Potato market in Ukraine Final2 by ashrafp

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									The Ukranian Market for
Fresh Potatoes
Target Market Conf irmation Study




Conducted by Business So-Nik for USAID/CNFA’s
Agribusiness Development Project

February 2007
                                                    CONTENTS




1. KEY OBSERVATIONS AND RECOMMENDATIONS ............................................ 1

2. BACKGROUND ...................................................................................................... 2

3.      INFORMATION ON COMPANIES INTERVIEWED ........................................... 5

4. MAJOR CLIENTS AND MARKETS ....................................................................... 7

5. PRODUCE REQUIREMENTS AND PREFERENCES ............................................ 7

6. VARIETIES AND TRENDS ..................................................................................... 8

7. PRICES................................................................................................................... 9

8. MAJOR COMPETITORS ...................................................................................... 11

9. MOLDOVAN PRODUCE: BUYERS’ PERCEPTIONS AND
   RECOMMENDATIONS......................................................................................... 11

10.     LIST OF REFERENCE MATERIALS .............................................................. 12
1. Key Observations and Recommendations

Potatoes are the fourth largest food crop (after rice, wheat, and maize) in the world. The top three
producers of potatoes are China, Russia, and India (who together produced 135.5 million MT in
2005, or 42% of total world production). With a relatively stable acreage under potatoes (around
1.5-1.6 thousand hectares), Ukraine became the fourth largest producer in 2005 (19.5 million
MT), ahead of countries such as USA, Germany, and Poland.

Despite high volumes of production and increasing internal consumption, Ukraine does not have
sufficient storage capacity to correctly store potatoes long-term, and only 26.3% of harvested
potatoes are stored in modern temperature-controlled storage facilities with optimum levels of
ventilation. As a result, in late winter and early spring, Ukraine experiences shortages of
domestically grown potatoes and has to import them. Russia is traditionally the largest supplier.
Other supplying countries include Belarus, Moldova, Poland, the Netherlands, and recently Egypt.

Although officially recorded imports of potatoes into Ukraine have never exceeded 0.25% of total
domestic production and normally stay below 0.05%, market players are of the opinion that actual
volumes of imports are considerably higher. There is some evidence supporting the possibility of
illegal importation.

Potatoes from Moldova exported to Ukraine (along with those from other CIS countries – Russia,
Belarus etc) are subject to a free trade agreement and 0% tariff (although VAT at 20% is applied).
Ukraine used to have a general import duty of EUR 0.2 - EUR 0.4 per kg (EUR 200-400 per MT)
for imported potatoes from most other countries. However a new Custom Tariff Code introduced
in August 2005 applied a preferential 20%-duty on import values of new (young) potatoes valid
from January 01 to May 15. This has resulted in imports from countries other than Moldova
becoming considerably less expensive, and in 2006 imports in the period 1 Jan to May 15 are
reported to have at least doubled compared to previous years – increasing competition for
markets and diminishing the advantage enjoyed by Moldovan exporters of stored potatoes.

Nonetheless, research for this report has generally showed good prospects for potential exporters
of potatoes. With economic growth, the purchasing power of Ukrainian consumers is increasing,
and the consumption for fresh potatoes increases every year. Furthermore, there is little
competition on the market of industrial potato processing in Ukraine. For example, French fries
are imported from Poland and other countries, and potato starch for industrial use is also
imported because domestic production of starch does not satisfy demand. Many Ukrainian and
foreign investors are now interested in processing potatoes domestically to substitute imported
potato products, and new Ukrainian production facilities will further strengthen the demand for
fresh potatoes. Finally, with only a few modern temperature controlled cold stores, Ukraine will
have to cover their shortage of potatoes by importing them.

Taking into account historically lower prices of vegetables in Moldova, Ukraine may offer export
opportunities for Moldovan companies who have potatoes stored until mid-late winter (when
imported new crops begin to be available). Another opportunity would be to take advantage of the
newest production technologies and varieties, to be able to supply new season potatoes as early
as possible.

Most of the companies surveyed stated that Moldovan potatoes do not meet the requirements of
the high-end Ukrainian market, and are still traded mainly in the low-end market. Poor grading
and sorting coupled with irregular and mostly illegal deliveries are the most cited disadvantages

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of Moldovan exporters. Given the minimal quality requirements, the focus for Moldovan growers
should be on proper grading & sorting techniques, development of regular and legal relationships
with Ukrainian partners, implementation of new potato storage technologies and/or introduction of
early potato varieties.

2.     Background

Production Trends. Potatoes are the world's most widely grown tuber crop and the fourth largest
food crop after rice, wheat, and maize. World production of potatoes fluctuated between 300 and
330 million metric tons (MT) per year during the last decade (see Figure 1). The highest harvest
was recorded in 2004 (330.3
MT), with around 300 million        Figure 1. World potato production and yields, 1996-2005
MT per year in 1997-1999.
While the total area harvested           340.0                                                18.0
stays relatively the same (about
                                       million MT
                                         320.0                                                17.0




                                                                                                MT/Ha
18-20 million Ha), yields
                                         300.0                                                16.0
gradually      improved.     The
average yield for the last two           280.0                                                15.0
years exceeded 17 MT per Ha.             260.0                                                14.0
[1]                                             1996          1999          2002         2005

China is by far the world‟s                                   Production   Yield
leading producer of potatoes.
                                    Source: FAOSTAT Data 2006
Chinese       production     has
increased by 37.6% since 1996 (from 53 million MT, or 17% of global production in 1996), to a
total output of 73 million MT, 22.6% of global production, in 2005. The second largest producer –
Russia – grows only half of the Chinese volume, 37.5 Million MT (2005). Third place is occupied
by India with 25 million MT, or 8% of world production. The top 10 world producer countries
accounted for 67.5% of production in 2005.

Ukraine became the fourth largest producer of the world in 2005. With a total output of 19.5
million MT, it accounted for 6% of the global production of potatoes. The total area under potato
production in Ukraine has been relatively stable over the last decade, at about 1.5-1.6 million
hectares. FAO reports suggest that in 2004 up to 58% of potatoes produced in Ukraine were
used as seed potatoes or for animal feed; 31% were consumed and 10% used for „other
purposes‟.

There are two major groups/types of potatoes, which are commonly produced and exported. The
first are known as maincrop, ware, old or stored potatoes. The second group is known as new,
early or spring potatoes. Maincrop (ware or stored) potatoes are generally less valuable. They
have high yields, and low perishability. If stored correctly, they maintain quality, and enterprises
with good quality stored potatoes can usually benefit from higher potato prices some months after
the harvest period - although the cost of building and running storage facilities must be included
in production costs.

The second group, new/early/spring potatoes are physiologically immature, with thin skins. They
are different from maincrop varieties, with lower yields and they do not store well. They can only
be produced in the spring in Northern hemispheres, but there is increasing global trade in
new/early/spring potatoes from warmer countries (e.g. Morocco, Egypt, Cyprus) to Northern
hemisphere cooler countries during the northern winter months. These new potatoes usually have

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a higher value – partly because of they are perceived as „luxury‟ foods, but also because they
have lower yields and/or higher transport costs than „old‟ or ware‟ potatoes.

Import/Export Trends. Only 2-3% of all potatoes produced enter the world trade market as fresh
produce. FAOSTAT database statistics shows a volume of 7-9.4 million MT being traded
annually on international markets over the period of 1995-2004, with import values fluctuating
between 1.5 and 2.35 billion USD over the same period.

Many developing countries have recently become much more integrated into the international
potato trade. This phenomenon is partly the result of worldwide trends toward lower tariffs and
non-tariff barriers, plus the emergence of regional trading blocs.

ITC estimates that in 2005 the volume of fresh potatoes imported worldwide was 7.3 million MT or
USD1,475 million [2]. Over the period of 2001-2005, world imports of fresh potatoes grew
annually by 2% in volume terms and 9% in value terms, which suggests that the per unit value of
fresh potatoes traded worldwide is increasing.

The leading exporters of fresh potatoes in 2005, in terms of volume, were countries from the
European Union: France (1.4 million MT or 19.6% of global exports), Germany (1.24 million MT or
17.4%), the Netherlands (0.93 million MT or 13%) and Belgium (0.89 million MT or 12.5%),
altogether accounting for 62.5% of the world exports. These four countries covered 45% of the
total value of potatoes exported in 2005 (USD 666 million out of USD 1.48 billion). Export data
statistics indicate an important trend taking place over recent years (2001-2005), with exports
from new exporting countries continuously increasing. Countries such as China, Israel,
Azerbaijan, Egypt, South Africa, and Australia have registered impressive growth rates in their
fresh potato exports (ITC Product Map [2]).

The major import markets for fresh potatoes are also in the EU. The Netherlands imported the
largest volume of fresh potatoes in 2005 (1.6 million MT or 21.5% of global imports), followed by
Belgium (1 million MT or 14.5%). A group of other EU countries (UK, Spain, Italy, and Germany)
imported between 420 and 600 thousand MT each, with a share of 5.8 – 8.3% of total imports
each. These six European countries accounted for 62.5% of the total volume and 53% (USD 781
million) of the total value of fresh potatoes imported in 2005 (ITC Product Map [2]).

ITC puts Ukraine on the 83rd place in the list of the world fresh potato importers (2005). Recorded
imports are rather negligible in comparison to local production, e.g. 55 MT imported in 2004
compared to production of 20.7 million MT in the same year (see Table 1).

Table 1. Production of and trade in fresh potatoes, Ukraine, 1996-2005
000                                                                      Year
MT             1996        1997        1998        1999           2000          2001    2002     2003     2004      2005
Prod’n       18,410      16,701      15,405      12,723      19,838         17,344     16,620   18,453   20,755    19,462
Import          36.4         2.1        2.5          3.9           6.7           1.0      5.7      0.1      0.1       2.4
Export           2.7         0.4        0.6          0.1           0.1           0.5      0.3      0.1      1.1       0.1
Sources: Production: FAOSTAT Data (includes seed potatoes)
         Imports and Exports: COMTRADE (excludes seed potatoes)



COMTRADE statistics show Ukrainian 2005 imports from 13 countries, with a total of 2396 MT of
fresh potatoes imported in 2005, at a value of USD 494,332, an average unit value of USD 206
per MT. Average import values per MT are shown in Table 2, and reveal an increasing trend from
2001, with an exceptionally high peak in 2002.

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                                                                   Table 3. Ukrainian imports of fresh potatoes in
Table 2. Ukrainian imports of fresh potatoes
                                                                   2005
                      Value,       Quantity,                                       Imported Imported           Unit
     Year              US$           MT           US$/MT           Exporters         value,    quantity,      value,
                                                                                    000 US$        tons      US$/ ton
2001                  113,164           1,004           113        Russia                248         1,045         237
2002                 1,936,55           5,721           338        Belarus                91           500         182
2003                        7
                       17,430             136           128        Moldova                72           434         166
2004                    8,680              55           156        Netherlands            58           262         221
2005                  494,332           2,395           206        Total                 494         2,396         206
Source: ITC calculations based on COMTRADE statistics              Source: ITC calculations based on COMTRADE statistics


The four major sources of exports to Ukraine in 2005 were Russia, Belarus, Moldova and The
Netherlands (see Table 3). Other sources included Germany 60 MT, Austria 40 MT, and Greece
27 MT.

Russia is by far the                 Figure 2. Ukrainian imports of fresh        Figure 3. Ukrainian imports of fresh
leading supplier with                potatoes in 2005 (volume)                   potatoes in 2005 (value)
                                             Netherl.
about half of the                             12%
                                                                                         Netherl.
                                                                                          12%
Ukrainian imports in
both volume and value                  Moldova
                                                                                   Moldova
                                        15%                                                                                Russia
terms (see Figures 2                                                  Russia        19%                                     47%
and 3). The rest is                                                    54%

divided among Belarus,
                                                                                       Belarus
Moldova      and   the                       Belarus                                    22%
                                              19%
Netherlands.

Some experts are of the opinion that the official data for potato imports differ from the reality. For
example in some years, potatoes labeled from other countries (eg Poland and Egypt) have been
observed on the Ukrainian market, but do not appear in statistical records. A number of market
players have reported the presence of Polish potatoes. Production costs in Poland, plus
Ukrainian import tax (EUR 200 per MT), 20% VAT and transportation costs make legally imported
Polish potatoes expensive in Ukraine and low selling prices for Polish potatoes on Ukrainian
markets may indicate illegal importation. [5]

Market Access. The new Custom Tariff Code of Ukraine, that took effect for most supplying
countries in August 2005, applied a seasonal import tax on early (young) potato of 20% during
the period 1 January to 15 May. During the rest of the year, the normal import tax of EUR 0.2 per
kg (EUR 200 per MT) is applied. According to the Ukrainian classification (used by Customs),
early (young) potatoes are classified as being of the current year‟s harvest and sold up to 1
September; otherwise potatoes are classified as late potatoes. Egyptian potatoes seen in the
market looked quite different from the potato which Ukrainians traditionally call “early”, but
nonetheless this imported produce fully corresponded to the definition of the “potato of this year‟s
harvest”.

Moldova, with other CIS countries, has a competitive advantage arising from it‟s free trade
agreements with Ukraine, which result in an all year around zero percent tariff on agricultural
products, including potatoes exported from Moldova to Ukraine. Although VAT of 20% is applied
to Moldovan exports, as well as products sold by large Ukrainian enterprises; small Ukrainian
enterprises are exempt from VAT.


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Details of the tariffs applied to other countries can be been in Table 4 below.

Table 4. IMPORT SEASONALITY OF FRESH POTATOES AND IMPORT TAX REGIME
NOTE: This tax regime does not apply to Moldovan exports, which are governed by a preferential tariff of 0% for
12 months, for many products (although VAT at 20% is applied to Moldovan exports).
Period          New (early) potato                    Ware (late) potato                 Comments
1 January –     Low-import-duty period is                Ware (late) potato              With the new customs regime,
15 May          applied for New (early) potato            classified as “last year         importing and marketing early potato
                classified as “this year‟s harvest”       harvest”.                        became much more attractive during
                and “sold until 1 September”             Normal import tax is             this period.
                                                          applied.                        High season for imports:
                Low import tax rate is 20% of         Normal Tax rate is EUR0.2/kg       a) reduced import tax;
                value                                 (EUR200/MT)                        b) lack of good-quality local produce.
15 May –        Normal-import-duty period for         Ware potato no longer on the        The previous year‟s crop is finished;
1 September     new (young) potatoes.                 market.                              the new crop is still classified as
                Normal Tax rate is EUR0.2/kg                                               early, but normal (high) import taxes
                (EUR200/MT)                                                                are applied.
                                                                                          Low season for imports:

1 September –   Early potatoes no longer on the           Marketing ware potato          Crops are classified as late potato.
mid-October     market.                                    without storage.               Imports out of season:
mid-October –                                             Marketing ware potato after   a) normal (high) import tax; Normal
31 December                                                short term storage.             Tax rate is EUR0.2/kg EUR200/MT)
                                                                                         b) abundance of fresh local produce.


For full details of the               import      tariff   regime and         other      requirements,       see     website:
www.customs.com.ua




3.       Information on Companies Interviewed

The telephone survey was aimed at revealing basic first-hand information on the Ukrainian
market for fresh potatoes: specific produce requirements and buyers‟ preferences, major varieties
demanded by the market, the sources of supply and major domestic competitors. An important
goal of the survey was to report recommendations of large Ukrainian importers to Moldovan
exporters interested in entering the Ukrainian market high-end segment. This primary research
was aimed at closing the information gaps encountered while collecting secondary market
information for analysis.

The target interviewees for this survey were the major players on the official Ukrainian market for
fresh fruit and vegetables (potatoes in particular), with large operations and considerable
presence at the country level. The focus on large market players was determined by the goal to
identify the requirements and preferences of the high-end market for fresh potatoes in Ukraine.
Five fruit and vegetable importers and five supermarkets were interviewed for this report.

The interviewed importers are major players on the Ukrainian market for fruit and vegetables,
most of them having been on the market for more than 10 years. Fresh potatoes account for
about 10-20% of their total sales of fruit and vegetables. The total volume of fresh potatoes
traded by the interviewees ranges from 90 to 690 tons per year, which is equivalent to an annual
turnover of USD 45-330 thousand.




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The supermarkets that were interviewed are among the largest networks, covering most of the
country with high-income customers. They reported sales of fresh potatoes of 120-315 tons per
year, which is equivalent to an annual turnover of USD 50-130 thousand.

Sources of Supply and Import Seasonality

Maincrop potatoes, which are to be stored for sale and consumption over the winter and spring
periods, can only be stored in good condition if their storage facilities are good. This means that
temperature and humidity have to be controlled.1 High or very low temperatures, for example
below 4 degrees centigrade, will result in poor quality potatoes. To build a good store with good
ventilation and the ability to cool or keep warm the potatoes stored is expensive.

According to a survey by Agricultural Marketing Project Ukraine (AMPU) [5], in Ukraine only
26.3% of harvested potatoes are stored in modern stores with forced ventilation and controlled
temperature, and in practice only large farms surveyed had good storage facilities. Because so
many potatoes are being grown on small farms with poor storage facilities, the overall percentage
of potatoes stored in good condition is expected to decrease, and it is anticipated that the Ukraine
will continue to require imported potatoes in January – March (before spring crop potatoes enter
the market) – although as reported, import volumes has been rather small historically.

The share of imported produce in total turnover of fresh potatoes differs among the respondents.
Some interviewed wholesalers source their potatoes exclusively from abroad; some buy only from
local producers. Two large traders do both, the share of imports however is only 25-30% of their
total sales. The supermarkets prefer to source their fresh potatoes from importers/wholesalers,
but occasionally they deal directly with local producers, or import from foreign sources.

According to the telephone survey, imported fresh potatoes come from Russia and Poland –
which differs from many sources of official statistics, and indicates levels of unofficial trade.
According to AMPU [5], more than 200-300 tons of potato may be entering Ukraine daily,
unrecorded by the statistics, and imported by people living on Ukrainian borders with Russia,
Belarus, Poland, and Slovakia.

Before 2006, during the old customs regime, the overwhelming majority of imported potatoes
were from cold storage in the exporting country, exported to Ukraine for sale during the winter
and early spring periods, when sales prices for ware potatoes are at their highest. Volumes of
imported fresh early potatoes were about 1-2 thousand tons per year, usually from Russia and
Belarus.

Following the introduction of the new reduced import tax on early potatoes in 2006, the situation
seems to have changed. In early 2006 importers covered a shortage of potatoes in Ukraine by
supplying potatoes from various countries, and more than 17 thousand tons of early potatoes
were imported during the low import tax period of 1 Jan to 15 May 2006. In addition to imports
from traditional suppliers – Russia (1857MT) and Belarus (1496MT) - imports were received from
other countries including Poland (421MT), and especially warmer southern countries such as
Egypt (9358MT), Israel (324MT), and Lebanon (observed on the markets in Kiev [5])

(See Table 5 and Figure 4 below).



1
    But not the atmosphere – ie oxygen and carbon dioxide levels in the store.

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Figure 4. Ukrainian imports of fresh potatoes in     Table 5. Ukrainian imports of fresh potatoes in
2006, first 6 months (volume)                        2006, first 6 months
                                                                              Imported           Unit
                                                     Exporters                 quantity,        value,
               Other                                                             tons          US$/ ton
               14%                                   Egypt                            9,358          182
     Georgia
       5%                                            Belarus                          1,857          204
                                                     Russia                           1,496          156
   The
                                                     The Netherlands                  1,051          581
  Netherl
   6%                                                Georgia                            916          138
                                            Egypt
                                                     Germany                            454          448
      Russia                                 55%
                                                     Poland                             421          381
       9%
                                                     Czech Republic                     363          223
                                                     Israel                             324          200
            Belarus                                  Lebanon                            300          170
             11%                                     Other                              563
                                                     TOTAL                           17,102          220
                                                     Source: Ukrainian statistics (cited in [5])


All but one of the respondents indicated that they had not dealt with potatoes imported from
Moldova. In addition to the problems related to the poor quality of produce, an important obstacle
to business relations is the fact that Moldovan potatoes are reported to be brought into Ukraine
illegally and sold on the low value open markets in the neighboring Odessa region.

4.       Major Clients and Markets
Imported fresh potatoes are sold and consumed domestically. None of the respondents indicated
re-exports; indeed, official data reports very few potato exports from Ukraine. However, as with
imports, the actual situation on exports may be different, with unofficial exports taking place
without being recorded.

When imported by large wholesalers, fresh potatoes are further sold to distributors (about 50%)
or directly to retailers (15%). The balance, (around 35%), is sold to consumers on wholesale
markets. The most expensive, high-quality produce is sold to supermarkets, while cheaper
potatoes of lower quality are mostly sold on open bazaars. Some supermarkets import directly
from foreign sources, but generally supermarkets and hypermarkets purchase produce from
importers/wholesalers (directly or through intermediaries) and sell all their potatoes to consumers
or to very small retailers.

5.       Produce Requirements and Preferences
In general, Ukrainian high-income consumers will not be concerned by the higher price of
imported potatoes, assuming that the quality is superior. The convenience of the supermarkets
and clean tubers are considered more important factors to high-end consumers. For lower-
income consumers the price is the key factor in choosing produce. According to a survey by
AMPU [5], 80% of the households in Ukraine stock potatoes for winter. They don‟t go to
supermarkets believing that potatoes are unreasonably overpriced there.

Size. Market players divide potatoes into three size categories: small, medium, and large,
although they did not give a clear definition of their size grades. Small potatoes are considered to
be less than 5 cm in diameter/length, medium size falls between 5 and 10 cm, and large potatoes
are tubers of more than 10 cm. The majority of the interviewed wholesalers and supermarkets


                                                                                                   Page 7
prefer medium and large sizes in case of ware (late) potatoes. New (young) potatoes are usually
in the small size category.

Packaging. All respondents named some variations of a single type of packaging. Most potatoes
are traded in nets (see Figure 5.a). The size of nets varies considerably, from 3 to 30 kg capacity.
Small amounts of fresh potatoes (up to 5 kg) are sold in retail plastic bags and vertisacs (a
combination of a plastic/paper bag and a net). New (young) potato are also packed in 1kg plastic
trays covered with plastic film.

Figure 5. Various packaging for fresh potatoes




       a. Net                    b. Vertisac               c. Plastic bag         d. Tray/Barquette

Logo/brand. Ukrainian consumers do not have a preference for a particular brand or company
name. An ordinary customer is not concerned with the different types of logos and labels.
However, some supermarkets indicated that branded products are easier to sell. They
traditionally pack potatoes under their own brand (eg Metro, ATB), as a guarantee of a certain
level of quality. One large wholesaler named a local brand Vattus, belonging to a diversified agro-
producer from Lvov with the same company name.

Country of origin. As indicated above, the vast majority of fresh potatoes sold are of local origin.
One big network of supermarkets consciously sells only local produce and promotes the Made in
Ukraine statement on the packaging. All other respondents, however, indicated that there was no
preference for potatoes from specific countries. More important factors are quality and price.

Quality requirements. All respondents noted that quality was important. The minimum quality
requirement for all imports is a phytosanitary certificate. Potatoes designated for supermarkets
must be top class. This level of quality is characterized by: a) proper size (medium or large for
ware potato, small or medium for new potato), b) uniform shape of the tubers, c) clean (i.e.
without soil) and spotless tubers, d) strong packaging (normally nets), and e) correctly stored
before delivery. The type, amount, and severity of the bruises inflicted during harvest, handling,
storage, packaging, transportation, and delivery can significantly impact quality. It is possible to
eliminate almost all bruising, by using good handling procedures.
Further information on standards from Ukrainian potatoes can be found at:
http://www.lol.org.ua/rus/showart.php?id=19792 (in Russian)

6.      Varieties and Trends

The top two colors for potatoes in Ukraine are red and yellow. The red-skinned varieties (e.g.
Americanka) are most popular with Ukrainian consumers, especially with high-income
consumers. The yellow-skinned varieties (e.g. Kormovaya) are usually associated with cheaper
produce of lower quality. The variety Ermak is becoming more popular.

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According to supermarkets interviewed, the two most popular potato varieties in Ukrainian
supermarkets are also Americanka (about half of all sales) and Kormovaya (one third of total
sales). Other varieties include Lugovskaya, Ermak and Iskra. The importers/wholesalers also
mentioned the following varieties: Ermak, Ideal, Borodyanski, and Svitanok Kievski. The full list of
potato varieties present on the Ukrainian market is very long.

Many respondents indicated that the overall consumption of potatoes in 2006 increased, and that
this trend has been observed for the last 3-4 years

7.        Prices

Figure 6 shows average                                        Figure 6. Average import unit value, fresh potatoes, Ukraine, USD per MT

import unit values over the
                                                                                                                                                         338
period    of    1996-2005,                                                   400
                                                                USD per MT


according to COMTRADE.                                                       300                                        200                                                                206
                                                                                       150       146                                 166                                         156
                                                                             200                              125                               113                   128
Based on the telephone                100
survey, the purchasing                   0
prices in 2006 ranged from                  1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
USD 0.30-0.35 to USD
                                Source: COMTRADE Data
0.45-0.50 per kg. Because
of a reduced harvest in
2002, Ukraine registered the highest prices ever. An upward trend is expected to continue in the
future because of increased production costs (including seed potato, fuel, fertilizers, etc.). There
is a strong possibility that many farmers will not extend potato acreage or will give up potato
production at all.

Potato storage is considered to be a profitable business, as the prices for potatoes are almost
always low during and immediately after the harvesting period and then they gradually increase. It
is very important, however, to time sales to benefit from increased prices. In 2006, for example,
the price for ware (late) potato started to decrease rapidly in March, when new (early) potatoes
entered the market, after which the demand for ware potato typically reduces to a minimum (see
Figure 7).
Figure 7. Main crop potatoes. Average prices on "Shuvar" Wholesale Market, UAH/kg

     UAH/kg
        2 ,5 0
        2 ,2 5
        2 ,0 0
        1 ,7 5
        1 ,5 0
        1 ,2 5
        1 ,0 0
        0 ,7 5
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                                                                                                                                                                       UAH5.0 = US$1.0

Source: Agricultural Marketing Project in Ukraine [5]


At the beginning of the season of 2006/2007 prices were 25-35% higher than in the previous
season. The high price for ware potatoes was caused by an expected shortage, explained by a


                                                                                                                                                                                        Page 9
predicted low harvest in 2006. Wholesalers filled their storage facilities as soon as possible in
autumn 2006 order to avoid any later increases in prices. However, the number of wholesalers
and the volumes of potatoes they were purchasing had sharply increased during the year, and
gave an impression of higher demand, when in fact the number of potato consumers in Ukraine
did not change.

When all Ukrainian potatoes had been harvested and wholesalers had completed buying, prices
stabilized, and later even fell a little.

The prices for early potatoes in 2006 were higher than in 2005. During the whole season, there
were several price periods. The season for domestic early potatoes started in May at UAH 13-16
per kg. During the next 20 days, price slowly went down to UAH 3-5 per kg and stayed at this
level for the next month. At the end of June, there was another decrease to UAH 2-2.5 per kg.
Finally, the last decrease happened in July, when the price went down to UAH 1.5-2 per kg (see
Figure 8).
Figure 8. Early potatoes. Average prices on Ukrainian Wholesale Markets, UAH/kg

   30

   25

   20

   15

   10

    5

    0
     15,03    29,03    12,04    26,04     9,05     21,05   3,06   17,06   30,06   14,07   26,07   8,08   22,08

                      Шувар, 2005                          Шувар, 2006                      Копани, 2005
                      Троещина, 2005                       Копани, 2006                     Троещина, 2006


Source: Agricultural Marketing Project in Ukraine [5]


Market analysts however say that, in order to properly compare 2006 and 2005, a two-week lag
should be taken into account as the winter of 2005/2006 was longer. Assuming the climate
conditions of 2005, the prices for early potatoes in 2006 would have fallen two weeks sooner than
they actually did fall. Total sales of the early potato growers were lower while the costs were
higher in 2006.

Besides climate conditions and increased area under early potato production, the market for early
potatoes in 2006 was enormously influenced by imports resulting from the new tax regime and
Egypt appeared as a new supplier on the market with an incredible 55% share of total imports.
Ukrainian consumers however were able to clearly see the difference between the Egyptian so-
called “early” potatoes (bigger in size and with a thicker skin) and domestic ones. For a short
period of time, there was a situation when Egyptian potatoes were sold at UAH 3 per kg, while
domestic early potatoes were sold at UAH 10-15 per kg. Despite the higher prices for local early
potatoes their prices are believed to have been reduced, as a result of competition from imported
early potatoes.

The telephone survey revealed that, due to “gray” import activities by local populations, potato
prices are significantly lower in the bordering regions than in the central and southern oblasts of
Ukraine.
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8.     Major Competitors

Together, the largest Ukrainian fruit and vegetable importers/wholesalers provide almost all the
country with imported fresh potatoes. The leading importer is Ukrainian Fruit Company that
supplies potatoes to the central region and Kiev. Another importer in this region is Triada System.
World Fruits supplies fruit and vegetables for Donetsk area, while Arkadia is the top supplier in
Kharkov. Avrora and Fruit Import are among the major players in Odessa and South-Western
Ukraine. Tropic Company is the largest importer in Lvov. The rest of the market is divided
between smaller companies.

Most of the large importers use distributors. Some importers cooperate with retailers directly and
even sell to consumers. High-value potatoes are shipped to supermarkets, while cheaper
products go to convenience stores, open markets, and specialized fruit & vegetable kiosks.

The largest Ukrainian retailers include Velika Kishenya chain of supermarkets, Fozzy wholesale
hypermarkets, La Furshet chain (that also has an internet-based store), and ATB markets
scattered throughout the country. Foreign chains include Billa (Austria), Metro Cash & Carry
(Germany) and Perekrestok (Russia). Russian Pyaterochka, British Tesco and French Carrefour
are carrying out market research in Ukraine.

9. Moldovan Produce: Buyers’ Perceptions and Recommendations

Only one respondent noted that he had purchased fresh potatoes from Moldova. All the other
companies do not deal with Moldovan produce. Specific observations made by the interviewed
importers and supermarkets are as follows:
    Moldovan potatoes do not meet the requirements of the high-end Ukrainian market and
       thus do not reach the supermarket chains;
    they are often unsatisfactorily graded and poorly stored;
    furthermore, supplies from Moldova are irregular and mostly illegally;
    due to these problems, Moldovan potatoes are sold by smaller wholesalers and find their
       way to the low-priced open bazaars in Odessa region.

In order for Moldovan exporters to enter the high-end segment of the market, the respondents
recommended the following:
     ensure proper handling and storage of potatoes to preserve the quality of the produce,
     improve sorting & grading techniques to avoid mixing potatoes of different size, shape,
        and general condition in the same batch,
     establish legal and regular business relations with Ukrainian partners,
     keep in mind the seasonality of potato imports into Ukraine:
       -     imports are high in January – May, when domestic supply goes down dramatically
             (due to poor local potato storage conditions and resultant high losses) and lower
             import duty is applied for new potatoes;
       - some imports are made in May – August, when/if the new crop does not satisfy
             market demand in full;
       -     during the autumn and early winter, there is plenty of local produce and imports are
             almost stopped.
NOTE: Contact information on buyers for this market may be obtained from Agribusiness
Development Project (ADP): str. Bulgara 33/1, Chisinau, Republica Moldova 2001;
Tel: (373 22) 577-930, Fax: (373 22) 577-931;
Email: info@moldova.cnfa.org Website: www.cnfa.md

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10.    List of Reference Materials


[1] FAOSTAT data (http://faostat.fao.org/faostat/collections?subset=agriculture)
[2] International Trade Centre (ITC) Product Map (www.p-maps.org/pmaps)
[3] EUROSTAT data (http://fd.comext.eurostat.cec.eu.int/xtweb/mainxtnet.do)
[4] UN Comtrade Statistics (http://comtrade.un.org/db/default.aspx)
[5] Agricultural Marketing Project in Ukraine (USAID / Land O‟Lakes) (http://www.lol.org.ua)
[6] Washington State University – Potatoe Information & Exchange
    (http://www.potatoes.wsu.edu/varieties/)
[7] www.wikipedia.com




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