Ukrainian Organic Agri: through difficulties to success

To date, Ukraine is the 4^th among countries-importers of organic agriproducts to the EU, but is this position high enough? According to the expert, in terms of the sales volumes Ukraine is not even one of the TOP-10. What is the reason, and why Ukraine has not identified itself on the global market yet as producer and as exporter of organic products? Why do importers want to consume the raw materials more than the products with the added value, what are the obstacles, and what should Ukrainian producers do, in order to improve their positions on the global and domestic markets, APK-Inform Agency asked the Director of LLC Organic Standard, Sergey Galashevskyi.

LLC Organic Standard is the first Ukrainian certification agency, which provides inspection and certification services of organic production. It was founded in 2017, in terms of the Ukrainian-Swiss project “Organic certification and development of the organic market in Ukraine”.

To date, the company provides certification of organic production in all regions of Ukraine, and also in Kazakhstan, Moldova and Belarus.

— Sergey, what are the trends on the global market of organic products in recent years, and what is the position of Ukraine?

To date, we can note that the global organic market increases steadily but not drastically — for the last 20 years the growth varied within 7-15%. But I like such global tendency. Considering this increase, the share of Ukraine is rather small, but we can distinguish another figures. For example, Ukraine is the 4^th largest supplier of organic products to the EU, after China, the Dominican Republic, Ecuador, but the last two countries have the same share as Ukraine. In fact, we are among these countries. The volumes are measured by thousand tonnes, and if Dominican and Ecuador offer bananas, pineapples, etc, Ukraine offers mostly corn, wheat, soybeans, and other grains and oilseeds. That is why, we are definitely the 4^th largest producer and exporter of organic agriproducts. But if we look at this in other way, Ukraine is No1 on the European continent. Among countries of the former Soviet Union, we are ahead of Russia and Kazakhstan, but taking into account the tendencies on the markets of these countries, they are becoming rather dangerous competitors for us.

— What is the general geography of the exports of organic products from Ukraine and what is the demand of the importers — on raw materials or the products with the added value?

In terms of the structure of the Ukrainian exports to the EU countries, which total nearly 270 thsd tonnes per year, grains form the largest share. But it is not very prestigious to export many and cheap. Considering the market peculiarity, Ukraine actually is not even one of the TOP-10 in terms of the volumes of sales, in other words, in terms of volumes we are 4^th, but in terms of the profit — out of the TOP-10. On the one hand, there is a solid performance of trade, and it this should be a reason for congratulations, but it is not good, because it appears that we sell cheap raw materials.

Apart from the EU, there are large deliveries of organic agriproducts to the Northern Africa, but these countries usually purchase not grains, but sunflower oil, soybeans, etc. If we speak about organic soybeans, its export from Ukraine increases but it is expected that this and next year the demand will decline and the prices can also decrease slightly, because the EU several years ago launched the projects aimed at the increasing of the domestic production, in particular of soybeans. But the experts believe that the market will go back on track with time.

The Asian countries are the 3^rd main buyer of the Ukrainian organic products. If we speak about China, there are separate deliveries to this country, but in this case we speak about the processed products, including those ready for realization. At the same time, many experts forecast the growth of the organic market of China and respectively of the exports to the country.

Generally, in the structure of the organic exports the share of the products with added value continued increasing. For example, Ukraine exports ice-cream to the EU and Asian countries, dairy products — to the UAE, but the volumes are not large. There is a growth of the exports of the processes fruits and vegetables. Among grain by-products, Ukraine increases the exports of processed millet and oats, including millet groats and oat flakes. These are those products, which exports exceed 1`000 tonnes. It is not a high figure compared to the exports of non-organic products, but it is gradually growing, and Ukrainian suppliers are going to increase it.

Now there are so-called additional controlling measures, which were implemented by the European Commission to Ukraine since 2015 after the big scandal, connected with the deliveries of the Ukrainian organic cake with the significant pesticide residues. There were sanctions implemented in order to examine nearly all organic product from Ukraine, which included buckwheat, oats, millet and the products of processing. This has affected both the net cost of the produce (owing to the additional certification, etc) in Ukraine and its import.

But this year we were able to reach some agreement concerning the additional control of Ukrainian organic products and to reduce the list of the products, that must be additionally examined.

— We were talking more about the exports of organic grains and soybeans. Together with this Ukraine produces organic sunflower oil. How is this product promoted on the global market?

Ukrainian sunflower oil is a processed organic product No1 in terms of the exports from Ukraine, and the export volumes are estimated at more than 11 thsd tonnes in 2018. The main volumes are delivered mostly to the USA, but there is also some exports to the EU and Asian countries. I believe that this product is perspective moreover, there is a sable demand on sunflower cake.

— If the pesticide residues became such problem for organic producers, how to minimize them, and how Organic Standard controls this process?

In terms of the certification and the organization of the control, we examined the products for the pesticide residues in accordance with the standards of the EU. Annually we run more than 1000 tests and of course in such conditions we will see some pesticides residues — which is nearly 10 % of cases.

If the product contains the residues of the pesticides, it is necessary to run an examination and to find their origin. In particular, pesticides can be deposited unintentionally, because of other factors, such as historic contamination, natural content, products used for the cleaning, cosmetics, etc, the presence of which usually is not a violation of the norms.

Sometimes there are pesticides found, but those that for example demonstrate not the excessive use of it by the operator. It is in an area where it is impossible to exclude the transfer from the neighboring and even from distant fields by the air. At the same time, the modern laboratories are very sensitive and can distinguish the very little content of the pesticides. In particular, we often can find glyphosate — the agent spreading by water, soil, air.

Also, we often find the plant protection products which are used while the storing, in 10% of the cases. Here can be two ways — the operator breached the standards and used prohibited pesticides in order to control the pests, or the operator did not breach the standards while using the pesticides in the empty storage, but did not clean it enough.

If we assess various cases, we can say that the producers can produce the product, but cannot preserve the crops from the risks and in a quality state.

The possible way for the operator to protect organic products from contamination by the prohibited agents is the non-contact professional storing in special containers, bags, etc.

— This means that the issue of the storing, delivery and the logistical infrastructure in general is very important for development of the organic market, and influence the general export figures.

When we maintain control of the organic production, we evaluate the risks on different stages, in particular, the delivery chain. Of course, the safest delivery means is the transportation of the packed and sealed goods (for example in big-bags) from the farm directly to the buyer (usually using the auto-transport). Also, the delivery can be provided in containers, but it is important that the goods are packed and there is no possible contamination. Of course, the delivery in bulk is the most “dangerous” way of transportation, but our clients do not use it.

Unfortunately, Ukraine has not identified itself on the global market yet as the recognizable supplier of organic products. There is still a stereotype that Ukraine is a supplier of the cheap raw materials. Because this reputation has been forming for many years. But for example, the reputation of Ukraine as the TOP supplier of organic millet to the EU is defined, but only 5 years ago.

— During our conversation, we often return to the organic products of processing. In Your opinion, what can be a new niche of Ukraine on the market?

I believe that Ukraine could take the niche of the feeds. Our country is an important supplier of raw materials for fodders, so why can’t we produce the multicomponent feeds by ourselves?

— In Ukraine, the organic market is actively growing. How quickly grows the number of new operators, and widens the fields for organic production?

The number of organic operators increases by 10% annually, which means nearly 100 new operators every year. The lands do not increase and stay mostly on the same level. Why? Because there are many new small operators, in other words small producers of berries or bee farmers, who undergo certification usually without their lands.

However, there is a target to reach 1% of the lands for organic product, and I suppose that this goal is rather adequate and real. The market of land could be a crucial factor for its realization. I’m not an expert of the land market but I know that if the operator wants to be an owner of the land, the desire to produce organic can grow. Because the organic production would mean the long-term strategic approach and care for the land. That is why the ownership will definitely enhance the desire to be organic.

— What can You say about the regulatory framework of the organic market in Ukraine?

It is necessary to have a strong regulatory framework, because the law defines the rules. Moreover, if we look at the TOP-10 of countries-suppliers of organic products to the EU, among these countries only Ukraine has not implemented the law. If the law doesn’t work so this country is estimated to have more risks, because it doesn’t have the state control. In other words, everyone understands that it needs more attention and I hear it constantly from the international specialists.

Today, until it has not been implemented, Ukraine has no operator, which corresponds to it. At the same time, if the law works, all the producers which aim to be organic must correspond to it. The term “organic product” is protected and it can be used only if the product corresponds to the law. Also, the law predetermines the regulation of the marking of the imported goods to Ukraine.

— We have discussed many interesting question. In Your opinion, what steps should Ukraine take for faster development of the organic market?

The country must reduce the risk factors for real. I believe that an important message here is that Ukraine must develop the domestic market, because it is a signal to the importers concerning the riskiness of the market. When the country consumes organic products itself, it is less risky as a supplier.

The domestic market in Ukraine has been steadily progressing, and it can be seen by the supermarkets’ range of the products. We have analyzed organic products on the domestic market on various categories. And we can conclude that at least in Kyiv, there are enough producers of organic products. When estimating the domestic market, the turnover of the market in 2018 totaled 600 mln UAH (excluding the imported products), and the highest percentage stands for dairy products (nearly 75%). The second position is occupied by the grocery items (nearly 17%).

Also, it is important to minimize the risks of the delivery chain. Today there are some attempts to organize solely organic transshipment in seaports, without the risks to mix or contaminate the products. I suppose that this is a right way to reduce the risks. And as soon as the risks are reduced on the various levels — on regulatory and logistical — the reputation of Ukraine will improve.

Interviewed by Elena Cherednichenko, APK-Inform Agency