Agri Supply Chain Management in Ukraine – Challenge and opportunity for the future.

Smart Logistic Group Ukraine

Kiev; September 2009

Agro market Structure• ~ 43 Mio Ha agriculturally used Surface

• this is 27% of the entire European arable land base

• Accounts for one third of the world’s black earth

• Highest coefficient of arable

• Flat topography conducive to efficient crop farming

• Typical farm unit size of 5,000 ha+ (5 times the EU average) leads to economies of scale

Some Facts

Аgrarian Sector in Gross Domestic Product (GDP) of Ukraine

GDP Structure by Types of Economic Activity in 2008

Agrarian sector 9 %

Production and distribution of electro energy 3%

Primary processing industries 24%

Healthcare and social service 3%

Construction 4%

Trade, auto and household appliances service 15%

Transport and connection 12%

Education 5%

Other Industries 21%

Mining industry 4%

Price development Food

Ukraine Agribusiness potential

• Significant future opportunities for agri commodities for export markets, hence emphasis on cost, quality and logistics/infrastructure

• Incomplete transition from USSR to a market economy – Soviet farm structures, input supply channels and markets have disappeared but

new farm structures and commercial channels are slow to emerge, due to the following:

• Land is not cultivated to its potential because ownership of land is limited, • Lack of capital, inputs, and poor agri practices.• Land is privatized but there is no land market.

• Policies– Inconsistent government policies - trade, prices, land are a hindrance to progress– Overall, there is a moderate level of support to agriculture, but highly skewed in

favor of animal products (highly subsidized by international standards) and to the detriment of crops with comparative advantage which are taxed.

• Integration into the international economy– WTO member since May 2008– While competitiveness was not a concern in the past, it is now becoming a

necessity. • Preconditions for successful agribusiness-based development model

The importance of logistics• Short product life cycles and bulk quantities will make sure that the question of agribusiness in Ukraine will shortly become a logistic key issue• The “agri logistic” does practically not exist, neither as ambient nor as cool chain • A huge lack in knowledge of handling vegetable goods (from provider to retailer)• Lack of wide and well equipped distribution centers • Sqm verse TKM (a new attitude will be necessary)

Supply Chain Management issues• Integrated Behavior• Mutually Sharing Information• Mutually Sharing Risks and Rewards• Cooperation• The Same Goal and the Same Focus on Serving

Customers• Integration of Processes • Partners to Build and Maintain Long-Term

Relationships

The existing analogs in Ukraine

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SWOT Analysis Ukraine Agribusiness

Strength:• Crisis independent Development• Huge and increasing consumer market• Incredible fertile land

Weaknesses:• missing ground market reforms • old soviet styled structures (i.e.: “Agrana” – Vinnitsa)• very few investments

Opportunities:• Tremendous local demand • international investment interests / development fund’s• long term high food prices• Export opportunities

Threats: • Ground loss by erosion• Lack of development• Lack of logistic

Possibilities of Realization• Firstly the government needs to realize promised reforms . Due to the voting it can be expected not earlier as in 2011• Not loosing that much time, it becomes reasonable agreeing on “communities of interests” between involved companies, throughout the whole agribusiness • Those new units may attracting investments together for the whole Supply Chain, from the production up to the final consumer • The situation needs new approaches in order to move markets!

Potential Participants• Potential participants are all stakeholders and interested partners• Most important will be, moving up from the chock impression towards a solid business case study into realization of needs. • In the time of globalization once has to look over the frame of the own company and may win by forming alliances • For doing this we don’t need state regulations but just brain

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