IAMO FORUM 2005IAMO FORUM 2005 SOME SPECIFICS OF AGRICULTURAL SOME SPECIFICS OF AGRICULTURAL

COMMODITIES MARKETING AND COMMODITIES MARKETING AND PROCESSING IN UKRAINEPROCESSING IN UKRAINE

Alexander KobzevAlexander Kobzev, International Finance , International Finance CorporationCorporation

Canadian Agency for International Development Канадське агентство з міжнародного розвитку S id a Swedish International Development Cooperation Agency

Шведське агентство з питань міжнародного співробітництва та розвитку

IFC Survey and Monitoring IFC Survey and Monitoring ActivitiesActivities

A series of four annual surveys “Farming and Agribusiness Development in Ukraine”.

Surveyed 400 private family farmers and reformed collective farms Five Ukraine’s regions studied (West, East, North, South, and Center) Issues: Farm production, marketing, finance & insurance, and land

relations National error – 4.9 %

Survey “Specifics of Agricultural Produce Processing and Marketing in Ukraine”

Surveyed 100 food processing enterprises Issues: Raw product supplies, raw product quality, distribution chains, and other issues National error – 8.9%

Main Distribution Channels of Main Distribution Channels of Commodities Commodities

23%

12%

19%

15%17%

33%31%

21%

2%

7%

1%

4%

7% 8%

0%

5%

10%

15%

20%

25%

30%

35%

Private Family Farms Agricultural Enterprises

Retail Markets Wholesale Markets Processors

Wholesale Traders Government Exchanges and Trade Houses

Other

Weight of main distribution channels employed for sale of grain and oil-bearing crops, % of the

total sales of these crops Main marketing channels: wholesale companies, processors, wholesale & retail markets

Insignificant role of exchanges and trade houses

Growing role of new marketing channels: i.e. supermarkets

Main Criteria for Choosing a Main Criteria for Choosing a ChannelChannel

What are criteria for choosing a distribution channel by producers, % of overall responses

79% of the surveyed

producers of grain/oil crops and

67% of the surveyed

vegetable-growers recognize price as the decisive factor

for choosing a particular customer

79%

67%60%

52%

19%

10%

22%

12%16% 14%

11% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Grain and oil-bearing crops Vegetables

Good price Stable sales

Possibility of prepayment Buyer's reputation

Transportation/storage by buyer Moderate requirements to produce quality

Marketing Channels Profitability Marketing Channels Profitability Profitability of certain distribution channels for

agricultural produce, % of total responses

Retail and wholesale markets

appear most profitable

distribution channels, whereas

government procurements

looks least profitable as a sales channel

4%

7%

13%

29%

11%

31%

43%

44%

44%

64%

58%

34%

39%

25%

23%

7%

16%

5%

2%

3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Gov ernment

Food processing companies

Traders

Wholesale markets

Retail markets

Highly prof itable Prof itable Not v ery prof itable Unprof itable

Payment for Payment for Delivered Delivered CommoditiesCommodities

90% 87%

13%6%

13% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Grain and oil-bearing crops Vegetables

Upon delivery to the buyer Prepayment Deferrent payment for over two weeks

Payment schemes used by farmers selling

their produce, % of overall responses

Farmers’ readiness to sell their produce for deferred payment, % of overall responses

66% 65%

28%

19%

5%

11%

1%5%

0%

10%

20%

30%

40%

50%

60%

70%

Grain and oil-bearing crops VegetablesStrongly disagreeReady, is payment is deferred for no longer than 2 weeksReady, if payment is deferred for 2 weeks-1 monthReady, if payment is deffered 1-2 months

Commodity Supply during the Commodity Supply during the Marketing YearMarketing Year

Proportion of produce sold in the course of marketing year, % of overall responses

44% of harvested grain and oil crops and 58% of vegetables are sold in the period between June and September

Need for cash and lack of storage facilities// high cost of storage are the main reasons for uneven supply of commodities

44%

59%

36%

28%

14%10%

6%3%

0%

10%

20%

30%

40%

50%

60%

70%

Grain and Oil-bearing crops Vegetables

June-September October-December January-March following year April-June following year

Knowledge of the Market and Knowledge of the Market and Product RequirementsProduct Requirements

Producers are best aware of wholesale companies and processors’ requirements to produce, and least aware-of export and supermarkets’ requirements

Only 18% of agricultural enterprises and 4% of private family farms are familiar with “rules of the game” in the Ukrainian agriculture export market

6%

61%

39%

18%

38%

43%

42%

37%

19%

34%

32%

9%

14%

38%

51%

13%

23%

40%

60%4%

48%

39%

12%

28%

5%

4%

8%

6%

7%

4%

10%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

AgriculturalEnterprises

Private familyfarms

AgriculturalEnterprises

Private familyfarms

AgriculturalEnterprises

Private familyfarms

AgriculturalEnterprises

Private familyfarms

Who

lesa

lers

/tra

ders

Supe

rmar

kets

Proc

esso

rsExp

orts

I am fully aware I am partiallyawareI am not aware Difficult to answer

Processors’ Requirements to Raw Processors’ Requirements to Raw ProductsProducts

In 90 % of all cases, the quality of raw material is key for signing a contract between a processor and a particular supplier

Significant factors influencing the choice of raw material

supplier by processing businesses

Second most important factor is price for raw material, as was reported by 80% of processing enterprises

Availability of needed amounts of raw material and timely deliveries are the other two important factors, influencing the purchasing decision of processors

Low Quality of Raw Product Low Quality of Raw Product

72%

60% 56%

19%

80%

67%

13% 11%

39%

69%

33%

61% 67%

50%

28% 20%

28%

6% 6%

20%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Fruit and vegetable Processing and canning

Dairy production

Pasta and bread produc tion

Flour milling And mixed fodder

Storage conditions Low quality varieties Terms of delivery Lack of packaging Weather conditions Other

Major reasons of low quality of raw material, % of responses

Three main reasons of low product

quality:

storage conditions,

bad crop varieties/ unproductive breeds of cattle,

conditions of raw product delivery

Marketing Issues: Supply SideMarketing Issues: Supply Side

Private family farmers

Agricultural enterprises

Low purchasing pricesLow purchasing prices 90%90% 78%78%Storage-related problemsStorage-related problems 54%54% 30%30%

Limited number of Limited number of purchasers/buyers purchasers/buyers

39%39% 37%37%

Transportation problemsTransportation problems 35%35% 23%23%

Lack of information about Lack of information about distribution channels and distribution channels and markets markets

26%26% 29%29%

Marketing Issues: Demand Side Marketing Issues: Demand Side

Inefficiencies of regulatory environment Tax inspections and other types of government intervention High interest rates on commercial loans High level of taxation and poor administration of taxes

External Issues Internal Issues

Worn-out production assets High production costs Lack of qualified workforce

Short-term Business Priorities Short-term Business Priorities

44%

34%

27% 23%

26%

16%

35%

46%

17%

32%

23% 23%

13%

3%

12% 8%

0% 5%

10% 15% 20% 25% 30% 35% 40% 45% 50%

Fruit and v egetables Processing and canning

Dairy production Pasta and bread production

Flour milling and mixed f odder

Upgrade of production f acilities Access to new markets Expansion of product mix New distribution channels

What Processors Intend to Do in the Nearest Future, % of responses

Upgrade of production facilities is

rated as the top priority for ag

processing enterprises

Agricultural Marketing: IFC AgendaAgricultural Marketing: IFC Agenda

Improve the enabling environment: Develop and adopt the laws “On Wholesales and Retail Markets”, “On

Agricultural Cooperation/ Farmers’ Cooperative”, others

Advance agricultural marketing infrastructure

Promote new farm insurance products, warehouse receipts, long-term crediting

Facilitate the development of farm marketing cooperatives

Promote transfer of knowledge and information Extend market information Develop regional brands and trade marks Adopt international quality standards