Due to the modern trends, the healthy food and organic food use are becoming more popular both in the world and in Ukraine. Herewith, the exports became the main way for the Ukrainian organic products distribution. The low level of public awareness about organic products played the key role, thus they are usually confused with the products marked “bio”, “eco”, etc. at supermarkets.
So, the current market situation in the segment of organic products and the prospects of the further developments and operations were the main topics of our interview with Andrei Pylypchenko, the Founder and head of Arnika — the largest company in Ukraine operating in this sphere.
— Andrei Vasylievych, the creation in Ukraine of the developed system of the organic business and collaboration of producers, processors, logistics specialists and traders of organic products is the mission of Your company. What results have You succeeded?
We started our work with several Ukrainian organic companies in terms of possibility to create the association of producers based on the principles of Western European cooperatives that obtain the inner standards of production. The implementation of the project will allow the association to become a big player on the domestic and the international markets.
— What was the spur for development of the organic activity of Your company? How do You estimate the potential of such market segment in Ukraine? In Your opinion, what are the main prospects?
Since my entering the agribusiness in 2000, I have had a feeling that we were doing something wrong putting the toxic substances into the soil, e.g. weed killers, pesticides etc. When I found out that there are agrarians that grow the crops without such compounds, I got interested so much that in 2006 we held a workshop about non-pesticide way of soybean production. Herewith, we had to spend 6 more years to transfer the company to the complete organic production.
As of the Ukrainian potential on the global organic market, I suppose it is high enough. First of all, due to the high quality lands and close geographic location to one of the largest markets — the EU.
First, the main prospects lie in the high and stable growth of the organic market, which in my opinion, depends on several reasons: the population ageing in the developed countries and entering the Z-generation that are highly aware of healthy food, which has a strong priority to them. Also, it is very important that the use of organic food is becoming a fashion trend.
— Considering Your outlook, how have the market changed, since Your company foundation?
It is difficult to conclude some surveillance since 2000, as our company launched the organic business only in 2012. And it is only in terms of technologies transfer, whereas the first consignment of organic products was contracted from the 2015 crop.
At the same time, the market volumes have significantly increased since then. If in 2000 the global trade totaled $17.9 billion, in 2017 it gained more than $90 billion — 5 times increase.
— What organic crops do You cultivate, and what organic products do You manufacture? Do You plan to increase the list of products?
The main crops that we produce are soybeans and corn that are used as a feed compounds. In terms of industrial use, it is wheat, food corn and now we also launch the production of food soybeans. In the current year, we started growing chickpeas, lentils, flaxseed and buckwheat, and also industrial hemp. Moreover, we plan to analyze the prospects and the profitability of beans and high oleic sunflower seed.
— By 2025, You plan to increase the arable areas to 100 thsd ha and take one of the leading positions in terms of the production on the European market. What results have You succeeded in 2017/18 MY?
At the current moment, the company’s efforts are aimed at improvement of the cultivation technologies and the control systems on 16 out of 20 thsd ha of the land bank of the company. And as the plans to expand the areas has not changed, it is very important for us to have the possibility of the transposition of the technologies applied and the systems of control on the expanded areas.
In 2017, we have become the largest exporter of the organic products of self-production to the EU which is approved by the CEO of Organic Standard LLC, Sergey Galashevskyi. I would point out that for the last 3 years we exported nearly 20 thsd tonnes of organic products to the following countries: Switzerland, Germany, Austria, France, the Netherlands, Lithuania, Estonia.
In 2013, we started the transition to the organic production via increasing the planted areas from 2.2 thsd ha to 10.6 thsd ha. Moreover, 4.5 thsd ha are still in the process of transition which is to end in 2019.
— Taking into account the growing interest of the people in the world to the healthy food and some limited capacities of the Ukrainian consumers, is the export of organic products from Ukraine going to be the main means of its distribution?
Today and I believe in the short term perspective, the exports will remain the main way of organic products distribution. But it must be said that the domestic market of organic products moves in the upward trend.
— For the moment, what countries are the main consumers of Your products? What countries are the prospective consumers?
The company’s enterprises are verified under the standards of the EU, BioSuisse, NOP and COR which gives the opportunity to sell the organic products to the EU counties, Switzerland, the USA and Canada. Since the start of 2018/19 MY, we also started exporting the products to Italy and France.
Moreover, in 2018 we obtained JAS certification and in the very near future we plan to start exporting our goods to Japan.
— As of the domestic market of Ukraine and taking account Your observations, to what extend have the competition on the market increased lately? By what means are You able to increase the competitive attractiveness on the domestic and foreign markets?
I believe that the developed market of the organic products in Ukraine is only forming. We hope for the help of law to improve the main principles, requirements of the organic production, in particular by means of the facilitation of the organic products labeling. It is important as the consumers and the retail chains usually confuse the organic products with such names as “bio”, “eco” etc. that I should say are far from being organic. I believe, that it will give the opportunity for the verified companies to increase their share on the market. More companies should enter this market segment and then we will see the real competition. And the key of the competition attractiveness increase lies in transparency, traceability and drive for the lowest production costs.
— Your company pays much attention to the inner control of the fields condition, seeds, machines, storing and adaptation of agriproducts. What are the main difficulties of the organic production at different stages?
These issues deserve another interview but the simplest answer is that everything is difficult. First of all, it is a great dependence on the human factor at all stages of production. It is quite complicated to unify all the processes with accordance to the manufacturing plans because every day it is needed to take decisions about every field. Moreover, there is a difficult every day documentation work and the necessity to provide the control over all of the processes. Difficulties appear at times of failure at any stage of the process. But the most difficult is to see the ruination of the filed especially when you can do anything.
— Then, what measures do You take to solve the problems? How does it affect the products cost?
First of all, we create the control system with the help of which we have the full traceability of the production processes at all stages, such as:
— Implementation of the satellite control systems;
— Monitoring of the fields with the help copters;
— Photo and video evidence of the corresponding operations, e.g. cleaning of the machines, etc.
Moreover, we constantly increase the general production standards, hold the strict discipline and strictly abide to the operating procedures. Of course, all of these measures increase the costs of products, which is our case reach up to 3%.
— Lately the weather conditions negatively affected the quality and yield of the crops. In 2018 many agrarians had severe problems with different fungi diseases of grains. Have You faced such problems? What measure have You taken to prevent it?
This year we did not face the problem of fungi diseases as major plated areas of the early grains were harvested before the massive rains. The main methods of the prevention of diseases and pests that we use are crop rotation and special tillage technologies, and also the use of the biological means for plant defense.
— Logistics is also one of the most expensive item and specific process of the organic production. Last years it significantly complicated the operations on the Ukraine grain market, and in the beginning of 2018/819 MY it reached its peak. What can You say about the logistics of organic products?
I suppose that this year especially in October for many companies the logistic issues reached its highest peak. I do not remember such severe problems with logistics ever. This subject is very relevant in terms of organic products market because the transportation by grain-cars to the seaports became nearly impossible as the lowest number of grain cars which can be loaded at a single station totals to the whole train.
The other problem is that our partners — grain organic terminals at the seaports cannot load the high number of grain cars during the two days in comparison to our company that has its own terminals and is capable to load the grain cars during the same period. Thus this issue is very problematic. The only option for the logistics of the organic products is the transportation by trucks. So this problem is huge and is of national level. If Ukraine, as a country is interested to take a worthy place on the global markets than logistics especially at the seaports should be paid special attention.
— In general, how do You estimate the profitability of the organic production in comparison with the traditional one?
Based on our own experience I would say that the profitability of the organic production in the context of 1 ha is $200 higher from the cost of the traditional technology.
— On July 10, Ukraine adopted the law “Main principles and requirements for the organic production, circulation and labeling of the organic products”. In Your opinion how this law would influence the market functioning?
I believe that it will affect first of all the domestic market and should complicate the trade of the so-called “organic” products. Moreover, it should improve the competition on the market. Also, there is a hope that with this law there would be a possibility to include to the national budget the costs for the support and development of the organic market of Ukraine.
— Thank You for the outstanding conversation, and in conclusion I would like to ask You about the plans of the company for the future.
First of all, this year we plan to export the record volumes of organic products — more than 30 thsd tonnes. Also in the short-term perspective we plan to enter new markets and open the market of organic products processing for the feed and food use.
Interviewed by Anna Tanskaya, APK-Inform Agency