Last year, Ukrainian producers exported agrarian products worth a record $19 billion. And although the lion’s share of the supply remains raw export, domestic ready-made food products can already be found on the shelves of foreign retail chains. But for Ukraine to obtain the prestigious status of a “global supermarket,” farmers and the government still have a lot of work to do.
The exports of agricultural products from Ukraine have been growing for the fourth year in a row. Last year, farmers set a new record, selling abroad products worth $18.8 billion, which is 5% more than in 2017. The inflow of foreign currency not only helped farmers invest in the development of the national agricultural sector, but also supported the hryvnia exchange rate.
The export of Ukrainian foods to the European Union in 2018 grew by 9% compared with the previous year – to $6.3 billion.
And although grains still comprise the bulk of Ukrainian agrarian exports, the growth of this indicator was also possible due to higher value-added products.
We are talking about poultry meat, tobacco, and even confectionery. Also, domestic producers actively supplied to foreign markets sunflower and butter, honey, chocolate, and bakery products. The main competitive advantage of domestic products, which allows them to occupy a prominent spot on the shelves of international retail chains, is a favorable price-quality ratio.
At the same time, speaking of the success of Ukrainian producers in conquering foreign markets, we should not forget that the share of ready-made food products in the total volume of agricultural exports is still quite low. According to analysts of the Ukrainian Club of Agrarian Business (UCAB), at the end of last year, this figure was only 20% of the total commodity structure of Ukrainian agriexports.
“Over the past five years, exports of finished products from Ukraine ranged from $2.9 billion to $3.5 billion. In 2018, exports of finished products from Ukraine amounted to $3.7 billion, which is 5% more than in the 2017 year,” Daria Hrytsenko, head of the analytical department at UCAB, told UNIAN.
Contrary to the popular opinion of many consumers, the main problem of domestic products abroad is not quality – Ukrainian products, which are exported, have long met international standards. A really serious obstacle is the inability to adapt products to the tastes of a demanding foreign consumer. Success depends on competent marketing, understanding the specifics of local markets, and seeing in advance how successful a product could be in a particular region.
It is important to understand where the goods will be sold as the promotion strategy and even the labeling of the packaging depend on this.
The course toward new markets
So what markets show most demand for Ukrainian food products and the taste of which consumers should domestic producers take into account primarily?
Starting in 2014, after the start of Russia’s war against our state and the loss of the Russian market as the main one, Ukraine faced the challenge of diversifying agricultural exports. Thanks to the efforts of Ukrainian manufacturers and the support of the relevant ministry, over the four years, our country coped well with this task.
One of Ukraine’s largest egg producers, Oleh Bakhmatiuk’s Avangard Holding, faced the need to search for new markets. According to the businessman, in 2015, the company practically ceased to exist due to the loss of a significant share of assets and sales markets in Donetsk and Luhansk regions, and Crimea. Therefore, the search for new development vectors has become a matter of company survival.
“We have decided to reorient ourselves to foreign markets. We export our products to Iraq, the UAE, Qatar, Saudi Arabia, Bahrain, Kuwait, and Hong Kong, now we are planning to enter the market of Singapore, and about twenty African countries. If we manage to develop and balance, I expect that Avangard will return to its previous level in two or three years,” Bakhmatiuk told UNIAN.
There are many examples where Ukrainian manufacturers shifted away from the market of the aggressor state and began to build successful business relations with partners from other countries. According to the State Service for Food Safety and Consumer Protection, national producers in 2018 alone opened 85 new markets for their products.
At first, after the reorientation of Ukrainian exports, Asia and Africa became the main consumers of our food products. Thus, according to the UCAB, in the period from 2014 to 2018, food supplies to China with a population of about one and a half billion people increased almost sevenfold, and that to the very promising market of Japan with a population of 127 million people — from $741,000 in 2014 to $76.9 million in 2018.
According to our agrarian ministry, in China, in addition to grains, Ukrainian sunflower oil was the most active, in Japan, tobacco, condensed milk and fruits and vegetables were consumed.
At the same time, the priority and the most respected market for Ukrainian exporters remain the EU, which, despite the increase in supply dynamics, still remains inaccessible to many. First of all, that’s due to the fact that a spoiled European consumer pays attention, first of all, to an attractive, bright product – the one in a catchy package, with a witty advertising campaign. Namely, the inability to promote and advantageously position their products is a characteristic feature of the majority of Ukrainian manufacturers.
Exporters facing problems
The agrarian ministry draws attention to the fact that it is poor marketing that is the main problem of Ukrainian exporters.
“Competition in the global market is very tense, and you need to promote your products. You need to go to exhibitions, you need to develop a marketing campaign, you need to promote the brand Made in Ukraine,” emphasizes Olha Trofimtseva, Acting Minister of Agrarian Policy and Food.
According to her, Ukrainian food products are in demand abroad, and foreign consumers are interested in buying them, but to this end, it is necessary that the products are properly presented.
At the same time, high-quality marketing costs a lot of money, which domestic manufacturers may not have. And here lays another obstacle in the way of Ukrainian exporters – the lack of financing and risk insurance from the state.
“The more Ukraine increases the exports of ready-made foods, the more problems arise for producers. One of them is the lack of risk insurance. While in most countries insurance is provided by the state, there is no such practice in Ukraine. And the domestic producers cannot export major batches of goods without a guarantee. The world, accordingly, will not cooperate without an advance payment,” said Bohdan Shapoval, head of the UFEB (Ukrainian Food Export Board).
It is important to note that Ukraine is already working in this direction. It is for additional financing and insurance of Ukrainian exporters that the government decided in 2018 to create an Export Credit Agency. Its main task will be lending, as well as insurance of export loans and transactions against risks. In addition, the newly created agency will be able to provide organizational, informational and analytical support to manufacturers who would like to get their products to foreign markets, but do not yet know where to start.
The agrarian ministry hopes that the Export Credit Agency can start full-fledged work as early as 2019.
Search for new opportunities
The export of value-added agricultural products in 2019 will only increase. According to experts, the most promising export products will be butter, soybean oil, and honey.
However, an increase in the supply of this group of goods will still drag behind the growing rate of commodity exports. For example, according to the forecasts of the relevant ministry, thanks to a record harvest last year, farmers will supply 49 million tonnes of grains to foreign markets in 2018-2019 marketing year (MY, July 2018 – June 2019) against 47 million tonnes in MY 2017-2018.
Thanks to raw exports, Ukraine has long secured the status of a global breadbasket. However, the export of grains alone will not let the country earn much. It’s finished products that can bring large foreign exchange earnings, and our state has the potential to move in this direction. But to achieve success, both the state and the producers need to work hard.
First of all, Ukrainian manufacturers should be explained how to promote their products in foreign markets. Ukrainian higher education should also take part in strengthening the country’s export potential by starting to train marketers with an understanding of global markets trends.
In addition, it is necessary to complete the creation of an Export Credit Agency with a necessary amount of funding to support national producers and exporters.