Industry of canned fruits and vegetables of Ukraine (2007)
 

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 in collective farms and state farms in almost all regions of Ukraine. Approximately 3.5 bn conditional tins (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 general state in the industry was not very good. The overhaul of the economy, break up of old ties, and introduction of new business forms resulted in drop of fruit and vegetable output production in the first half of 1990s at large agricultural companies. Previously these farms were the main raw stock suppliers for processing industry. 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 original form glass packaging. In part, 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 in the middle of the new century first decade. The companies started to apply new growing technologies, planted varieties designed for specific types of processing, and grew 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.

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. At the same time, private farms appeared in the state. These companies have essentially increased output of raw stock for canned fruits and vegetables industry and improved its quality over the last decade by application of new modern technologies

The production of canned vegetable and fruits in Ukraine has grown steadily over the last years. It produced approximately 3.02 bn of conditional tins in 2007, which is 27% more than in 2006. 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 353.4 bn tins in 2007, which is 34% less than in the previous year. About 162 enterprises operated in the field in 2006, while their number dropped to 123 companies in 2007. The top ten largest companies produced 53% of the total output in 2006, and this grew to 60% in 2007.

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. Production volumes reduced in Ukraine against the results of Soviet times. Competition between processors and wholesale companies increases on the raw stock market in years when the vegetable and fruit harvests decrease due to weather or other conditions. 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. Conversely, large commercial companies, 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. Large local retail trade networks even have become owners of certain large companies in canned industry.

Estimates of the volume of domestic consumption vary due to the large amount of smuggling. The best expert estimates in 2000 put local consumption at 400 mn conditional tins. Meanwhile, production volumes grew from 491 mn conditional tins (without considering juices and tomato paste) in 2000 to 1,031 mn tins in 2003. It is estimated that the volume of fruit and vegetable cans sales on the Ukrainian market grew up to 700-800 mn tins in 2005. Pursuant to calculations based on official statistics data, consumption of the output in 2007 constituted 407 mn conditional tins. It should also be noted that besides to objective reasons of consumption curtailment, more accurate statistic information on import/export of output and alterations of production statistical reports promoted diminishing of this index. Hence, there was no real reduction of this output consumption by almost 50% in comparison with 2005.

Domestic prices for the output depend on the season and on prices for raw stock. In particular, the canning industry experiences a shortage in high-quality raw stock of set parameters for certain kinds of processing in lean years, and thus promotes 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 striving sell output at the highest possible price 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 2007 are estimated at 270.9 mn conditional tins. It is by 55.6 mn tins or 17% less than in 2006 (2005 – 218.7 mn conditional tins and 2006 – 326.5 conditional tins). Data over 2007 mostly included cans produced for retail trade, while data for the previous years could include canned fruits and vegetables for industrial processing. Therefore it is possible to assert that import of this output would only grow. Ad valorem rates of import duties would contribute to further import growth rather than previous specific duties.

At the same time, exports are characterized by more stable volumes, with a slight growth in volumes registered (217.5 mn conditional tins in 2007, 184.7 mn conditional tins in 2006, and 172.6 mn of conditional tins in 2005).

The following countries were the main suppliers of fruit and vegetable cans to Ukraine in 2007: China (22%), Spain (19%), Hungary (14%), Thailand (13%), and India (4%). At the same time, exports were traditionally destined to Russia (82%), Kazakhstan (5%), Moldova (4%), Belarus (3%), and Germany (2%). Also plenty of Ukrainian cans are delivered to other CIS states, Israel, the USA, Canada, and Baltic states.

The Ukrainian fruit and vegetable canned industry quickly recovered from the turmoil following regaining independence in 1990s. There is a sufficient raw stock basis in the country, a lot of industrial processing enterprises inherited from the Soviet Union, experienced industry specialists, and a cheap labor force.

The long shelf life of canned products and absence of special storage conditions are attractive to wholesalers, too, because they need not worry about purchasing of special sales equipment to store canned food or critical shelf life. Therefore it is present in practically all more or less large trade establishments. 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 have 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 points 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 base 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 growth of the industry in Ukraine further on.