Modern economic POTENTIAL OF UKRAINE

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Industry of canned fruits and vegetables

Ukraine has always been famous for large volumes of fruit and vegetable production. These products are the main raw stock for manufacturing fruit and vegetable cans. A lot of attention was paid to processing this output during Soviet times, and the result was the creation of a powerful processing industry in Ukraine. Because of this, large and middle-sized canneries as well as canning workshops were created on collective farms and state farms in almost all regions of Ukraine. Approximately 1.4 mn tons of canned fruits and vegetables per year were produced in middle 1980s (conditional tin stands for 400 grams (400 ml) of output). Siberia and Far East were the main consumers of this output back in Soviet times.

Deliveries of imported fruit and vegetables cans increased after the collapse of the Soviet Union and the liberalization of foreign trade. This introduced a wider product range, more convenient and better packaging, and higher quality. Local produce could only compete in pricing. The overhaul of the economy resulted in drop of fruit and vegetable output production in the first half of 1990s at large agricultural companies. At the same time, reduced per capita purchasing power caused drops in imports, and the domestic producers’ lack of foreign economic experience precluded large-scale exports.

The gradual restoration of production began in the second half of 1990s. The privatization of companies and appearance of new owners resulted in the reorientation of enterprises toward competitive production. Companies started to use twist-off packaging, which had already been applied all over the world except for the FSU. All output was produced under the companies’ own trademarks, and some firms decided to continue with glass packaging. In turn, an increase in fruit and vegetable production by large farms, in particular in the south of Ukraine, promoted a renaissance of this industry in Ukraine at the turn of the century. The companies started to apply new growing technologies, planted varieties designed for specific types of processing and grow the output with set parameters directed towards particular types of processing. The industry nowadays is able to produce high quality output at world standards in large lots, which is in demand both on the domestic market and foreign sales markets.

As it was already mentioned, Ukraine is one of the largest producers of fruits and vegetables. The industry suffered changes during transfer from planned to market economy, which resulted in dropping of production volumes and curtailment of large farms’ role (role of collective and state farms) in manufacturing of high quality output in necessary quantity and with set parameters. In 2004, 6,963.9 ths. tons of vegetables were produced. This was 6.5% or 425.7 ths. tons more than in 2003. The same year saw 1,635.2 ths. tons of fruits and berries produced, which is 3.6% or 61.5 ths. tons less than in 2003.

The pattern of vegetable production in 2004 follows: cabbage – 22.4%, cucumbers – 10.2%, tomatoes – 16.5%, marrows – 6.9%, and sweet (nonpungent) and red pepper – 1.8%. Pattern of fruits and berries production: apples – 43.8%, pear – 9.3%, plum – 10.6%, cherry – 10.9%, apricot – 6.1%, strawberries and wild strawberries – 2.2%, raspberries – 1.5%, and currants – 1.5%.

The largest amount of vegetables is produced in Odessa (8.6% of the total harvest in Ukraine), Donetsk (7.4%), Kharkov (7.2%), Dnepropetrovsk (7.2%), and Kherson (6.3%) regions.

The largest amount of fruits and berries was grown in Donetsk (13.3% of the total harvest), Dnepropetrovsk (10.0%), Khmelnitskiy (9.9%), Vinnitsa (9.1%), and Odessa (6.7%) regions.

The production of canned vegetable and fruits in Ukraine has grown steadily over the last years. It produced approximately 0.906 mn tons in 2005, which is 44.6% more than in 2004. It should be noted that this volume includes fruit and vegetable juices, the production of which has also been on the rise during the few last years. If taking canned fruit and vegetables separately, the production of vegetable cans occupies the lion’s share. The industry produced 323.4 mn tins or 129.36 ths. tons in 2005, which is 41.7% more than in 2004. About 103 enterprises operated in the field in 2004, while their number dropped to 98 companies in 2005. The top ten largest companies produced 63% of the total output in 2004, and this grew to 72% in 2005.

The market is still experiencing growth and restructuring issues. The increase in canned fruit and vegetable output has resulted in growth of demand for raw content stock on the domestic market. At the same time, the development of retail trade chains also promotes growth in demand for fresh vegetables and fruits. Competition between processors and wholesale companies increases on the raw stock market in years when the vegetable and fruit harvests decrease. Meanwhile, small producers are not always able to garner sufficiently high procurement prices to cover input stock price rises. They also do not always have the opportunity to tune up an uninterrupted output supply to the distribution network and perfect a marketing policy. Therefore small canneries and canned workshops at collective and state farms are gradually being ousted from the market. Large commercial operations, which often are owned by successful trading companies, have shown that they are better able to respond to market fluctuations on both the input and output sides.

*including vegetable and fruit juices

Estimates of the volume of domestic consumption vary due to the large amount of smuggling. The best expert estimates in 2000 put consumption at 160 ths. tons. Meanwhile, production volumes grew from 196.4 ths. tons (without considering juices and tomato paste) in 2000 to 412.4 ths. tons in 2003. It is estimated that the volume of fruit and vegetable cans sales on the Ukrainian market grew up to 280-320 ths. tons in 2005.

Domestic prices for the output depend the season and on prices for raw stock. In particular, the canning industry experiences a shortage in high-quality raw stock for certain kinds of processing in lean years, and thus rising prices for raw stock. On the other hand, processing companies increase procurement prices in this period of time with the aim to retain regular suppliers. Processors have noted increased competition with wholesalers, which have moved to procuring fruits and vegetables for retail trade chains. Moreover, farmers are now approaching large stores directly, thus omitting intermediaries. This fact certainly makes processors to raise procurement prices for high-quality output of large farmers.

The seasonal character of can sales also influences prices for them. Specifically, demand and prices for the output is lower at the time of manufacturing. The amount of output drops by the winter holidays, and demand, on the contrary is on the rise. Prices for bottlenecked commodities in winter can significantly increase over a short period of time.

According to trading sources, official import amounted to a maximum of 10% of the total import of fruit and vegetable output sold in Ukraine over the last few years. The rest is either smuggled or delivered by shuttle traders. Similarly the output can be exported to neighboring CIS states.

Imports in 2005 are estimated at 80.52 ths. tons. This exceeded the figure of the previous year by 55.24 ths. tons or 3.2 times. At the same time, exports are characterized by more stable volumes, with a slight growth in volumes registered (65.88 ths. tons in 2004 and 68.56 ths. tons in 2005).

The following countries were the main suppliers of fruit and vegetable cans to Ukraine in 2005: Uzbekistan (mainly raw stock for industrial processing), Russia, Hungary, Armenia, and Moldova. At the same time, exports were mainly to Russia (43.7%), Belarus (1.6%), Germany (1.3%), Kazakhstan (1.2%), and Moldova (0.5%). Also plenty of Ukrainian cans are delivered to Israel, the USA, Canada, and Baltic states.

The Ukrainian fruit and vegetable can industry quickly recovered from the turmoil following regaining independence. There is a sufficient raw stock basis in the country, a lot of industrial processing enterprises inherited from the Soviet Union, experienced industry, and a cheap labor force. The long shelf life of canned products is attractive to wholesalers, too, because they need not worry about purchasing of special sales equipment or critical shelf life. Therefore a lot of large wholesale companies procure canned output in the period of low demand and low prices and wait on sales until the peak of demand and correspondingly high prices. Companies which own a network of retail shops have purchased canneries and are the exclusive distributors of these plants’ output.

Investments of new owners after the privatization of plants has allowed for upgrading facilities and to start manufacturing competitive output at prices lower than imported versions. Meanwhile, a segment of elite fruit and vegetable cans is being developed in Ukraine. It is successfully sold both on local and foreign markets due to its high quality. Brandless canned output as well as output in inconvenient packaging or of low quality has practically disappeared from the market. Growth in production and exports point to its successful development. Traditionally, the large volume of home canning in Ukraine and the CIS, the clear seasonality of industrial canned output sales, and sluggish development of raw stock limit the development of the industry to a certain extent. Meanwhile, growth in per capita purchasing power, the successful development of export to other states, and character of this output should secure successful development of the industry in Ukraine further on.

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