The Ukrainian Market for Fresh Peaches and Nectarines
Target Market Confirmation Study
Conducted by Business So-Nik for USAID/CNFA’s Agribusiness Development Project
June 2006
COntents
Key Observations and Recommendations
Background
Production Trends
Import/Export Trends
Market Access
Information on Companies Interviewed
Sources of Supply and Import Seasonality
Major Clients and Markets
Produce Requirements and Preferences
Size
Packaging
Logo/brand
Country of origin
Quality requirements
Varieties and Trends
Prices
Major Competitors
Moldovan Produce: Buyers’ Perceptions and Recommendations
List of Reference Materials
TABLES AND FIGURES
Figure 1 . World production and yields, 1995-2005
Table 1. Ukrainian imports of fresh peaches and nectarines in 2004
Figure 2. Ukrainian imports of fresh peaches and nectarines in 2004 (volume)
Figure 3. Ukrainian imports of fresh peaches and nectarines in 2004 (value)
Table 2. Trade and production of fresh peaches and nectarines, in MT Ukraine, 1996-2004
Key Observations and Recommendations
This study highlighted the high volatility of the fresh peach and nectarine market in Ukraine. As the country’s economic growth increases the purchasing power of the Ukrainian population and the demand for fresh peaches and nectarines increases every year. However, uncontrollable weather conditions greatly influence the ratio of local and imported produce bought and sold, and prices on the market. This market is likely to grow significantly to accommodate both domestic and foreign producers of peaches and nectarines.
Ukraine, like most of the peach producing countries in Central and Eastern Europe, has seen a decrease in the acreage of peach orchards and rather volatile peach production over the last 10 years. Market analysts expected2006to be a very important yearfor this agricultural sector for two reasons: a) almost all old peach orchards had been cut down (because of biological obsolescence) in the country by the end of 2005, and b) a large acreageof new intensive orchards was planted in 2005 in Southern Ukraine (at first in Odessa region, then in Crimea) exceeding 300 ha. Therefore, an increased availability of peaches may therefore be expected on the Ukrainian market in 2009.
Volumes ofUkrainian imports of fresh peaches and nectarines are very unstable, depending on the level of local production, which in turn is determined by weather conditions[1] during a particular year. Available information on trade data (eg from FAO and ITC) diverged to some degree with information obtained during telephone surveys, which indicated that the major supplying countries are Spain, Italy, and Greece for top-class fruits, Turkey and Macedonia for medium-class peaches and nectarines, and Moldova for low-price, low-quality, and mostly informally imported produce.
According to the new customs tariffs, peaches are subject to an import tax of EUR 0.5 per kg, while a 10% import tax applies for nectarines regardless of season. Decreased import taxes along with the lossof local peach productionmay lead to imports of peaches and nectarines into Ukraineincreasingin 2006. As the demand for nectarines is growing much faster than that for peaches and the growth of domestic nectarine orchards is rather slow, imports of nectarines are likely to surpass peach importsshortly.
Moldova appears to be an insignificant exporter of peaches to Ukraine. Most respondents said that they hadnot dealt with peach imports from Moldova. Although tasty and cheap, Moldovan peaches are poorly packed and graded, which results in high levels of poor quality/non-marketable product arriving in country, and thus huge losses to importers and supermarkets. In addition to the problems related to the quality of produce, another complication is that Moldovan peaches are brought into Ukraine informally. As a result, most of the produce ends up on open markets in neighboring Odessa region.
In order to reach the high-end segment of the Ukrainian market, Moldovan suppliers should improve their sorting and grading techniques and use modern packaging. They should also conducting formal export business relations on acontract basis. In the long term, more sustainable strategies must be adopted. Given the current trend in consumerpreferences, the development of modern intensive nectarine orchards is recommended. This with lower Moldovan labor costs should allow Moldova to be competitive on the developing Ukrainian Peach and Nectarine Market.
Background
Figure 1 . World production and yields, 1995-2005Source: FAOSTAT Data 2005
Production Trends
Peaches and nectarines are widely spread around the world and are produced in more than 70 countries. Globally, the area under production of peaches and nectarines reduced from 1.42 million hectares in 1994,down to 1.2 million hectares in 1998, and then rose again to 1.42 million hectares in 2005. During the same period peach and nectarine production has grown by almost 45%, which suggests that yields have improved significantly in a short period of time (see Figure 1). In 2005 peach production reached 15.6 million metric tons (MT) worldwide. (FAOSTAT Database [1]).
The top4 producers – China, Italy, USA, and Spainaccount for over 60% of the growing areas and almost two-thirds of world peach and nectarine production. The sharpest increase in production over the past 10 years was by China (+3.25 million MT) – world leader in peach and nectarine production (currently producing over 6 million MT or 38.6% of total production).
The present trend among the leading producers is that Italy (1.74 million MT, 11.1% of production), the USA (1.37 million MT, 8.8%), and Spain (1.13 million MT,7.2%) are maintaining or increasing their production, while Greece and France – former majorproducers – are experiencing sharp declines in production. This indicates that specialization is intensifying, especially among the EU members. Spain is currently the only important European producer steadily expanding peach and nectarine plantations [1].
The total area of peach orchards in Ukrainewas gradually diminishing from 14,500 hectares in 1996 to 9,500 hectares in 2005. Local production has been fluctuating during the Past 10 years between 12,200 and 43,700 MT [1]. According to the Agricultural Marketing Project in Ukraine [3], 2005 may have been crucial for Ukrainian peach producers: a) almost all old peach orchards approached the end of their productive life and were cut down by the end of that year, b) large acreagesof new intensive orchards was planted in Southern Ukraine, in the Odessa region, and then in Crimea. The demand for peach trees increased significantly in fall 2005 as many farmers have been focusing on creating new nectarine orchards. A dynamic increase in peach supply may therefore be anticipated in 2009.
However, Ukraine lost almost all of its peach harvest in 2006. About 100% of peach fruit buds in Crimea and up to 50-60% of fruit buds in Odessa region froze, meaning that the peach harvest will probably be only 20% of the previous years volumes. Since consumerdemand for peaches is constantly growing, a significant increase of peach importsto the Ukrainian market is expected in summer and fall 2006.
Import/Export Trends
Less than 8% of peaches and nectarines enteringthe world market are fresh. The2004 volume of fresh peaches and nectarines imported worldwide was 1.2 million Mt (+2.7% as compared to 2003). The FAOSTAT database statistics shows significant fluctuation in peach and nectarine production and trade both globally and in individual countries, including major producers. The fluctuation in productioncan be explained bythe sensitivity of peaches and nectarines to weather conditions. This is also true for international trade in value terms and for average peach prices on the international market, which vary from USD 0.5 to 1 per kg depending on supply and demand (on the EU market the price is about 20% higher) [1].
The leading exporters of peaches and nectarines in terms of tonnage are Italy (34%) and Spain (21%), followed by Chile (9.5%), the USA (9.4%), Greece (8.2%),and France (5.5%), altogether accounting for 88% of the peaches and nectarines exported. Although in value terms these 6 countries cover almost 90% of the exports, the distribution of income differs a great deal:Spainis leading with 31%, followed by Italy (27%), the USA (9.6%), France (9.1%), Chile (7.5%), and Greece (5%).
The contribution of Italyin worldwide exports is dropping greatly, Greece and Franceare loosing their position as major peach and nectarine exporters as well, while Chile and Spainare increasing their share, the latter showing on average 15% of yearlyincrease in exports for the past 5 years. In the near future China could become another important player on the market, as the quantities of peaches it produces are immense and steadily growing at about 10% per annum over the last 6 years. In2004 Chinasupplied about 1.3% (15,653 MT)of the world peach and nectarine exports (compared to 0.2%, 2,050 MT in 1999) at very low prices (in terms of value China’s contribution was 0.4%) [1].
The biggest import markets for fresh peaches and nectarines are in the developed countries of Europe and North America. Germany is the first among the top importers of fresh peaches and nectarines with 262,341 MT, 21.5% share in world imports, followed by the U.K. (93,195 MT,7.6%), France (87,841 MT, 7.2%), the USA (74,854 MT,6.1%), and Canada (63,421 MT,5.2%). Russia also imports large quantities of fresh peaches and nectarines (6.3%), however in terms of value it contributes only 3.6%(US$ 45.6 million) to the overall value of the world peach and nectarine imports. (Alargepart of the traditional Russian suppliers arethe lower-valued developing countries of the CIS (Uzbekistan, and Moldova.) RecentlyChinaconsiderablyexpandedits presence on the Russian marketwith about 8,500 MT in 2004 (ITC Product Map [2]). In value terms theEU countries account for almost 70% of the world peach and nectarine import markets and import mainly from big EU producers (Italy, Spain, Greece, and France).
According to the FAOSTAT statistics, the Ukrainian peach and nectarine trade (including both import and export) is rather negligible in comparison to local production (see Table 1 below). Ukrainian imports have never exceeded 1% of total production and normally stay at the level of 0.1-0.5%. However, these figures may not be accurate. ITC calculations based on COMTRADE statistics show an amount of about 500 MT imported by Ukraine in 2004 (see Table 2 below). Figures are based on the data from supplying countries, since Ukrainedidnot report its trade data. ITC puts Ukraine on the 54th place in the list of fresh peach and nectarineimporters (2004).
Table 1. Ukrainian imports of fresh peaches and nectarines in 2004Exporters / Imported value, 000 US$ / Imported quantity, tons / Unit value, US$ / ton
Poland / 234 / 355 / 659
Netherlands / 55 / 53 / 1,038
South Africa / 52 / 35 / 1,486
Slovakia / 28 / ? / ?
Greece / 24 / 32 / 750
Chile / 12 / 21 / 571
Total / 405 / 496* / 760*
* Excluding Slovakia (data for quantity is unknown)
Source: ITC calculations based on COMTRADE statistics
In 2004 Ukraine imported fresh peaches and nectarines from 6 countries. Poland is by far the major supplier with 72% of the total imports (see Figure 2). The rest is divided among three other EU countries, plus South Africa, and Chile. The breakdown is different when comparing the imported value (in US$). While the share of Polanddecreases to 57%, more expensive fruit from the Netherlands and counter-season fruits from South Africa increase considerably the shares of these countries (seeFigure3)[2]. The Netherlands is not a peach and/or nectarine producing country, and peaches from this source will be re-exported product from Southern Hemisphere or other EU countries.
Figure 2. Ukrainian imports of fresh peaches and nectarines in 2004 (volume)Figure 3. Ukrainian imports of fresh peaches and nectarines in 2004 (value)
Market Access
According to new Ukrainian Customs Tariffs that took effectin August 2005, the import tax on peaches (and a number of other fruits)was equal to the privileged duty and now is EUR 0.5 per kg. Nectarines are even more favored by a 10% import tax, which is half of that applied to peaches. The decrease of import duties for vegetables and fruits indicatesnatural and positive developments; Importers will certainly benefit from simplified import operations for many vegetables, fruits and berries that are not grown in Ukraine, as well as from lower duties for products that are not grown during the winter season. Lower duties will provide additional incentives to strong exporters to Ukraine.
Table 2. Trade and production of fresh peaches and nectarines, in MT Ukraine, 1996-2004Metric / Year
Tons / 1996 / 1997 / 1998 / 1999 / 2000 / 2001 / 2002 / 2003 / 2004
Production / 43,700 / 28,100 / 30,900 / 12,200 / 35,200 / 19,600 / 19,650 / 32,900 / 25,900
Import / 394 / 92 / 199 / 26 / 34 / 26 / 26 / 123 / 1
Export / 100 / 74 / 73 / 0 / 31 / 0 / 0 / 97 / 0
Balance / 43,994 / 28,118 / 31,026 / 12,226 / 35,203 / 19,626 / 19,676 / 32,926 / 25,901
Source: FAOSTAT Data 2005
Information on Companies Interviewed[3]
The telephone survey was aimed at revealing basic first-hand information on the Ukrainian market for fresh peaches and nectarines: 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 exportersinterested in entering the Ukrainian market high-end segment. This primary research was aimed at closing the information gaps encountered while collecting secondary market information foranalysis.
The target interviewees for this survey were the major playerson the official Ukrainian market for fresh fruit (peaches and nectarines in particular),with large operations and considerablepresence 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 peaches and nectarines in this country. Four 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 peaches and nectarines account for about 5-15% of their total sales of fruit and vegetables. The total volume of fresh peaches and nectarines imported by the interviewees ranges from 150 to 250 tons per season. None of the respondents indicated the monetary annual turnover.One of the importershad just started to deal with fresh peaches and nectarines trade.
The supermarkets that were interviewed are among the largest networks, covering most of the country with high-income population. They reported imported fresh peach and nectarine sales of 100-250 tons per year (comparedwith the official data on the country’s total imports of 1 ton in 2004).
Sources of Supply and Import Seasonality
While most respondents indicated that their fresh peaches and nectarines come exclusively from abroad, some of the respondents (both wholesalers and supermarkets) reportedthat they bought 10-35% of the products from domestic suppliers. Companies usually cooperate with a few local producers that have modern intensive orchards, competitive prices, and acceptable quality produce. These suppliers are traditionally from theOdessa region and Crimea.
According to the telephone survey, almostall of the imported fresh peaches and nectarines come from Europe. Spain, Italy, and Greece are the top three suppliers to Ukraine with a 50-70% share of imports. Macedonia and Turkeyconstitute the second group of suppliers with 20-40% of imported peaches and nectarines. Small amounts of about 5-15% come from other countries, including Moldova. The suggested composition of supplying countries differs considerably from the information provided by ITC for the year 2004. Possible explanations for the differing information may indicate considerable levels of unofficial trade,
All but one of the respondents indicated that they had notdealt with peaches imported from Moldova.In addition to the problems related to the poorquality of produce, an important obstacle to business relations is the fact that Moldovan peaches are brought into Ukraine illegally. As a result most of the produce ends up on the open markets in neighboring Odessa region.
Because peaches and nectarines are highly perishable and have a short shelf life, there is a distinct seasonality pattern in supply that closely follows the harvest of the fruits. First peaches and nectarines appear in May-June depending on the spring (late or early) and are available on the market till September. Most varieties yield for a short periodof weeks per year, and in to achieve a long period of supply it is necessary to grow a wide range of varieties with different, successive harvesting dates. The peak of supply is mid-summer, with less production at the beginning and end of the season. With the same custom regime during the whole year, the seasonality is determined solely by the production of peaches and nectarines in the supplying countries.
Major Clients and Markets
Imported fresh peaches and nectarines are generally sold and consumed domestically. None of the respondents indicated export of this produce. Official data, however, reports very modest export from Ukraine. The two neighbors, Russia and Belarus, import Ukrainian peaches.
When imported by large wholesalers,fresh peaches and nectarinesare further sold to distributors or directly to retailers. The majority of imported fresh peachesare sold in supermarkets (high quality, expensive produce) or in open bazaars (poor quality, cheap produce), All of the interviewed importers/wholesalers use the distributor system (50-100% of their sales) and/or cooperate with retailers (mainly supermarkets). A very small percentage of the produce goes directly to the consumer.
Supermarkets and hypermarkets, on the other hand, purchase the fruits from the importers (directly or through intermediaries) and sell all their peaches and nectarines directly to consumers or to very small retailers. The cheaperfruit that cannot meet the requirements of supermarkets (quality, size, packaging, etc.) are traded on the open (retail or wholesale) markets.
Produce Requirements and Preferences
In general, Ukrainian high-income consumers will notmind the higher price ofimported peaches and nectarines, assuming that the quality is superior. The color of the fruits (especially that of their pulp), their shape and size, and their taste are considered more important factors to high-end consumers. For lower-income consumers the price is the key factor in choosing the produce. They prefer domestic or Moldovan peachesfor this reason (both are cheaper).
The consumer perceives the peach as a summer fruit on account of its characteristic taste, crunchy pulp and thirst-quenching juiciness.