hear Ukrainian farmers saying that it is too expensive and difficult to grow export-grade potatoes. However, they pay for it with multibillion-dollar losses during seasons of overproduction, as in the current season of 2021/22. After all, Ukrainian potatoes cannot be exported almost anywhere because they do not meet the minimum quality standards.

Thomas Carpenter, a potato grower from Ireland, confirmed the information about the difficulties of growing high-quality potatoes at the largest fruit and vegetable conference “Fruits and Vegetables of Ukraine 2021”. His experience in growing potatoes in Ukraine and the defect rates he obtained on Ukrainian fields compared to what his Ukrainian colleagues receive were a revelation for many.

“Ukraine can and should grow and export quality potatoes,” Thomas Carpenter said during his presentation. EastFruit experts are confident that when the quality of potatoes improves, their share in the sales in supermarket chains in Ukraine will also grow.

Сообщение Why are bananas more important for Ukrainian supermarkets than potatoes and how can this be changed? появились сначала на EastFruit.

According to EastFruit experts, the fruit and vegetable business of Uzbekistan has a number of weaknesses. One of them is expensive and low-quality pallets for fresh fruits and vegetables.

It would seem that nothing can be wrong with pallets, as it is not high technology! What problems can a bad pallet create? It turns out that it is not as simple as it seems, and it will be difficult for the Uzbek produce business to proceed in its development if the pallet problem is not solved.

Let’s start with the cost of pallets. Why are pallets expensive in Uzbekistan? There are no forests in Uzbekistan, wood is expensive, so pallets are also expensive. Pallet prices in Uzbekistan are on average twice as high as in Russia or Ukraine. Accordingly, higher pallet prices translate into lower competitiveness of Uzbek products. Uzbekistan loses from $100 to $200 on each truck only on the cost of pallets. This is the money that growers will not receive as a result, because prices are formed in the market regardless of costs.

The second problem is the weight of pallets and their reliability. Traders say Uzbek pallets are often lighter because local producers are trying to save wood. An Uzbek pallet often weighs around 12 kg, while a pallet of the same size in the EU weighs 16-20 kg. Naturally, if less wood or thinner boards are used, this leads to frequent breakdowns of pallets on the way. For fruit and vegetable products, this is disastrous and the losses here are often huge, not to mention the suffering reputation of a supplier and the country as a whole.

The third problem is the pallet assembly quality. Pallets are often not standard in size. A large error in their assembly is found that either does not allow placing the required amount of cargo in a truck meaning an increase in the cost of transportation, or leads to movement and displacement of the cargo. This is completely unacceptable when delivering fresh fruit and vegetables, since they are damaged and spoiled.

The fourth problem is large delays in the delivery of pallets. The shipment of products is often delayed for several days in active fruit export season just because there are no pallets. The capacities of Uzbek sawmills and factories for assembling wooden pallets are insufficient to meet the demand of exporters. This often leads to the complete failure of export contracts, especially when it comes to such perishable products as cherries or apricots.

Fedir Rybalko, international consultant to the Food and Agriculture Organization of the United Nations (FAO), believes that these problems are quite solvable. “Uzbekistan should attend to the standardization and certification of pallet production, and traders and exporters should carefully check them upon purchase. A good solution would be to create a pooling system for reusable plastic pallets. As a rule, they are much more reliable and durable, they have standard size and weigh much less than wooden pallets,” the expert says.

“It would seem that pallets are not important. However, given the volume of fruit exports from Uzbekistan, the total losses of the country from low-quality and expensive pallets reach several million or even tens of millions of dollars, not to mention reputational losses, which are very difficult to estimate and are the growers not the exporters that in the end pay these millions” says Fedir Rybalko.

Therefore, if you once again see the news that the export of fruits from Uzbekistan is declining, one of the reasons is likely to be problems with wooden pallets, their quality, cost and availability.

Сообщение Low-quality and expensive pallets cause huge losses for fruit and vegetable growers in Uzbekistan появились сначала на EastFruit.

Potential markets for fruit and vegetables in Central Asia are the Baltic countries, as well as Ukraine and Belarus. The dynamics of recent years shows that the growth of imports from Central Asia to Ukraine is in double digits. Greenhouse vegtable such as tomato and cucumber are important for Ukraine and peppers are a hot niche in a long-term perspective.

These ideas were expressed by Fedir Rybalko, an expert of the agricultural market, during a virtual training on the effective organization of promotion and packaging of fruit and vegetables for export. The event was organized by the USAID Central Asia Competitiveness, Trade and Jobs Activity Project (CTJ).

“When trading with Ukraine and Belarus, Central Asia has a competitive advantage – no customs duties. Besides, Ukrainian consumers are loyal to products from these countries. As income rises, consumption of pepper rises. Tomato and cucumber remain an important market segment. Consumers often go to the retail stores where a wide range of tomatoes is available,” Fedir Rybalko said.

The expert explained the main factors affecting the quality of tomatoes:

• Temperature. A certain temperature should be maintained till tomatoes arrive in the retail network or in the markets.

“The temperature during the two-week storage is important. If it is below 10°C, damage to tomatoes may occur. They are normally stored at a temperature of 10 and 15°C. Storing tomatoes at 20°C and above leads to a deterioration in their quality,” the expert explains.

• Postharvest ripening. This is very important for tomatoes, especially when it comes to long-distance transportation.
• Mechanical damage. Producers, exporters, packers must comply with the technology of preparing goods for export, avoiding mechanical damage. Mechanical damage will lead to defects, and to losses respectively.
• Diseases. Diseases can occur not only during the production process, but also when technological operation protocols and disinfection procedures are violated. The most common tomato diseases are anthracnose, late blight and fusarium.

At the same time, the expert emphasized that there are certain niches (tomato segments) that are growing due to the trend and consumer preferences: smaller size of tomatoes and packaging, cocktail culture of consumption (tomatoes are used as a snack).

“The Dutch came up with the idea of ​​wrapping tomatoes in a glass with a semicircular lid about 15 years ago. In fact, it is an element of the snack culture. Convenient packaging reduces the time of consumption, which attracts buyers and stimulates demand,” the expert noted. 

According to the expert, cucumber is to a large extent a crop for the domestic market, but Spain, Turkey, Iran are quite big exporters of cucumbers. The storing capacity of cucumber is low due to the saturation of the tissues with water.

“The optimum temperature for cucumbers is 10-12.5°C. The required humidity is 95%. Fusarium is the most common disease for this culture,” Fedir Rybalko said.

The expert also added that pepper is a fast-growing crop, but rather difficult to grow: “It takes several years to get the necessary experience in the production of this crop. The optimum temperature for storing peppers is 7.5°C. Acceptable humidity is > 95%. The most common diseases are altenaria and gray rot. Sorting lines must be provided  with additional soft materials, which, when sorting peppers, reduce the mechanical damage: cuts, pressure.”

The main requirements of export markets:

– Certified by Global GAP, SMETA, GRASP.

– Certified Euro pallets.

– Logger (temperature control sensor in transit).

– Plastic packaging with modified atmosphere.

“Plastic bags are important for cucumbers and peppers. All products in the box should be tied in a plastic bag. It creates a microenvironment that releases carbon dioxide and maintains moisture. This solves the problem of eventual temperature variation” Fedir Rybalko concluded.

Сообщение Greenhouse vegetables from Central Asia – which ones and where to export? появились сначала на EastFruit.

Our first article detailed the positive outcomes for the Moldovan village of Costesti and factors leading to their farmers’ success and cooperation. Our second article focused on the technologies for growing and pruning table grapes, including why table grape growers are switching to pergola technology, using special film to cover grapes to protect from rain and hail, and using greenhouses to grow early grapes. In this third and final installment of our series, we will discuss in detail the technologies for storing grapes in refrigerators, size of refrigeration chambers, types of containers and packaging, and demonstrate what a fully automatic production line of veneer boxes looks like.

As you may recall, the 12,000 residents from the Moldovan village of Costesti generates about $30-40 million in proceeds from the sale of grapes, plums, cherries and other fruits and is actively developing cooperation. Their construction of refrigerators for storing late grapes and plums in the village, according to the Head of the Moldovan Table Grape Producers and Exporters Association Ion Sula, began only 15 years ago. Many mistakes were made back then. One of the most common beginner mistakes is building very small refrigerators. As a result, the cost of storage is too high, which negatively affects the return on investment.

Andriy Yarmak, economist at the FAO Investment Department, notes that at the first stage of refrigerator construction for storing table grapes and fruits in Moldova, they were built not by producers, but by resellers and traders who bought table grapes cheaply during harvesting, stored them, and then sold them when it rose in price. This business worked great while the number of storage facilities was insufficient, but it gradually became less profitable.

“The storage for fruits and vegetables is not a separate business, but an integral part of the business of growing and selling fruit and vegetable products. When I say this, especially in countries where refrigerators are in short supply, many grin and they say, ‘we know better – we personally make good money on this.’ However, over time, the storage only grows, and this business dies. Therefore, storage facilities inevitably pass into the hands of producers and their cooperatives. Now, if you grow apples, plums, grapes, onions, potatoes or any other vegetable or fruit subject to long-term storage on an industrial scale, then you simply have to consider not only the cost of planting an orchard or vineyard per 1 hectare, but also the cost of storage per 1 hectare… Moreover, it is necessary to layout the cost of the business as well as the line for sorting, processing and packaging products. And these investments, in most cases, are more than the cost of planting a garden, which makes the cooperation of farmers even more urgent,” states Andriy Yarmak.

During our 2019 study trip to Moldova, EastFruit experts managed to visit the Eco-Fruit Farmers Cooperative. Cooperative members jointly store and sell their produce and provide storage services to other farmers. The cooperative has its own modern storage facility, its own sorting and packaging of products, as well as seven trucks to independently deliver products for export and to consumers in the domestic market. In Moldova, the state returns 50% of investments in storage facilities to cooperatives from the budget, but only after the project is put into operation.

The six members of the cooperative grow not only table grapes, but also plum and cherry orchards. Cherries are sold after refrigeration and plums after storage. In the cooperative’s fruit storage, each chamber holds 80 tons of products, which is equal to four truckloads. In addition, there are specially equipped pre-cooling chambers where 20 tons of grapes can be cooled at a time.

In the video below, you will see what the pre-cooling chamber looks like and how grapes are stored in Moldova.

Fast cooling is achieved thanks to special fans that direct the flow of cold air and remove warm air outside the chamber. The grapes are cooled from approximately 40 degrees Celsius down to 4-6 degrees in just four hours. Then, the grapes are cooled even further to zero degrees in order to be stored for a long time. Additionally, different programs and storage modes are used for different varieties of table grapes.

The modern consumer is more willing to buy table grapes if the branch remains green even after storage because it’s viewed as an indicator of the freshness of the product. Accordingly, the same requirements are imposed by supermarket chains and importers. Therefore, in order to keep the branches green, local producers are actively adapting growing technologies and storage regimes. Also, they are using special bags with sulfur to prevent the development of fungal diseases on grapes.

The use of bags with sulfur for storing grapes is a fairly new trend in Moldova, despite the fact that they have been used for a long time in Central Asian countries as well as the United States and Chile. The vast majority of producers in Moldova use the older method where treatment with sulfur dioxide is carried out directly in the chambers every week. After processing, sulfur dioxide is discharged outside the chamber through special pipes to avoid corrosion of sandwich panels and refrigeration units.

However, the cooling units in the chambers still suffer from sulfur leakage. To prevent the units from corroding, stainless steel is used in Moldova. Although they are expensive, they provide durability to refrigeration equipment.

The grapes are usually harvested in veneer or plywood boxes. The grapes are stored and shipped to consumers in them as well so the need for such boxes in the village of Costesti is very high. EastFruit managed to see a fully automatic line for the production of veneer boxes in operation. The cost of a new line, according to experts, is estimated at around 300,000 euros. Such lines are used in EU countries where labor costs are high. But in countries with low labor costs, as a rule, cheaper semi-automatic lines prevail.

You can see how a fully automatic line for the production of veneer and plywood boxes works in Costesti in the following video:

Fedir Rybalko, Head of the Ukrainian Horticultural Association (UHA) in 2019, notes that the veneer box has its advantages, but it also has disadvantages. For supermarket chains in particular, such packaging is not very convenient because it must be constantly removed from the store and then bear the costs of disposal. “In the EU, this problem is easier to solve. There, due to the absence of borders between countries, pooling systems for recycled plastic containers work well. It is more environmentally friendly and significantly cheaper for both the manufacturer and the supermarket chain. It is still difficult for Moldova to implement such a system, since almost all grown products are forced to cross borders, and it is very difficult to resolve the issue of returning containers, both legally and technically,” says Fedir Rybalko.

Speaking about the development prospects of the fruit business in Costesti, Yuri Khurmuzaki, Deputy Director of the Federation of Farmers of Moldova (FARM), talks about the beginning of effective farmer cooperation as the first important qualitative leap in the development of production and marketing of fruits in the region. In his opinion, the cooperation of producers will increase the productivity of vineyards, the quality of products, their safety and presentability, and hence the price. At the same time, storage costs will decrease due to the enlargement of refrigerators and their modernization.

“If you get more high-quality products, store and sell them better, and at the same time reduce costs, then you earn more. We at FARM think that it is thanks to cooperation that Moldovan grape producers will be able to increase their incomes, which will allow them to start large-scale technological re-equipment, find funds for investment in training and, most importantly, in marketing. We think that Costesti will eventually become a kind of business school for all table grapes growers in Eastern Europe and Central Asia. After all, we are always happy to share our experience and are open to continue learning from others,” says Yuri Khurmuzaki.

The EastFruit project, FAO and the EBRD are grateful to the village of Costesti for their hospitality and openness as well as their desire to share experiences with producers from other countries. We wish this unique village further prosperity and development.

Read also:
Grape capital of Eastern Europe – Costesti, Moldova: village of multimillionaires (part 1)
Grape capital – Costesti, Moldova: protective coverings, pergolas and greenhouses (part 2)

Сообщение Grape capital – Costesti, Moldova: storage and cooling plus veneer box production (part 3) появились сначала на EastFruit.

Recently, the question of how to bring the Ukrainian economy out of the shadow has been increasingly raised. Authorities are coming up with new methods of struggle and incentives to get the business out of the shadows. However, almost every government is more interested in repressive methods, rather than incentives for removing them from the shadows.

In addition, the fruit and vegetable industry is too small in the eyes of officials to seriously delve into its problems. In addition, it seems like this precisely because the production and trade in vegetables, fruits, potatoes, and berries is almost completely in the shadow.

Together with the Ukrainian Fruit and Vegetable Association, we have repeatedly proposed several very simple approaches to introducing incentives for removing a significant part of the fruit and vegetable industry from the shadows. These approaches can be beneficial to both the state and business.

In this blog, I want to offer detailed information about the six main indicators that characterize the maturity of the fruit and vegetable industry of any country. Based on these indicators or KPI, specific incentives can be developed for the development of the industry.

Indicator No. 1 – Percentage of retail chains in sales of fruits and vegetables. For the fruit and vegetable business of Ukraine, the domestic market is the foundation of the entire industry, since manufacturers earn much more money from domestic sales than from exports.

The domestic market for vegetables, potatoes, fruits, and berries forms production trends for most producers and wholesale companies. However, the shadow domestic market for different cultures, depending on the season, is, according to my estimates, from 60 to 80%. Therefore, retail chains do not yet have such a market share, which will quickly and significantly change the structure of fruit and vegetable production.

As soon as the market share of retail chains in sales in any country exceeds 50%, sharp changes begin to occur in the entire supply chain. I believe that in the next three years, the share of retail chains in Ukraine can exceed 50% only if the population’s income growth continues at a rapid pace, and also if the rural population continues to migrate to large cities. This will lead to increased competition and higher quality standards for the entire legal produce business.

In order to achieve a 50% of sales through supermarket chains, which means taking several billion hryvnias out of the shadows into the legal field and, therefore, getting significantly more taxes from it, the Ukrainian government needs to do two simple things that have nothing to do with repression:

1. a) reduce the VAT on fruits and vegetables by half – this will make working with cash unprofitable, and legal payment of taxes profitable. In addition, this will stimulate consumption, as products in networks will become more accessible to consumers and will increase its safety and traceability. By the way, in most EU countries, VAT on products, or at least vegetables and fruits, is lower than on other goods, and even Russia reduced VAT on fruits and vegetables in 2020;

1. b) support Bill No. 0856 on agricultural cooperation, developed by industry associations with the support of the FAO and the EBRD, which will allow small and medium-sized professional producers to legally work together and increase direct deliveries to such large buyers as supermarket chains.

Indicator No. 2 – Export Development. Currently, the export of fresh fruit and vegetable products is the least developed segment of the fruit and vegetable industry, with the exception of apples, blueberries, and greenhouse products. I do not mention nuts, as this is a completely separate segment and a separate topic, and most of the nuts exported from Ukraine are not grown industrially.

Ukrainian farmers produce a much wider range of fresh food products that have good export potential, but actually export only large quantities of blueberries and apples. Therefore, as the saturation of the domestic market increases, significant funds will need to be invested in promoting fruit and vegetable exports. The development of trade through retail chains will also stimulate exports, as it will help to raise quality and safety standards. On the contrary, export development allows you to increase sales in the network. As in the previous case, it would be logical to stimulate exports by creating modern civilized conditions for the cooperation of gardeners, vegetable growers, and potato growers.

Indicator No. 3 – Import Development. You should not be afraid of import, because not all vegetables and fruits can be grown in Ukraine due to climatic restrictions. The growth of population incomes, as well as the constant growth in the consumption of fruits and vegetables, always stimulate the development of imports of fruits and vegetables.

Every year, new companies enter the Ukrainian market, but the largest world and European companies are still afraid to invest even in the opening of Ukrainian representative offices, not to mention direct investments.

The development of imports and the involvement of importers in the domestic market can also contribute to the development of exports. Indeed, importers are often also exporters, and they will find new opportunities within the country, if, of course, we can interest them to work in the Ukrainian market.

Indicator No. 4 – Unified quality standards. The Ukrainian fruit and vegetable business needs to introduce uniform quality standards. This is an important aspect of the development of a civilized domestic market, as well as export. The main problem that impedes the implementation of common standards is corruption in the entire supply chain. Corruption can be overcome with the help of technologies and incentives such as reducing VAT and developing cooperation. Therefore, the active use of decision-making automation, when accepting or sorting fruits and vegetables by quality, will remove the human factor and significantly reduce corruption risks.

Indicator No. 5. Market infrastructure development. In recent years, an increasing number of Ukrainian fruit and vegetable companies have been investing in their own development and creation of modern market infrastructure, which is already radically changing the image of the fruit and vegetable industry. However, significant problems related to acceptable quality roads, the sea, rail, aviation, and river logistics, the quality of storage facilities, the shortage of sorting lines and their technological level continue to exist throughout the country. The solution to these issues will create the basis for the long-term development of business in Ukraine, and to solve these problems, the state does not have to pay for the development of infrastructure. There is a need to create opportunities for its development.

An example is the formation of conditions for cooperation between farmers which will make investments in the creation of storage facilities and the purchase of sorting lines more accessible for each individual farmer since many of them cannot afford this themselves.

Market infrastructure also includes such important elements as access to market information and the development of wholesale markets. In this regard, Ukraine has a good position in comparison with many other countries.

Indicator No. 6 – Quality packaging. A developed market for modern and safe packaging, which preserves the product well and helps to sell it, is very important for the development of all participants in the existing supply chain in the fruit and vegetable industry, from a small producer to an end consumer.

At the same time, in Ukraine over the past 25 years, a used banana box has been used as a market “standard” for packaging. In such boxes, almost all products sold to markets and even part of products are sold to supermarket chains. That is about 80% of all fruits and vegetables.

Naturally, the greater the percentage of product sales through supermarket chains, the less demand will be for a used banana box. If we look at the world packaging market, then now it is even moving away from disposable plastic, to which the Ukrainian market is just beginning to come. The trend for packaging fruit and vegetable products in biodegradable and ecological types of containers, as well as the use of reusable returnable containers (pulling), is relevant. In Ukraine, several supermarket chains also use the pulling system successfully. However, all its advantages are not used because it can work not only in networks, but also in markets, and even in international trade. 

If we bring a small intermediate result, we can note the average level of maturity of the Ukrainian market and huge prospects for its development. A reduction in VAT on fruits and vegetables and the development of cooperation in the country will give an incentive to legalize the turnover of fruits and vegetables, increase safety and quality standards, sales in networks, and consumption of products by the population of Ukraine, and develop exports, infrastructure and modernize approaches to growing, packaging, and marketing.

These principles are universal and can be used not only in Ukraine but also in other countries. I think that this can be very relevant for Uzbekistan, Tajikistan, Moldova, and other countries that aim to develop vegetable, fruit, and berry industries.

Сообщение Bringing the fruit and vegetable sector of Ukraine out of the shadows: six vital KPIs of the industry’s maturity появились сначала на EastFruit.