Change of consumers of Ukrainian flour

Source

APK-Inform

2738

Ukraine takes one of the leading positions in the world rate of grain exports. However, the country also provides active exports of flour milling products on foreign markets. During the interview with the journalist of APK-Inform Agency, Alexei Kovalenko, the manager of foreign economic activities department of the company Enlil, informed about the present conditions of the industry, the market tendencies and etc.

Enlil Ltd. is a high-technology grain processing complex with monthly capacities of 6000 tonnes. The company produces top-grade and 1-grade flour, manna groats, wheat bran. Priorities of the company development include strengthening of positions on the main sale markets, providing of the stable product quality.

Enlil Ltd. successfully supplies own products to countries of the CIS, the Middle and Far East, Africa. The company has the own trademark "Zolotoe zernyshko".

- Alexei, how do you estimate the situation on the export market of flour in the current marketing year?

- The situation on the market formed rather standard trends, the market has demand in flour. Terms of payment for delivered products remain as the main issue. Flour millers have to determine what selling terms they should use, because many purchasers feel no confidence to such payment variety as upfront payment. Often clients want to work in letter of credit payment terms, and CID delivery terms. Such work terms are more acceptable for buyers due to the presence of possibility to examine flour quality, and in such way, buyers have less apprehensions in low quality of the product.

In the current marketing year, the sudden fluctuations of USD exchange rates caused difficulties in the work with clients. For example, many importers are ready to purchase flour of Turkish origin, due to the stability of prices. You should remember that not only flour suppliers from Ukraine, Russia and Kazakhstan provide the product on the world market, but also Brazil, Turkey, and the USA deal with export trading with the product. In the terms of the sudden change of USD rates, flour millers also usually have to examine own prices towards increasing. Clients completely do not understand such changes. In the current political and economic terms, Ukrainian suppliers can not provide stable flour prices in the nearest future.

As a reminder, at the end of 2008, the country also worked in the terms of the financial crisis, the exchange rate of USD continued growing, grain prices were relatively low, which provided the possibility to producers to sell flour at low prices. At the same time, the average price for top-grade flour totaled 190-205 USD/t. Such price level attracted buyers, and demand in Ukrainian flour was rather high in the period. However, later the exchange rate of UAH started strengthening, which caused the growth of prices for the product. Thus, clients started looking for new suppliers of high-quality flour product with stable prices.

- What additional changes did the world financial crisis cause in the work of exporters?

- When the world financial crisis started, the flour milling market faced the problem of financial insolvency of many clients. Before the crisis, the clients faced no problems buying USD or EUR, but for example, in September 2008, our clients have difficulties with purchasing of foreign currencies.

To date, the situation stabilized and we do not see such problems, negative crisis events did not pass without any consequences. The crisis aggravated discredit between buyers and sellers.

Also in the season, many countries increased production of own grains and do not need import products. Despite the low quality of own-produced flour, such countries often prefer consume the domestic flour, due to cheap price level.

- According to you, clients often deny from flour purchasing on prepayment terms. Do they have any risks?

- There is no risk for buyers to work in the terms of prepayment, because they directly cooperate with flour producers, not intermediaries. You understand that flour-milling complex is a large-scale enterprise, which will not disappear in one day. Everybody can solve problems concerning unfulfillment of contractual obligations by judicial means.

The main reason is the complete nonconfidence of clients to the system of upfront payment; they have the fear of sudden unexpected changes on the market. According to buyers at the territory of the CIS, they deny from prepayment terms in such way: "The whole world uses letter of credit system, and you also have to". The main difficulty of the system for the flour milling industry is that a producer purchases wheat before getting money for flour. Primarily, flour millers have to purchase wheat, produce flour and then sell the product. However, sellers receive money in a month only after the shipment. At the same time, the situation on the market of wheat always changes, and recently grain prices have continued growing. It is impossible to forecast the dynamics of price changes for wheat in the current terms, and form the price for flour in order to prevent any losses. Thus, a letter of credit provides risks for sellers, first of all.

- How strong is the competition on the world market between the Russian and Kazakh flour producers?

- Kazakh and Russian flour form the essential competition to Ukrainian producers. For example, in 2008/09 МY, Uzbekistan, Tajikistan and Afghanistan provided active purchases of flour of Ukrainian origin. However, in the current season, Kazakhstan managed to completely close the access on the market to Ukrainian exporters, due to lower flour offer prices. In addition, Russian flour comes on the markets of the Asian countries. In the current season, due to rather low logistics costs the flour became more competitive, compared to Ukrainian product.

At the same time, Ukraine has more advantages on the world market, compared to chances of exporters from other countries, due to the access to the Black Sea ports. Ukrainian producers also have an opportunity to meet all requirements in qualitative parameters, declared by clients.

- Does the competition between Ukrainian flour producers grow?

- Undoubtedly, the competition grows. For example, the number of advertisements in Internet concerning flour export selling from Ukraine in 2009-2010 period grew by several times compared to 2008. At the same time, to date, the number of companies, planning flour selling operations, became higher compared to the number of purchasers.

According to my opinion, the high range of prices is one of the main problems of Ukrainian flour market. The difference between qualitative indices of the product causes such effect.

The market faces the companies, which still work with old equipment and declare about accordance of the product the state standard requirements. At the same time, the mentioned requirements have the minimum and maximum indices. Such difference between edge indices influences the formation of flour prices. It is rather difficult to explain to buyers, what cause the rise in flour prices of one companies and the reduction in prices of other companies, despite the complete accordance to the state standard requirements of both varieties of flour products.

The market has also enterprises, which concentrate on receiving of the product with high qualitative parameters, but other enterprises focus on trade turnover, which also leads to the growth of the price range. But the majority of buyers prefer buying quality product at the minimum prices.

The company Enlil concentrates on providing of competitive capacity of flour quality among products of other Ukrainian producers. High quality of our products forms the price level. Recently, we have set new technological equipment, in order to secure the stable high level of flour products. According to life experience, clients rarely change own suppliers, which provide high-quality flour.

- How did sale markets of Ukrainian producers change due to Russian and Kazakh flour dominating on the market of the CIS countries?

- In 2008/09 МY, the countries of the Middle East, Georgia, Armenia, Turkmenistan, Uzbekistan, Afghanistan, Tajikistan and etc. were the main buyers of flour of our company production. In the mentioned period, the countries showed high demand in products of high quality. But in the current season, Kazakhstan absolutely managed to cover all requirements of markets of the countries in import flour at acceptable prices. Thus, we had to start working with market of the Far East countries. Jordan, China, Indonesia, Madagascar, Africa countries provide many requests in flour supplies. The world does not stop purchasing Ukrainian flour, but only changed the countries-buyers.

At the same time, companies from the Far east countries do not trust flour sellers from the CIS countries and prefer working at letter of credit system, or through middlemen. Usually, Asian companies well know the intermediaries, which have high reputation and regular customers.

- What are the requirements in flour quality of the main countries-consumers?

- The issue mainly depends on mentality of the country or cuisine. For example, Israel, Jordan, Uzbekistan, Tajikistan, Afghanistan usually prefer consuming baked goods of home production, they provide rather mediate requirements in qualitative parameters of the product. They prefer purchasing of 1-grade flour. Such consumers need high share of gluten content. At the same time, buyers from the Caucasian region concentrate on flour color, and have low requirements in gluten quality. Consumers from Arabian countries, Indonesia, Korea, Vietnam, which have industrial production of baked goods, require flour with high indices of flour color. Such clients also have the practice of mixing of high-quality and low-quality flour in order to decrease the price level.

- What factors do mainly influence the price formation in the current year?

- Two basic constituents influence price formation - USD exchange rate and wheat prices. In the current marketing year, active grain exports caused the growth of prices for high-quality wheat on the domestic market. At the beginning of 2010, just high grain prices became the main influential factor of flour price increasing, because USD exchange rates stayed stable.

- Do you face any difficulties during shipment of the product?

- Recently, the weather conditions have provided many problems to flour millers and the whole grain market. Due to freezing of roads, many cars could not transport commodities. The market faced problems with promptly delivery of grains to the enterprise. The unfavorable weather conditions assist to accumulation of flour containers, which delays shipment.

- How do estimate the prospects of functioning of the export market of Ukrainian flour?

- We have the positive view on the further development of the industry. The main factor is the presence of demand in flour. However, the market of flour still has problems. The unstable situation on the market of grains, fluctuations of USD exchange rates mainly cause the problems. To date, we concentrate on overcoming of the difficulties and forecasting all underlying potential problems.

Interviewed Olga Pryadko

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