Modern economic POTENTIAL OF UKRAINE

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Orchards and viniculture

The share of fruits, berries, and grape in the pattern of gross agricultural produce has not significantly changed over the history of independent Ukraine. It made 3.8% in Ukraine in 1990 (at the end of the Soviet period) with a slight drop to 3.7% by the middle of the 1990s. It rose back to 3.9% of the gross Ukrainian agricultural produce in 2004. However, official statistics show that the profitability of this output has considerably decreased over this period. In particular, it diminished in fruit growing from 83.8% in 1990 to 20.3% in 1995 and 8.4% in 2004. As the output of viniculture grew in demand over the 1990s, the drop in profitability slowed: 1990 – 71.7%, 1995 – 74.0%, and 2004 – 8.7%.

Pattern of production by categories of economies has notably changed over the previous years. While 46.4% of production was concentrated in large commercial farms and 53.6% in family farms in 1990, this pattern drastically changed by the middle 1990s by 16.4% to 83.6%. Despite an increase in production and expansion of demand for large lots of proper quality raw stock for industrial processing had been observed over the last years, the sources of this output remained the same in 2004: 11.4% was grown in large commercial farms and 88.6% on family farms.

Though the share of fruits, berries, and grape in the gross output of the agricultural produce has been relatively steady, production volumes are quite variable. It fell 1.6 times by the middle 1990s versus 1990; in terms of value, down to UAH 2.514 bn. The production drop continued until 2002, then an unstable tendency toward growth occurred. Output totaling UAH 2.57 bn was produced in 2004. Though this figure is only close to the mid-1990s level, it is a notable progress if compared with the minimum production volume, in 2001, of UAH 1.812 bn.

Production of the mentioned output remained at relatively high level in the first half of 1990s thanks to good situation in the industry, which Ukraine inherited from the USSR. Meanwhile, material and technical basis of orchards and vineyards has been becoming outdated and cultivation lands for fruits and berries curtailed further on. It resulted in decrease of this output profitability and consequently reduction of capital investments to it.

At the same time, dynamic augmentation of investments to Ukrainian food processing industry and the wine, fruit and berry industries in particular is witnessed. The restoration of processing companies’ normal activities in turn caused them to regain demand for fruit and berry raw stock of corresponding quality in industrial quantities as well. Some wineries have created vertically integrated firms handling everything from the production of raw stock, to processing, and sales of finished output. Due to increasing demand coupled with diminishing profits, Ukrainian producers are clearly interested in implementing the latest gardening and viniculture techniques created abroad. It is based though on multiyear experience of leading business in Ukraine, including over extreme 1990s. The result can be seen in yield rates, which are growing: 52 centner/ha and 168.2 ths. ha in 2004 (48.6 centner/ha and 450.7 ths. ha in 1990) for pome fruits, 72.3 centner/ha and 79.3 ths. ha (34.9 centner/ha and 166.2 ths. ha in 2004) for drupaceous fruits, and 49.3 centner/ha and 19.5 ths. ha (40.1 centner/ha and 22.2 ths. ha in 2004) for berries.

Per capita production has dropped in connection with the fall of fruit and berry output. The index reached 56 kg of fruits and berries and 16 kg of grapes per citizen of Ukraine in 1990, while in 2001 it diminished to 23 kg and 7 kg. Growth connected with the expansion of production is evident again: 35 kg of berries and fruits and 8 kg of grapes in 2004. At the same time, individual purchasing power has significantly risen since the early 1990s. This has led to an increase in consumption, as fruits and berries are traditionally considered by Ukrainians as a healthy and necessary part of their diet. Average per capita consumption of fruits, berries, and grapes excluding wine by Ukrainians is returning: 47.4 kg in 1990, 33.4 kg in 1995, 29.3 kg in 2000, and 33.9 kg in 2004.

The processing industry likewise underwent a transformation after independence. Production and demand for raw stock have risen over the last few years along with the increase in personal income and the expansion in demand for fruits and berries. This in turn has driven changes in fruit and berry sales patterns. Development of situation in processing industry and with individual revenues has been completely reflected in change of fruits and berries sales pattern. In particular, sales by large agricultural companies in 1990s looked as follows: 86.8% to processing companies; 13.2% to individuals (including at retail markets), and 0% through other channels (as rent payments, directly to trade and catering companies, public establishments, etc.). Sales to the processing industry practically halved by the mid 1990s, while the share of sales to individuals jumped four times. The indices in 2004 were correspondingly: 10.5% to processing companies, 49.6% to individuals, including through retail markets, and 39.9% through other channels.

Official statistics show that Ukraine is largely self-sufficient in fruit, berry, and grape consumption, as the ratio of production to domestic consumption is quite high: 1995 – 93.7%, 2000 – 105.9%, and 2004 – 93.8%. Meanwhile, it should be noted that this index does not altogether correctly reflect the picture of Ukraine’s needs in both this output in general and its varieties in particular. The Ukrainian wine making and cognac industries feel an acute deficit in high-quality wine materials and cognac alcohol and have to import them. It is due largely to the fact that the majority of vineyards were destroyed during Gorbachev’s anti-alcoholic campaign of the 1980s. Later, the wine-making industry was damaged in 1990s as a result of economic changes. In other market segments, there is a rising demand from the record-high number of growing chains for safe fruits and berries of high quality. At the same time, existing customs duties prevent legal imports and encourage smuggling. Consequently, official import statistics are often much lower than the actual import of fruits and berries into Ukraine..

Balance of fruits, berries, and grape in Ukraine* (ths. tons)

According to official data, the export of fruits, berries, and grapes from Ukraine ranged at the level of 141-211 ths. tons over 2002-2004, which is roughly 9-10% of local production. A significant drop in production over the last years as well as lack of large lots of high-quality commodities are the main reasons for low export shipments. Note, though, that frozen wild berries constitute a significant portion of export from Ukraine to European Union states. Walnuts in shells and shelled are another export staple for Ukraine. The country is the world’s fifth largest producer of walnuts, with a 4.7% share of the world production. Poland (20%), Lithuania (11%), Russia (7%), Germany (6%), and Turkey (6%) were the main importers of fruits, berries, and grapes from Ukraine in 2004.

The same official statistics reports that import to Ukraine ranged from 301 ths. tons to 343 ths. tons over 2002-2004. Ukraine imports fruits and berries that are not produced locally at all or which temporarily disappear due to seasonal variations in growing. Correspondingly, 50-60% of import consists of bananas and citrus fruits. Also, dried fruits (raisins and dried pitted and halved apricots) and tropical nuts are imported in large quantities due to the intensive development of the confectionery industry. Turkey (31%), Ecuador (25%), Egypt (11%), Spain (6%), and Iran (5%) topped the list of importers in 2004.

Ukraine possesses everything needed for building up high-quality gardening and viniculture output. These include suitable soil and climate conditions, the restoration of the processing industry and growth of demand for raw stock, expansion of individual purchasing power and the related growth of demand on the retail market, accelerating development of retail chains and a consequent improvement of output sales channels, as well as the availability of skilled and relatively cheap labor in these industries. Relatively high interest rates along with the necessity to significantly update infrastructure and implement modern production technologies are among the hindrances to prompt production restoration. Despite these facts, gardening and viniculture have a promising outlook for becoming one of the flourishing segments of Ukraine’s agriculture sector in the future.

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