Construction of storage facilities is a very profitable investment while the price for vegetables is so high in Ukraine

Current high prices for vegetables due to occupation of the horticultural regions of Ukraine as well as destruction of the vegetable storages in the regions where hostilities tool place, and recent blowing up of the dam of the lardest water reservoir in the South of Ukraine create opportunities for the Ukrainian farmers for business development in particular for construction of the vegetable storages. In addition, such storage will pay off much faster than vegetable growers expect, and this tendency is for years to come. Andrii Marushchak, commercial director of Van Dijk Technics, told in his interview to SEEDS

Van Dijk storage in Ukraine
Van Dijk storage in Ukraine

Do the high prices of vegetables make the construction of professional vegetable storages a profitable capital investment?

Of course! First, it is a necessity. Also in the period of high prices for vegetables, the construction of vegetable storage is a very profitable capital investment.

Previously, it was believed that the payback period of storage, for example, for 10,000 tons, at the price before full-scale invasion, is approximately 4-5 years. However, today the same storage can pay for itself even in a year.

That is, those farmers who built storage facilities two years ago, planted vegetables in season 2022 and kept them till 2023 can now successfully sell their produce for very good price and return their capital investment.

The storage allows farmers to plan their business processes and cooperation with the buyers – they do not need to sell the vegetables from the field and can wait for better price or higher demand. Storage is a need when the farmers have long-term supply contracts with retail or wholesale buyers. They know that it is possible to agree on a certain volume, and you will be able to provide it with guaranteed quality. So the professional vegetable grooving is hardly possible without storage facilities. If you have a full-fledged, highly efficient storage, built according to Dutch technologies, it will ensure minimal losses during storing period and high quality of the vegetables all year round.

Having a modern warehouse, is it possible to establish the export of vegetables?

To be honest, we don't have any Ukrainian vegetables for export today since there is significant shortage of domestic production of vegetables for so call “borshch” set as onions, carrots, red beet, pepper, etc. But sometimes, when there is overproduction of some crops in Ukraine, our farmers try to export vegetables little by little through Moldova, Romania, and Bulgaria.  These volumes  cannot be called a stable or serious export. It is about stable and regular deliveries from year to year, as it happens, for example, in the same Netherlands. However, in recent years, 15 vegetables have been more expensive in Ukraine than in Europe.

Why so? Are vegetables grown or stored incorrectly? What is the problem?

Personally, I believe that the problem is that we lack systematic approach in vegetable growing.

Let’s consider any Dutch, Hungarian or German farmer: he knows that he has a contract with a retailer, for example, for 5 thousand tons of onions and 2 thousand tons of potatoes. He knows that he needs to grow these vegetables at the minimum cost in order to ensure the maximum profit, because the price is already known in advance. To ensure the highest quality the storing technologies should be also the best. Here I recommend Dutch storage solutions.

For some reason, contract cultivation is not applied in Ukraine. Most likely, the retail is not working accordingly to encourage this. Retail representatives are still trying to get in contact with small farmers who grow f.e., 10 hectares of vegetables, and buy everything cheaper, at the lowest price.

That is, the problem of high prices is not even with agricultural producers, and not with farmers?

Growing vegetables in Ukraine today is such a complicated game: every farmer must not only grow vegetables but also find the way to sell them. F.e. in Germany, the farmer knows to whom he will sell 90% of what he has grown. He is engaged in guaranteed contract cultivation for certain retail chains: European, local, local supermarkets, etc. And only a small part, 10-20%, he can grow in order to sell on the free market.

In Ukraine, farmers are not sure that, having grown 100 hectares of vegetables, they will be able to sell them. If the price of some products increases, as this year, then next year everyone will plant these vegetables, and not only large ones, but also many small farms. All of them will flood the market with products, and the price will be too low for everyone.

At the same time, contract farming could regulate this process. Every retailer knows exactly how many vegetables he sells each year and which ones. However, retail is currently not ready to enter into long-term contracts. And the farmers themselves are not yet ready to work with long-term agreements.

What is the essence of this problem?

The retailer expects that in the period when all the vegetables are harvested and arrive on the market, they can buy cheaper than the contract price. At the same time, each farmer expects that he can sell more expensive than they can negotiate with the retail.

It is important to mention that Ukrainian processors managed to make long-term agreements with the farmers, although there are not many of them. In particular, potato processing companies contract potato in advance.  At the end or beginning of the year, they agree on all the details and sign contracts with the farmers. However processors need only certain varieties and farmers grow only them. At the same time retailers don't care what kind of potatoes or onions to sell, so they always go for cheaper option on the market

How to change this situation and make vegetables growing a profitable business in Ukraine?

Start bringing chaotic business model to systematic one. Some time ago, when big potato processor  entered the market of Ukraine, they built a storage, created a pool of farmers who were taught how to grow the varieties required for processing, and helped them at the initial stage with agronomic support, technology etc. This cooperation is still working. However the share of potato processing in Ukraine is little compared to the total production. Those few Ukrainian processors use approximately 10% of the volume of potatoes grown in Ukraine.

What is the situation in Ukraine regarding vegetable processing?

There is processing of vegetables, but it is minimal and there are possibilities to grow. There is, for example, drying of vegetables or freezing, but the volumes are less than thousands of tons. Processing companies experience problems with supply of raw material, recently with electricity supply, export problems and change in local consumption.

For example, in EU, the fresh market for vegetables and potatoes is only 10-15%. The rest is processed. And this cover the local demand. In Ukraine, everything is the other way around - our market of processed vegetables and potato is not even 10%.

Why is everything like this?

Processing require big investments. Big processing company can create a healthy network of farmers and supplier and stabilize the situation in the market to make it profitable for everyone. Of course the price of processor is not the higher on the market, but it is stable and the farmers can plan their operations despite of the situation on the fresh market.

The farmers that grow vegetables or potatoes for the fresh market usually do not have any guarantees.

Your company implemented a number of projects in Ukraine on construction and equipping the vegetable storages. Do these projects include also processing?

Our business is focused on the development of this market segment, but such projects require big investments. First the storge, then processing. Storage guarantees that processing line will have constant supply of raw material.

Does it make sense to invite now foreign suppliers and investors to Ukraine?

Definitely. And based on my experience in cooperation with the Netherlands I see a lot of opportunities for the Dutch companies in this sector in Ukraine. They started it in Poland and it worked great for them and it still works.

Despite of the current challenging times in Ukraine business work and must develop, especially the agricultural sector and food processing. Local processing can solve the problem with current export limitations and can create added value in Ukraine for local consumption and further export. Moreover deeply processed food products are of high demand not only for military purposes but also for civilians in the regions that are close to hostilities and suffer without electricity, gas and water supply.

This year the local price for the vegetables in very high and despite of inflation and farmer will have decent profit, which is wise to invest in storage facilities and processing.

Every farmer who grows vegetables for a certain period of time comes to such a decision. Clients and friends have told me about this more than once. After 5-15 years in the vegetable business, the construction of a storage facility becomes no longer a wish, but a necessity.

However, it is also worth considering the quality of technologies. The Dutch technology of building vegetable storages is a combination of many factors: minimum energy consumption, maximum quality of product and, accordingly, minimum losses. Energy efficiency in times of war and the threat of new blackouts is extremely important for Ukrainian farmers.

International Financial institutions open now programs for support of the projects in f.e. potato processing, vegetable production etc. This is important not only to ensure the local food security, creation of jobs and economic stability but also can facilitate access to sustainable modals of doing business and improve the standards of local farmers and processors. With availability of export insurance and / or investment guarantees  for the Dutch companies, I am sure they would take more and active role in horticultural sector on Ukraine and support in further development.