Will agribusiness make or break Ukraine’s economic future?
The answer of many participants of the Kyiv Post’s Food Safety Conference on May 22 was that it depends on whether the country can boost standards to become a global exporter, or end up struggling to ensure the health of its own population.
Strategists argue that what energy was for the 20th century, food will be in the 21st. Nowhere does this strike as close to home as in Ukraine. For the past twenty years, much of the nation’s agenda has been set by the energy sector, especially gas imports from Russia. In the future, argues Andreas Lier, CEO of chemical giant BASF Ukraine, the country’s economic and overall development will be determined by food.
“Ukraine has 33 million hectares of arable land that is one third of China’s lands. China has 1.2 billion and Ukraine has 45 million people and it has the largest area of agro land in Europe. It could in fact be the breadbasket of the world,” Lier says.
According to the United Nations Food and Agriculture Organization, Ukraine has the potential to become the world’s sixth biggest wheat exporter by 2021 and is already a regular on the corn exports podium. But Ukraine’s problem, Lier explains, is excessive concentration on producing raw commodities – wheat, rape and corn – while value-added products such as meat or dairy are sidelined.
“Some 20 years ago when Ukraine became independent, the country was populated by 19 million pigs, now there are eight million and that’s just the middle of the value chain,” Lier says.
Also, to make the most of its opportunities, Ukraine has no choice but to improve standards and safety. In its most recent sector development report, the Organization for Economic Cooperation and Development identified the dairy sector as one of four areas in which Ukraine holds a key competitive advantage.
The problem, according to the OECD, is quality. Of the three grades of milk quality in the European Union, Ukraine does not even meet the lowest. According to Fredrick Aherne, a non-executive director at Warsaw Stock Exchange-listed diary producer Milkiland, this is one of the reasons why Polish cheese is now invading Ukraine’s shelves with better quality, and often at cheaper prices.
It takes some ten liters of milk to produce the equivalent of a liter of cheese, Aherne explained, but all of this depends on the fat and protein content, which in turn depend on standards. In Ukraine, where three-quarters of milk production comes from small-scale farmers, often with just a handful of cows, keeping those standards high and testing for them is neither easy, nor cheap.
Buying quality raw ingredients and controlling them properly means a premium of 15-20 percent compared to the competition, says Roman Romanchuk, general manager of Asian food chain Sushiya. “We explained this to clients, and they said they understood, but still went for the cheaper version,” he says.
Most experts agree that a lack of understanding of food standards is a major obstacle in Ukraine. According to Alla Grygorenko, head of department of public health of the ministry of healthcare of Ukraine, several bills on food safety are being prepared now. One of them is dedicated to informing consumers about the quality of the products.
Another determines the procedure of registration of advanced products in Ukraine, Grygorenko added. Perhaps even more importantly, these are now being made in consultation with business, not just over its head.
“We have switched from sole determination of safety and quality criteria to a dialog (with business representatives). All regulations are now discussed before they are approved,” Grygorenko said.
But business argues that the government isn’t always helping – setting maximum prices for key goods and burdening firms with regulations that add administrative work, but don’t ensure quality.
According to Aherne, who previously worked at Nestle in engineering and production management, the onus of responsibility should be on companies that have the most at stake anyway.
“Good marketing can sell the first batch, but the quality of production sells the second and third batch,” he said. “If you don’t have trust, you don’t have a business. So it’s immaterial for me if the state is guaranteeing safety.”
Others note that market forces of competition are not enough to rely on when it comes to people’s health. For one, not every company has an international reputation to defend, or the knowledge and resources to make sure its products meet standards.
The recent poisoning and hospitalization of 17 people, including five children, in Mykoliav this month, shows that what Ukraine needs is not millions of investment or complex new technologies, but respect for basic principles of food safety, said Yuri Zvazenko, a food safety specialist at the International Financial Corporation agribusiness advisory project.
Meanwhile, the patchwork implementation of “hazard and analysis and critical control points,” an internationally used food safety system, speaks for itself. In recent years the number of compliant companies in Ukraine grew from 70 to 700, but with 17,000 producers country-wide, Zvazenko said, much more work has to be done.
No matter whether the burden of ensuring food safety should fall on the public or private sector, all the players say they understand the importance of this task. Aherne says he picked up the best mantra during his time at Nestle: “Remember that everything you make – someone will put in their mouth.”
Kyiv Post chief editor Jakub Parusinski and staff writer Anastasia Forina can be reached at [email protected] and [email protected], respectively.
