Ukraine needs to improve quality, business practice and marketing skills to cooperate successfully with the EU - Agritrade Ukraine

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APK-Inform

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The European Union develops “green” agriculture and it is aimed on further increase of consumption of organic products. On the other hand, Ukraine tends to supply its organic products to the EU market. However, at the moment, Ukrainian companies have a number of problems that need to be solved for the development of trade with the EU. In an interview with APK-Inform, the Project Leader of Agritrade Ukriane, Andre Pilling spoke about what the problems that Ukrainian farmers should pay attention to, what tasks should be solved by organic suppliers, etc.

- The European Green Deal calls for cut of pesticide use by 25%, fertilizers and antibiotics by 25% to 2030. Will it affect the production of major grains and oilseeds in the EU?

- This question is quite extended. It all depends on the specific crop, on the region where it is cultivated, on the spread of a disease in this region, even on weather conditions to the negative effects of which different crops have different resistances.

By reducing the use of pesticides, herbicides, fungicides, farmers understand the risks, they understand that the production may be lower, as the plants become more vulnerable. However, it is necessary to grow more organic products and increase the production of healthier foods, even though there is a potential decline in crop production. This is the preference of the European Green Deal. Moreover, lower application of pesticides, herbicides, fungicides reduces damage to the soil, reduces the residual level of chemicals in crop products and, accordingly, cut the amount of chemicals that go into the bodies of the end consumers.

At the same time, a possible decrease of production, for example, of grain, or a deterioration of its quality in the EU amid the transition to "green" agriculture is a chance for Ukraine to increase exports in this direction.

- Based on the implementation of goals of the European Green Deal, how the experts estimate the long-term development of the organic market

- The organic market is still a niche market. For example, in Germany, the annual retail market turnover is more than 139 bln EUR*, of which the organic segment accounts for only 15 bln EUR. However, the demand for organic products will continue to grow. Awareness of healthy nutrition, reducing soil pressure, reducing the use of agrochemicals are an important issues, so the demand for organic products will certainly continue to increase.

And there is potential for Ukraine. For example, a few years ago we have honey importer who wanted to buy organic honey in Ukraine, not from China. The company was ready to pay double price. Demand for some products is so high in the EU that it is impossible to cover it with domestically produced goods.

In Ukraine, only 1% of the agricultural land is allocated for organic production. But this segment has high potential and needs to be developed. Especially considering geographical advantages of Ukraine. It would be able to cover the growing demand in Europe. This would be an excellent synergy between the biggest retail market in the EU - Germany - and the biggest European agricultural producer - Ukraine.

But Ukrainian producers need to act faster. In a free market economy, if you have increased demands, supplies should also be there. Ukraine should react to this demand, otherwise competitors such as China and the countries of Central Asia will jump in and will produce organic products.

- To what extend Ukrainian organic products can be competitive on the European market, taking into account the market situation?

- Ukraine is a global champion in the oilseeds, sunflower, grain, generally in raw material. But we have to look a little big deeper here, because when it comes to added value products, Ukrainian brands and products in the supermarkets, we still do not see a lot of products labeled being organic or labeled being Ukrainian. There are several points I want to draw your attention to. First of all, we know that a lot of products are traded via intermediary states. For example, we have mushrooms on German wholesale market and they are Ukrainian, but when we ask where you buy it, they say from Latvia, Czech Republic or Poland. The same is for barriers. Many Polish companies buy a lot of Ukrainian products, making nice packaging and in the supermarket you do not see it is Ukrainian. That is a big problem. Ukraine is not only exporting the product as a raw material, but also the added value products to intermediaries such as Poland. And these intermediaries then make good profits by selling these products in the European retail market.

I think Ukraine should really invest into added value into fast moving consumer goods. We are making several analyses, one of the competitiveness analyses, where we see on all products and commodities who is the biggest importer and whereas Ukraine is highly competitive. Ukraine potentially can do successful business globally, yet it is not touched. So. my recommendation is that really Ukraine should use a chance of the deep and comprehensive free trade agreement and Ukrainian food industry should really be more pro-active speaking with retailers, going to the foreign markets and no just selling raw materials because money is made in processing and higher developed products.

So, going back to the level of competitiveness, at the moment Ukraine is a weak player on the European retail market. But we are working on it despite the fact that we are a quite small project. Every week we have so many enquiries from companies, which want to sell to Europe. And there is another big problem with the promotion of Ukrainian goods. We made a study and in 3 years we found out that Ukrainian business was missing 3.5 thsd B2B meetings. The business wants it, many Ukrainian companies want to start exporting to Europe, but they need help with establishing contacts. However, no one provide this help, associations, etc. do not provide the necessary support. Moreover, there are no marketing programs to promote Ukrainian goods, which is necessary for the development of exports.

- Today the EU is one of the largest buyers of Ukrainian agricultural products. If we are talking about quality, safety and sustainability of Ukrainian products, what should our farmers pay attention to stay competitive on the European market?

- First of all, I would like to note that EU is the one of the best regulated food market in the world.  We have high standards when it comes to quality and food safety. So, Ukrainian companies, if they want to enter the European market, need to maintain and correspond to these level of quality. It is necessary to get the quality certificates. Our project made a quality infrastructure gap analysis where we identify what is present in Ukraine. Still three are companies that do not know the requirements of the EU. In addition, there are not enough laboratories or other third parties in Ukraine to carry out the audit, which would help in the process of achieving the necessary quality standards. Perhaps Ukraine needs to study the experience of Western countries and adapt their system. If your product corresponds to the needs or regulations of the EU, then you can supply it on any market of the world - China, America, etc.

So farmers should really try to implement and keep very high quality standards. Image of Ukraine still has some problems. Back to the past, there were some frauds. For example, we had apple suppliers that delivered apples to juice companies in Germany. It was organic apples. And the first layer was all free of pesticides and organic. But the rest had very high residue levels. So, the buyer could not produce juice for German supermarket. And the problem is that for this German buyer it is not just a specific company, but the image of the whole country, it is like Ukrainian experience.

Another very important problem that Ukrainian companies need to eliminate in order to be able to work with buyers from the EU is a violation of the terms of the contract. I can give you one more example. We had importers that came to Ukraine, they invested money, make contracts for the import of blueberry and the price was agreed for 6 months. When the weather became bad in Ukraine, there was a poor harvest in the season, the Ukrainian companies do not deliver the product, as they could make more money on local market. So, they broke the contract. If a German importer has a contract - he pays the price, if the price goes up or down - he pays the price, as it is a contract. While Ukrainian companies can violate the contract in such a way. European importers, who have faced this, will never come to Ukraine again.

Analytical research is one more issue the Ukrainian companies should pay attention to. The companies should make market research in the target market - what are the prices, what are the packaging types, what kind of crops, variations are sold on the market, etc. It is very important to understand your market before you run into it. Preparation is about 90% of success. Just recently, I got an offer. A company wants to sell to Germany. But they just sent me some photos and 1 EUR/kg price. No product information, what quantity on a pellet, is it DDP or EXW price… Ukrainian companies need to learn how to promote themselves. For big agriholdings it is not a problem, but what about the rest?

So again - quality, good business practice and skills of marketing are the main moments Ukrainian companies should to keep in mind to develop cooperation with the EU. 

- What tasks should Ukraine solve on national level to comply with goals of European Green Deal? 

- There are some things that Ukraine should do besides the Green Deal. Above all, quality infrastructure system and export promotion systems are needed. Before we speak about the Green Deal, we should have the basics. It does not make sense to speak about the Green Deal if people do not know how to export and they have no required quality certificates. So, as I have already told, it is like the basics.

As to the Green Deal, I think in future the usage of green technologies, sustainable technologies will be very important. This is where Ukraine could also be something like an ecological innovation center. You have the space and the possibilities here and very creative people to start such things. So, I think innovation platform for green technology and agriculture in Ukraine would be very interesting. Maybe like a public private partnership with the associations and under the control of the Ministry of Agriculture. And then people can discuss how the policy environment could support initiatives that correspond to the green views. So I would be happy to help, maybe even with a project in another way to start the discussion. You bring the right question, how can Ukraine respond and what is needed to go to this direction, to respond to the Green Deal. The green transformation will be a big challenge but also a chance for Ukrainian farms, as they can increase the price of food, maybe make higher demand and rise in import and decrease in export volume but it could even be beneficial for society wealthy.

Now there is no platform in Ukraine for discussing the movement towards the Green Deal. There are some small conferences, but there is no government platform for these purposes.

- How will the EU control the safety norms and quality of imported products in accordance with European Green Deal?

- I do not think that the EU will change the existing process of quality control of imported products in any way. The laboratory results will be needed to gain access to the European market.

The question should be another, and we are going back to quality again. Ukraine is on the blacklist still. Now it is difficult for Ukraine to supply its organic products to the EU due to the negative experience of working with Ukrainian companies. And the main question is how to restore confidence in Ukrainian suppliers and thereby simplify the trade. After all, until this is done, Ukraine will face non-tariff barriers to organic trade, such as higher restrictions and higher requirements for laboratory tests.

If Ukrainian policy proves that no more fraud and if this goes quite well and if we have good lobbying work from Ukrainian side, I'm sure that there is a chance to get Ukraine off the list that will benefit the trade with the EU. We are currently stressing the importance of food safety and quality standards in our activities e.g. by supporting no-fake-certificate initiatives and giving compliance trainings to Ukrainian export oriented institutions such as chambers of commerce and associations.

Interviewed by Inna Stepanenko

 

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