Required Report - public distribution

**Date:** 8/3/2004

**GAIN Report Number:** UP4013

UP4013

**Ukraine**

**Food Processing Ingredients Sector**

**2004**

**Approved by:**

![](media/image1.wmf)Necia Quast

U.S. Embassy

**Prepared by:**

Oleksandr Tarassevych

Agricultural Specialist

**Report Highlights:**

Ukrainian Market for food ingredients is expanding rapidly, but US
suppliers are likely to face strong competition from EU-25 countries.
Steadily growing incomes of Ukrainian population of 47 million sparkled
a boom in the domestic food industry, which is trying to satisfy
domestic demand for innovative and high value added products. The
majority of Ukrainian buyers prefer locally produced products, but this
preference does not much affect the market for inputs.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Kiev \[UP1\]

\[UP\]

Table of Contents

[SECTION I. MARKET SUMMARY 3](#section-i.-market-summary)

[Imports of Agricultural Products 5](#imports-of-agricultural-products)

[Tariffs and Import Taxes 7](#tariffs-and-import-taxes)

[Food and Agricultural Product Regulations
7](#food-and-agricultural-product-regulations)

[Other Import Regulations 8](#other-import-regulations)

[SECTION II. ROAD MAP FOR MARKET ENTRY
9](#section-ii.-road-map-for-market-entry)

[Entry Strategy 9](#entry-strategy)

[Market Structure 10](#market-structure)

[Company Profiles 11](#company-profiles)

[Sector Trends 13](#sector-trends)

[SECTION III. COMPETITION 15](#section-iii.-competition)

[SECTION IV. BEST PRODUCT PROSPECTS
16](#section-iv.-best-product-prospects)

[A. Products present in the market which have good sales potential
16](#a.-products-present-in-the-market-which-have-good-sales-potential)

[B. Products present in small quantities but which have good sales
potential
16](#b.-products-present-in-small-quantities-but-which-have-good-sales-potential)

[C. Food product imports not present in the market because they face
Significant Barriers
17](#c.-food-product-imports-not-present-in-the-market-because-they-face-significant-barriers)

[SECTION V. POST CONTACT AND FURTHER INFORMATION
17](#section-v.-post-contact-and-further-information)

# SECTION I. MARKET SUMMARY

Ukraine ranks among the largest countries of Europe and boasts a
population of about 47 million. With rich black soil, a favorable
climate, Black Sea ports, and close proximity to the major consumer
markets of Europe, the Former Soviet Union (FSU), North Africa and the
Middle East, Ukraine may become an agricultural powerhouse of Eastern
Europe. The country's vast agricultural potential provide Ukraine with
excellent preconditions for strong economic growth in agricultural
sector. The food-processing sector in Ukraine has developed rapidly in
the last 5 years. The share of the food industry in GDP reached 5.1%
with food industry share in manufacturing of 18.3%. In 2001, the
industry grew by 26.0%, with a slowdown to 8.4% in 2002 and 6.0% in
2003. The fastest growth rate is observed in fruit and vegetable
processing, edible oils production, pastry and biscuits, baby food and
alcoholic beverages production.

![](media/image2.wmf)

*Source: State Statistics Committee of Ukraine*

*\*By volume of the produce; tobacco industry is not included*

More than 95% of all foodstuff consumed in Ukraine is produced
domestically. Domestic production and consumption of most food and
agricultural products in Ukraine are currently about half of that during
the last years of the Soviet era. Between 1990 and 2002 consumption of
meat, dairy products and fruits contracted the most sharply.

Table 1. Ukraine: Per Capita Annual Consumption of Major Food Products
in kilograms. Percent Change 1990/2002.

  ----------------------------- ---------- ---------- ---------- ---------- ------------
  **Product**                   **1990**   **1999**   **2000**   **2002**   **Change**

  Meat and meat products        68.2       33.0       32.5       33.0       -51.6%

  Dairy products                373.2      209.9      197.7      223.0      -40.2%

  Eggs, per unit                272.0      163.0      164.0      207.0      -23.9%

  Bread products                141.0      121.8      124.1      130.0      -7.8%

  Potatoes                      131.0      121.9      134.5      130.0      -0.8%

  Vegetables                    102.5      95.9       101.0      108.0      5.4%

  Fruit                         47.4       22.1       29.1       28.0       -40.9%

  Fish and fish products        17.5       7.2        8.3        11.1       -36.6%

  Sugar                         50.0       32.6       36.5       36.0       -28.0%

  Vegetable Oil                 11.6       8.9        9.3        10.4       -10.3%
  ----------------------------- ---------- ---------- ---------- ---------- ------------

Source: State Statistics Committee of Ukraine

At the end of 2003 the Ukrainian food processing sector was comprised of
2881 big industrial enterprises with gross output over 39 billion UAH
(\$7 billion US) in 2002. Ukraine also has over 6,700 small and medium
enterprises (with less than 50 employees and less than € 0.5 million in
annual gross revenue). Since 1991 only half of the enterprises made
needed investments and changed their managerial practices to cope with a
competitive market environment. Approximately 51% of food processing
enterprises lost money in 2003. The food-processing network was
developed in Soviet time and was designed for big scale production and
subsidized inputs. The number of enterprises in sugar processing, dairy
and meat packing greatly exceeds market requirements, given the
significant reduction in raw supplies and structural changes in
agricultural produce. An insufficient number of oil crushing enterprises
was quickly remedied by new enterprises build by big transnational
companies and the complete renovation of old enterprises. Grain handling
and processing facilities were also renovated with a number of
export-oriented port terminals built from scratch.

The average Ukrainian dairy processing enterprise is working at only
about 52-57% of it's capacity; pasta and bread producer at 51-60%; flour
mill at 30-38%; fruit and vegetable processing or canning enterprise at
34-39% during the winter and spring and 60% during summer and autumn
months (Survey of the processing industry conducted by World Bank /
International Finance Corporation (WB/IFC). Thus many processors have
substantial underused capacity and are capable of sharp production
increases. Growing domestic demand for high quality goods eventually
will lead to the increased import of ingredients and the production
capacity to employ these imports will be in place.

A few big foreign and domestic producers dominate in many sub-sectors.
The beer industry is dominated by 4 breweries responsible for 87% of the
market, the confectionary industry -- by 10 companies (over 70% of the
market), dairy by 20-26 producers (over 70% of the market). Many of
these big companies purchase their less efficient or smaller
counterparts in different regions to expand production in new markets.

The total import of agricultural products to Ukraine in 2003 reached \$
2.17 billion US (95% growth from 2002) with estimated import of food
ingredients at \$1.52 billion US. It must be noted, that the year 2003
was unique due to extremely bad weather conditions and record low cereal
crop. This resulted in massive grain imports, while in normal years
Ukraine is a major grain exporter in the Eastern Europe. Also in 2003
parliament adopted unusually large raw sugar import quota, which
resulted in import surge. In order to provide a more comprehensive
sector overview import diagrams of both 2002 and 2003 are given below.

The export of ready-to-consume products was also growing. Competitively
priced Ukrainian products sparkled interest of price cautious buyers in
Russia and other FSU countries, where Ukraine is struggling to restore
its traditional markets. The export of processed food products reached
\$1.3 billion US and continues to rise. This dramatically increases the
demand for ingredients and opens new opportunities to US suppliers,
which can extent their exports at the expense of the FSU markets.

The import of food ingredients to Ukraine is complicated by high custom
tariffs and other barriers such as sanitary and phytosanitary measures,
compulsory certification of imports, outdated Ukrainian standards,
corruption, non-transparent and quickly changing legislation. The lack
of clarity in the law means that it is difficult to understand actual
non-tariff requirements for imported products. Even when a list of goods
classified by HS 96 codes are provided, in many cases it is not clear
why the control is applied. Ukraine is not a WTO member and does not use
WTO consistent approaches either in tariff or in non-tariff regulations.
Timing and conditions of membership are not yet known and the
introduction of WTO compliant practices in legislation is slow and
sporadic.

![](media/image3.wmf) ![](media/image4.wmf)

*Source: State Statistics Committee of Ukraine.*

The macroeconomic situation in Ukraine is fairly stable. Since January
2000, the Ukrainian government has embraced a strong economic reform
program and focused its attention on the most critical areas with broad
economic and social impact. Robust GDP growth in 2000 of 5.9% was
followed by 9.2% growth in 2001 and 4.5% growth in 2002 (21.2% growth
over the three years). The increase was mainly the result of strong
industrial output growth (especially in manufacturing), a surge in
retail trade, and good agricultural performance. The Ukrainian currency
"hryvnia (UAH)" is unofficially pegged to the U.S. dollar, so the
exchange rate is very stable and business is not a subject to exchange
rate fluctuations. Inflation in the country is somewhat higher than in
US and ranges from --0.6% (deflation) in 2002 to 8.2% in 2003.

Economic growth has now expanded from traditional industrial export
goods to encompass agriculture, construction, and food processing.
Privatized companies have figured prominently in this economic
expansion. Agriculture has been significantly strengthened after the
elimination of the collective farm system. Macroeconomic stability bodes
well for increased imports in 2004 and beyond.

## Imports of Agricultural Products

Nearly 97% of foodstuffs consumed in Ukraine are produced domestically.
These products include meat, poultry and dairy products; macaroni,
confectionery and bakery products, alcohol and non-alcoholic drinks,
canned meat and vegetables.

**Table 2. Ukraine: 10 Major Imports of Foodstuffs, CIF Value (US
\$1000).**

  -------- -------- ------------------------------------ ----------- ----------- ----------
  **\#**   **HS     **Product Description**              2002        **2003**    **%
           Code**                                                                Change**

  1        100190   Wheat except durum wheat             423         462,983     109,414%

  2        170111   Raw sugar, cane                      71,466      290,214     306%

  3        240120   Tobacco, unprocessed, stemmed or     107,377     123,227     15%
                    stripped                                                     

  4        210690   Food preparations nes                48,406      66,042      36%

  5        220820   Spirits obtained by distilling grape 8,661       63,735      636%
                    wine, grape marc                                             

  6        151190   Palm oil or fractions simply refined 42,365      39,585      -7%

  7        210111   Coffee extracts, essences,           18,584      38,101      105%
                    concentrates                                                 

  8        240220   Cigarettes containing tobacco        23,639      37,126      57%

  9        020714   Fowls, cuts & offal, frozen          24,125      35,922      49%

  10       240310   Cigarette or pipe tobacco and        27,607      32,065      16%
                    tobacco substitute mixe                                      

           HS 1-24  Total                                1,113,761   2,173,704   95%
  -------- -------- ------------------------------------ ----------- ----------- ----------

*Source: State Custom Committee of Ukraine.*

Food products imported into Ukraine are mainly those not produced
domestically. Among these products are:

-   Coffee, tea and snack foods

-   Canned fruit

-   Canned vegetables

-   Gourmet/delicatessen meat and fish products

-   Chocolate products

-   Cheese and yogurt

-   Baby food

-   Alcoholic beverages

-   Juices

-   Olive oil

**Table 5. Ukraine: 10 Major Commodities Exported to Ukraine from the\
United States, CIF Value (1,000 US\$)**

  -------- -------- -------------------------------------- -------- ---------- ----------
  **\#**   **HS     **Product Description**                2002     **2003**   **%
           Code**                                                              Change**

  1        240120   Tobacco, unprocessed, stemmed or       23,920   13,837     -42%
                    stripped                                                   

  2        170111   Raw sugar, cane                        864      3,482      303%

  3        210690   Food preparations nes                  1,304    2,304      77%

  4        100630   Rice, semi-milled or wholly milled     209      1,988      849%

  5        100190   Wheat except durum wheat               0        1,974      n/a 

  6        220710   Non denatured ethyl alcohol \>80% by   0        1,902      n/a 
                    volume                                                     

  7        020714   Fowls, cuts & offal, frozen            7,022    1,718      -76%

  8        240391   Homogenized or reconstituted tobacco   1,135    1,579      39%

  9        170230   Glucose, glucose syrup \<20% fructose  929      1,245      34%

  10       230910   Dog or cat food (retail)               739      1,136      54%

           HS 1-24  Total U.S. Exports                     59,443   46,804     -21%

           HS 1-24  U.S. Share in the market, Total        5.3%     2.2%       -60%
  -------- -------- -------------------------------------- -------- ---------- ----------

*Source: State Custom Committee of Ukraine.*

The Ukraine - U.S. trade in food products and ingredients is not very
large. This leads to highly volatile data and unclear prospects for
individual U.S. commodities and commodity groups in Ukrainian market.
The poultry import ban introduced in 2001 significantly changed the
structure of trade, since poultry was the major U.S. food export
commodity for a number of years. Growing imports of high value added
commodities will follow a rise in consumers income above a certain
level. So far U.S. suppliers supply mostly moderately priced goods for
further processing. Imports of food ingredients, additives, seasonings,
spices and fruit and vegetable products have increased significantly
along with the sharp growth in Ukraine's domestic food processing
industry.

Demand for inputs into food production is strong in the meat and dairy
sectors, the beverage industry, and for such products as sauces,
mayonnaise, margarine, juices and other non-alcoholic beverages. Growth
is particularly strong for:

-   Vegetable and fruit purees; dry concentrates

-   Dried fruit including apricots, prunes and raisins

-   Spices (pepper, vanillin, cardamom, cinnamon)

-   Nuts (excluding hazelnuts and walnuts)

-   Stabilizers, emulsifiers, flavorings, proteins, pigments, and other
    additives.

## Tariffs and Import Taxes

Importers face a value-added tax (VAT), import tax, certain fees, and,
if applicable, an excise tax (up to 300%). The VAT is levied at 20%,
based on the customs value on the invoice. This is generally payable by
the importer at the time of customs clearance. A promissory note can
also be applied. Agricultural enterprises are exempted from VAT. They
are also eligible for VAT tax refunds that are paid by the processor of
milk and meat.

In January 2000, border checkpoints began collecting a new uniform
customs duty, combining seven import fees: customs clearance, sanitary,
veterinary and phytosanitary inspection, radiation, ecological control
and other fees.

Ukraine employs a two-tiered system of general (full-rate) tariffs and
preferential (partial-rate) tariffs. Imports from Western countries,
including the United States, are usually assessed preferential tariffs.
The current tariff schedule contain both *ad valorem* and minimal fixed
(per 1 kilogram) import duties. The latter create serious problems for
importers as many of fixed rates are unjustifiably high and often fail
to make a distinction bewteen cheap and expensive commodities. Import
duties largely depend upon whether a similar item to that being imported
is produced in Ukraine. If so, the rate tends to be higher. U.S. exports
to Ukraine usually receive preferential customs rates if the following
three criteria are met: (1) the company is registered in the United
States; (2) the goods have a certificate to prove U.S. origin; and (3)
the goods are imported directly from the United States.

Imports subject to an excise tax include alcohol and tobacco products.
Excise duty rates are expressed as a percentage of the declared customs
value, plus customs duties and customs fees paid for importing products.

## Food and Agricultural Product Regulations

A veterinary inspection is required of all animal and food products as
well as any other products, which could contain pathogenic organisms
including:

-   Canned meat, poultry and fish, cheese, butter sausages, baby food;

-   Feed of animal and plant origin;

-   Feed additives including animal and vegetable proteins, amino acids,
    vitamins, ferments, feed yeast and fats;

-   Meat and poultry and their products, milk and milk products, egg
    products, fish products, honey.

Feed additives and feeds (including pet food) are also subject to
compulsory certification by the scientific institution appointed by the
GOU. Zero or minimum (€ 0.05/kg) tax rates are fixed for most imported
food products, which are not produced in Ukraine or produced in
quantities below domestic demand. The tax rate on products produced in
Ukraine varies from 10% to 30% or from €0.2 to €1.0 per kilogram.

## Other Import Regulations

Non-tariff import regulations applied in Ukraine include:

-   Import licenses

-   Import quotas

-   Registration of contracts

-   Import restrictions/bans

-   Certification

-   Narcotic drugs control

-   Veterinary, phytosanitary and ecological control

At the present time, import quotas are generally only applied for cane
sugar imports.

Ukraine is not a Codex Alimentarius Commission member and maintains its
own list of food additives allowed for human consumption. The list was
adopted by the GOU decree in 1999 and last updated in 2001. Food
additives not included in the list could not be imported to Ukraine
separately or as an ingredient of another product.

A ban on U.S. poultry meat was imposed in January 1, 2002 and officially
lifted in November 2003. However, talk of additional retaliatory actions
against U.S. poultry, initiated by Ukrainian producers fearing increased
competition and lower prices, has begun.

**Table 6. Advantages and Challenges facing U.S. products in Ukraine**

  ----------------------------------- -----------------------------------
  **Advantages**                      **Challenges**

  Ukraine's food sector is growing,   Exports to a market in flux is
  revealing big opportunities for     risky
  U.S. exports                        

  Rising incomes and changes in       Per capita average monthly income
  consumption patterns have led to    in Ukraine is still low and does
  increased demand for top quality    not exceed \$90 US (478 UAH) as of
  high-value food products            yearend 2003

  Insufficient quantity of            Severe competition of U.S. products
  domestically produced innovative    with those from EU countries in
  high quality components for food    close proximity
  industry                            

  Bigger food producers are being     Majority of producers are price
  formed through acquisitions and     cautious and would not consider
  mergers                             expensive components for mass
                                      production

  Growth in direct foreign investment High import tariffs, food safety
  has led to increased utilization of regulations and sanitary and
  imported food ingredients           phytosanitary restrictions hamper
                                      the import of fresh produce and
                                      certain food ingredients

  Ukraine's favorable geographic      Underdeveloped domestic retail
  location promotes increased trade   network with majority of foodstuffs
  in processed food products to       sold through small stores and open
  Eastern and Central Europe and the  air outlets
  FSU                                 

  The growing popularity of U.S. fast It is difficult for U.S. products
  food chains favors their existing   to compete on price with favored
  procurement systems which source    imports from free trade partners in
  many food ingredients from the      the FSU
  United States                       

  Ukraine looks to join the WTO by    Widespread corruption complicates
  2005. While accession will result   exports to Ukraine significantly.
  in reduced tariff rates for food    Illegal imports of cheap food
  products, there will also likely be ingredients can cause a serious
  increased competition among         competitive threat to legal ones
  potential suppliers of imported     
  food products                       
  ----------------------------------- -----------------------------------

# SECTION II. ROAD MAP FOR MARKET ENTRY

## Entry Strategy

There is no single market entry strategy recommended to new-to-market
exporters. First, the exporter should define whether Ukraine is a key
market for the product, or only insignificant occasional deliveries can
be made. The following factors should be considered:

-   The need for the product in the market, given consumers income trend
    and particular food sector development perspectives;

-   Availability of the same or similar product produced domestically
    (often Ukrainian producers are capable of building barriers to trade
    by lobbying their interests in the GOU, Parliament or even
    veterinary or health inspection services).

-   Availability of the same or similar products from EU or FSU as well
    as comparative advantage of U.S. product over competitive ones (e.g.
    quality, price, transportation expenses, packaging, labeling, etc.)

-   Tariff and non-tariff regulations to the product. Note, that in many
    cases big Ukrainian food producers can lobby tariff reduction for
    much needed ingredients and can settle veterinary or SPS problems
    should they arise.

If Ukrainian market looks very promising it is recommended to establish
a representative office to deal with buyers directly. Personal
relationships are very important in Ukrainian business practices and few
problems can be effectively resolved over the phone. It is a very common
practice in Ukraine to do input purchases directly from the producer.
Even if exporter's policy require work through the Europe or Russia
based distributor most Ukrainian partners would try to contact producer
directly.

In the past many U.S. companies dealt with Ukrainian partners through a
representative office in Moscow. This is no longer very common. Note,
that Ukrainian food components market is small at the moment and
relatively few products could justify a representative office in Kiev.
In this case the second market entry strategy can be recommended, which
is used by the vast majority of U.S. exporters at the moment.

They work through a Ukraine-based importer or through the procurement
service of the buyer (the latter is the most convenient if there are
only 2 or 3 potential buyers). Due to frequent changes in Ukrainian
legislation, non-transparent custom clearance rules, SPS and veterinary
procedures, it is recommended to leave it to the Ukrainian partner's
discretion. Ukrainian importers also take care of the whole logistic
chain, inland transportation and distribution. There have been cases,
when backed up by domestic processing industry, that importers were
powerful enough to lobby tariff reduction (import of hops) or quota
increase (cane raw sugar quota for 2003).

U.S. companies should approach potential Ukrainian partners with extreme
caution. While the extent of information on Ukrainian companies has
improved, there is still a significant dearth of background data and
credit histories on potential Ukrainian distributors. This presents the
greatest obstacle to finding reliable, competent distributors. In order
to obtain a due diligence report on a potential Ukrainian partner, a
U.S. company is advised to contact either a law firm or use the services
of the Dun & Bradstreet representative in Ukraine.

Selected products may enter the market under a different route, via a
Ukraine-based U.S. intermediary who fits the distribution scheme better
and works more effectively than Ukrainian importer. This could be the
case if technical skills and expertise of the importer are not
sufficient for product promotion.

WB/IFC survey show that the quality of inputs supplied for processing is
the decisive factor influencing the choice of supplier by Ukrainian
processors:

![](media/image5.wmf)

*Source: WB/IFC processing sector survey*

WB experts note that the availability of the needed amounts of raw
material is particularly important in the dairy sector, while timely
delivery is more important for processors of fruit and vegetables.
Geographical proximity was a factor for producers of mixed fodders. For
closing ingredients supply contacts, the role of such factors as
supplier's market reputation, personal connections and references of
colleagues are not regarded as important.

## Market Structure

The Food Ingredients Distribution Chart summarizes all of the above. The
majority of sales are done through the 2^nd^ channel, with use of the
Ukrainian distributor.

The U.S. Embassy in Kyiv strongly advises that all U.S. companies
consider legal counsel before and while doing business in Ukraine.
Ukrainian laws and regulations are vague and open to considerable leeway
in interpretation, providing ample corruption opportunities for
officials at every bureaucratic level. U.S. businesspersons are advised
that partnership with a Ukrainian company is a challenge that is beyond
the constant control of the U.S. partner and his legal advisors.

Regional projection is very important in Ukraine. The majority of
exporters are concentrated on the market of Kyiv, where salaries
(purchasing power) are the highest and the business climate is the most
favorable. Kyiv is not the only hub of trade in Ukraine, though,. Look
for distributors that have nationwide capabilities, including those in
the cities of Lviv, Odesa, Zaporizhzhya, Donetsk and Kharkiv. These
cities are in important industrial regions of Ukraine and are densely
populated.

**Food Ingredients Distribution**

1 Direct Sale

2

3

4

The proportion of imports in goods turnover in wholesale and retail
chains varies both by specific commodity group and type of trade
enterprise. Ukrainian supermarkets have the widest product mix and the
biggest proportion of imports in all categories of goods. According to
the industry survey conducted by the World Bank, the supermarkets and
greengroceries tend to have the biggest portions of imported fresh
fruits and vegetables on their shelves: 19% and 23% of their respective
total turnovers. 13% of confectionery and 12% of canned products sold in
supermarkets also come from abroad. Except for fruits and vegetables,
food stores tend to stock products of mostly domestic origin. Imports\'
share in all other commodity groups is under 4%.

![](media/image6.wmf)

*Source: World Bank / IFC retail sector survey*

## Company Profiles

Almost all Ukrainian food processing companies were privatized during
the first Ukrainian privatization campaign in 1994/98. The state still
controls blocking shares in most of them, but rarely use its voting
power to influence managerial decisions. Since then property has been
constantly redistributed from less efficient owners to more efficient
ones. Minor shareholders in many cases have sold their shares to big
financial groups capable of undertaking ambitious investment programs in
order to replace Soviet outdated equipment and technology. In 1998-2004
many multinational holdings entered the market, purchasing the most
promising enterprises in dairy, beverage, snack, and confectionary
industries. Some local entrepreneurs were able to develop big and
profitable businesses, which shape Ukrainian food processing sector
nowadays. Small processing workshops that mushroomed in early 90's now
can not compete with big players. Their market share is shrinking very
fast.

Table 7. Major Ukrainian food producers

+---------+----------------------+------+-----+---------+------------+
| **Pr    | **Producer**         | **E  | *   | > End   | > Pr       |
| oduct** |                      | stim | *Sh | > Use   | ocurement\ |
|         |                      | ated | are | > c     | > Channels |
|         |                      | S    | in  | hannels |            |
|         |                      | ales | to  |         |            |
|         |                      | \*** | tal |         |            |
|         |                      |      | out |         |            |
|         |                      | **\  | put |         |            |
|         |                      | $1,0 | of  |         |            |
|         |                      | 00,\ | the |         |            |
|         |                      | (yea | s   |         |            |
|         |                      | r)** | ect |         |            |
|         |                      |      | or. |         |            |
|         |                      |      | %** |         |            |
+---------+----------------------+------+-----+---------+------------+
| Fish    | Iceberg,             | *    | 3   | Retail  | Direct     |
|         | Dnipropetrivsk       | *-** | 1.3 | and HRI |            |
+---------+----------------------+------+-----+---------+------------+
| Red     | Gavrilivsky          | \$6, | 6.5 | Retail  | Direct,    |
| Meat    | Pptahivnychiy        | 5000 |     | and HRI | Di         |
| and     | Complex, Kiev region |      |     |         | stributors |
| Poultry |                      | \(20 |     |         |            |
|         |                      | 03\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Mironovsky           | \    | 19  | Retail  | Direct,    |
|         | Hleboproduct         | $16, |     | and HRI | Di         |
|         |                      | 0000 |     |         | stributors |
|         | (3 locations)        |      |     |         |            |
|         |                      | \(20 |     |         |            |
|         |                      | 03\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | \"YUNKERS\", Donetsk | \    | 2   | Retail  | Direct,    |
|         | Region               | $312 | 2.6 | and HRI | Di         |
|         |                      |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Dairy   | Shostkinskij         | \$7  | 5.2 | Retail  | Direct,    |
| p       | Mіskmolkombinat      | ,408 |     | and HRI | Importers  |
| roducts |                      |      |     |         |            |
|         | Sumy Region          | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Romenskij Molochnij  | \$10 | 2.7 | Retail  | Direct,    |
|         | Kombіnat             | ,303 |     | and HRI | Importers  |
|         |                      |      |     |         |            |
|         | Sumy Region          | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | \"Kmk Promservіs\"   | \$1  | 8.2 | Retail  | Direct,    |
|         |                      | ,205 |     |         | Importers, |
|         | Kharkiv Region       |      |     |         | Di         |
|         |                      | \(20 |     |         | stributors |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | \"Galakton\", Kiev   | \$34 | 10  | Retail  | Direct,    |
|         |                      | ,353 |     |         | Di         |
|         |                      |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 02\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Laktalis- Ukraina,   | \$8  | 6.2 | Retail  | Direct,    |
|         |                      | ,192 |     |         | Di         |
|         | Mikolaev Region      |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Beer    | \"Obolon\", Kiev     | \    | 2   | Retail  | Direct     |
|         |                      | $236 | 2.4 | and HRI |            |
|         |                      | ,739 |     |         |            |
|         |                      |      |     |         |            |
|         |                      | \(20 |     |         |            |
|         |                      | 02\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Sun Interbrew        | \$   | 3   | Retail  | Direct     |
|         |                      | 352, | 3.8 | and HRI |            |
|         | (3 Locations)        | 538\ |     |         |            |
|         |                      | (2   |     |         |            |
|         |                      | 003) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Bbh Ukraine          | \    | 2   | Retail  | Direct     |
|         |                      | $174 | 0.1 | and HRI |            |
|         | (2 Locations)        | ,409 |     |         |            |
|         |                      |      |     |         |            |
|         |                      | \(20 |     |         |            |
|         |                      | 02\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Hard    | Soyuz Vіktan Ltd     | \$17 | 2   | Retail  | Direct,    |
| Liquor, |                      | ,012 | 9.5 |         | Importers  |
| Vodka   | Crimea               |      |     |         |            |
| and     |                      | \(20 |     |         |            |
| Spirit  |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Lokhvitskij          | \$5  | 6.7 | Retail  | Direct,    |
|         | Spirtokombіnat       | ,199 |     | and HRI | Di         |
|         | Poltava Region       |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Sugar   | Dubenskij Tsukrovij  | \    | 4.5 | Retail  | Direct,    |
|         | Zavod                | $294 |     | and HRI | Importers  |
|         |                      |      |     |         |            |
|         | Rivne Region         | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Starch  | Dniprovsky           | \$   | 8   | Retail\ | Direct,    |
| dry     | Krahmalo-Patokovij   | 5693 | 5.1 | and HRI | Importers, |
|         | Kombinat,            |      |     |         | Di         |
|         | Dnipropetrovsk       | \(20 |     |         | stributors |
|         | Region               | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Food\   | Tekhnokom Ltd,       | \$12 | \-  | Retail\ | Direct,    |
| concen  | Kharkiv              | ,745 |     | and HRI | Di         |
| trates\ |                      |      |     |         | stributors |
| (dry    |                      | \(20 |     |         |            |
| and\    |                      | 01\) |     |         |            |
| cond    |                      |      |     |         |            |
| iments) |                      |      |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Flour   | Kiivmlyn, Kiev       | \$22 | 6.8 | HRI     | Direct,    |
|         |                      | ,804 |     |         | Di         |
|         |                      |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Cereals | Skvirskij Kombinat   | \    | 1   | Retail\ | Direct,    |
|         | Khliboproduktiv      | $2,5 | 6.9 | and HRI | Di         |
|         |                      | 07.5 |     |         | stributors |
|         | Kiev Region          |      |     |         |            |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Feed    | Rozovsky             | \$5  | 8.6 | HRI     | Direct,    |
|         | Kombіkormovij Zavod  | ,561 |     |         | Di         |
|         |                      |      |     |         | stributors |
|         | Donetsk Region       | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Frozen  | Herkules CJSC        | \$1, | 5.0 | Retail\ | Direct,    |
| P       |                      | 470\ |     | and HRI | Di         |
| repared |                      | (2   |     |         | stributors |
| Food    |                      | 003) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Aqua Trade           | \$1, | 5.0 | Retail\ | Direct,    |
|         |                      | 470\ |     | and HRI | Di         |
|         |                      | (2   |     |         | stributors |
|         |                      | 003) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Danika               | \    | 3.0 | Retail\ | Direct,    |
|         |                      | $882 |     | and HRI | Di         |
|         |                      |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 03\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Confec  | Kiev-Konti, Donetsk\ | \$27 | 7.5 | Retail  | Direct,    |
| tionery | (3 Locations)        | ,763 |     |         | Di         |
|         |                      |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Pasta   | Khmelnitskaia        | \$5  | 2   | Retail  | Direct,    |
| (ma     | Makaronna Fabrika    | ,285 | 3.0 |         | Importers  |
| caroni) |                      |      |     |         |            |
|         | Khmelnitsk           | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Non-    | Mirgorodskij Zavod   | \$4  | 1   | Retail  | Direct,    |
| alcohol | Mіneralnikh Vod,     | ,673 | 4.6 |         | Di         |
| be      | Poltava Region       |      |     |         | stributors |
| verages |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Coca-Cola Company    | \$4  | 1   | Retail  | Direct     |
|         |                      | ,134 | 7.6 | and HRI |            |
|         | Kiev Region          |      |     |         |            |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Pivzavod \"Obolon\", | \    | 8.5 | Retail  | Direct,    |
|         | Kiev                 | $104 |     | and HRI | Di         |
|         |                      | ,661 |     |         | stributors |
|         |                      |      |     |         |            |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
| Ve      | Cargіll Ltd          | \$7  | 1   | Retail  | Direct,    |
| getable |                      | ,228 | 4.0 | and HRI | Di         |
| oil     | Donetsk              |      |     |         | stributors |
|         |                      | \(20 |     |         |            |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+
|         | Olijno-Ekstrakcijnij | \$83 | 1   | Retail  | Direct,    |
|         | Zavod,               | ,586 | 2.1 | and HRI | Importers  |
|         | Dnipropetrivsk       |      |     |         | Di         |
|         |                      | \(20 |     |         | stributors |
|         |                      | 01\) |     |         |            |
+---------+----------------------+------+-----+---------+------------+

*Source: State Statistics Committee of Ukraine, own calculations*

*\* All revenues, excluding VAT & excises*

## Sector Trends

A major policy goal of the Ukrainian government (GOU) is to attract
foreign investment. As of January 1, 2004, the total value of direct
foreign investment (FDI) in Ukraine was \$5,9 billion. The food industry
was a major recipient of FDI at nearly \$1.1 billion or 18% of the total
investment. The major sources of foreign investment in Ukraine's food
industry include the Netherlands (33%), the United States (16%), United
Kingdom (10%) and Germany (8%). Other sources of investment include
Russia, Switzerland, France, Spain, Denmark, Belgium, Austria, Finland,
Norway and Sweden.

![](media/image7.wmf)

Source: State Statistics Committee of Ukraine

The food industry in Ukraine is becoming increasingly concentrated as
less-efficient and small companies go out of business. This is resulting
in vertically integrated operations where all stages of production "from
the field to the table" are concentrated within one large company.
Vertically integrated companies were seen increasingly growing in the
fruit and vegetable, meat and poultry, milling and dairy industries.

**Table 8. Ukraine: Major Food Industry Foreign Investors as of July 1,
2004**.

  ----------------- -------------------------- --------------------------
  **Company**       **Product(s)**             **Country of Origin**

  Nestle            Confectionery; ice cream   Switzerland

  Trilini           Confectionery              USA
  International                                

  Kraft Foods       Confectionery; snack foods USA

  McDonald's        Fast food                  USA

  Cargill           Vegetable oil and animal   USA
                    feed                       

  Bongrain Europe   Cheese                     France

  Benye/Lactalis    Dairy                      France

  Wimm Bill Dann    Dairy                      Russia

  FoodMaster        Dairy                      USA

  Baltic Beverages  Beer; soft drinks          Denmark, Finland

  SUN Interbrew     Beer                       Belgium

  Invesko Sim       Beer                       Turkey

  Pepsico           Soft drinks; natural water USA

  Coca-Cola         Soft drinks; natural water USA

  Bircher Benner    Dry Breakfast              Switzerland

  Euro Foods        Dry goods; condiments      Spain

  Agrovita          Meat and poultry           Sweden
                    processing                 

  UGF               Meat                       USA

  Suth Foods        Fruit and vegetable        Sweden
                    processing                 

  Shaller           Spices; meat, equipment    Austria

  Billa AG          Food retail                Austria

  Metro AG          Food retail discounter     Germany
  ----------------- -------------------------- --------------------------

####### Source: State Statistics Committee of Ukraine

Foreign investors prefer to invest in the processing and retail sectors
rather than agricultural crop production. They also tend to bring their
own processing equipment as well as packaging materials.

There are some significant investments made by major U.S. food
producers. Cargill Inc. invested over \$50 million in oil crushing plant
in Donetsk region. This enterprise is capable of processing 1000 MT of
sunseed a day and is one of the biggest crushing facilities in Ukraine.
Investments made by Coca-Cola Inc. in non-alcohol beverage sector
exceeded \$ 270 million. By the end of 2003 McDonald's Corp. invested
over \$ 82 million in the chain of 52 fast food restaurants. More
investment in the sector has been announced for the year 2004 by other
major U.S. fast food chains. This will lead to an increase in food
ingredient imports. It is likely that new businesses will try to use the
same ingredients as in the U.S. to maintain high quality and uniformity
of their products.

The following trends will dominate Ukrainian food processing sector in
the next two or four years:

-   Increase of foreign direct investments in the food processing
    industry;

-   Increase in use of additives (preservatives and stabilizers);

-   Increase in consumption of processed fruits, vegetables, milk, fish,
    and meat products;

-   Increase in demand for convenience food (highly processed, easy to
    cook, microwavable, and ready to eat products);

-   Reduction of small food processors number, domination of the larger
    companies on most food markets;

-   HRI sector, which plays minor role on the market now will start to
    develop;

-   Growth of supermarket chains will speed up with new class of big
    discounters developing in big cities;

-   Processed food consumption level is likely to grow in the medium
    term with low priced products dominating the market;

The trend for more healthy food consumption (low on fat and cholesterol,
sugar free) is not yet evident in Ukraine. The diet of many low-income
people is not nutritionally balanced and health concerns are found only
in big cities, where consumers are wealthier and can afford more
expensive products. GMO containing products have negative public
perception in Ukraine and compulsory labeling make them easily
identifiable in supermarkets. So far there were no GMO labeled products
observed on the market and Ukraine lacks the technical abilities to
enforce this requirement. Ukrainian legislation on GMO products is in
development and it is difficult to forecast what measures will be
adopted.

## 

# SECTION III. COMPETITION

Products from the EU countries are the main competitors for the U.S.
food ingredients imported by Ukraine. CIS countries can't compete with
European and US producers in high value added and processed products,
but are quite successful in supplying cheap ingredients. Currently over
30% of food products (both processed and raw materials) are imported
from the EU countries, and almost 19% from CIS. Possessing up-to-date
technologies Germany, Netherlands, France and Italy are the main
suppliers of food ingredients to Ukraine. As consumer preferences shift
to more expensive products more opportunities will be opened for U.S.
and European companies and less to CIS.

**Competitive situation on Ukrainian food ingredients market**

+---------+---------------+-----------------------+-------------------+
| **      | **Major       | **Strengths of Key    | **Advantages and  |
| Product | Supply        | Supply Countries**    | Disadvantages of  |
| Cat     | Sources in    |                       | Local Suppliers** |
| egory** | 2003\*\***    |                       |                   |
+---------+---------------+-----------------------+-------------------+
| **      | 1\. U.S. --   | European suppliers    | Quickly           |
| Poultry | 85%           | are price competitive | developing        |
| m       |               | and do not use        | domestic          |
| eat\*** | 2\.           | chemicals, that cause | suppliers are     |
|         | Netherlands   | concerns of Ukrainian | increasing their  |
| (Before | -- 2%         | Veterinarian service. | market share.     |
| poultry |               |                       |                   |
| ban)\   | 3\. Belgium - | Brazilian poultry     | Their             |
| \       | 4%            | supplies have started | technologies are  |
| Net     |               | in 2003, but they are | not up-to-date    |
| i       | 4\. Germany   | unlikely to be price  | and they rely on  |
| mports: | -- 2%         | competitive after the | imported feeds.   |
| 100.6   |               | lifting of the        | Domestic chilled  |
| TMT     |               | poultry ban.          | chicken is more   |
|         |               |                       | expensive and not |
| US\$    |               |                       | distributed in    |
| 43.9    |               |                       | small towns.      |
| mil     |               |                       |                   |
| (CIF)   |               |                       |                   |
| in 2003 |               |                       |                   |
+---------+---------------+-----------------------+-------------------+
| **Nuts  | 1\. US -- 10% | U.S. competitors      | There is no nut   |
| and dry |               | supply mostly         | production in     |
| f       | 2\.           | hazelnuts, pistachio, | Ukraine.          |
| ruits** | Azerbaijan    | and walnuts, leaving  | Insignificant     |
|         | --37%         | almonds market for    | quantities of     |
| Net     |               | the U.S. suppliers.   | walnuts come to   |
| i       | 3\. Turkey -- |                       | the market from   |
| mports: | 28%           | Most competitors are  | natural forests.  |
| 4.45    |               | in close proximity to |                   |
| TMT     | 4\. Iran - 7% | Ukraine (mostly Black |                   |
|         |               | sea region) and offer |                   |
| US\$    |               | good deals for price  |                   |
| 6.6 mil |               | cautious Ukrainian    |                   |
| (CIF)   |               | buyers.               |                   |
+---------+---------------+-----------------------+-------------------+
| **Pet\  | 1\. US -- 6%  | U.S. produced pet     | The industry is   |
| Food**  |               | food meets            | not yet well      |
|         | 2\. Russia -- | competition from EU   | developed and     |
| Net     | 48%           | companies in premium  | satisfies only 4% |
| i       |               | segment and from U.S. | of the local      |
| mports: | 3\. Hungary - | subsidiaries situated | demand.           |
| 24.5    | 25%           | in Russia and Hungary |                   |
| TMT     |               | in the cheaper        |                   |
|         | 4\. EU -- 15% | segment. American     |                   |
| US\$    |               | companies posses      |                   |
| 17.7    |               | almost 80% of the     |                   |
| mil     |               | market.               |                   |
| (CIF)   |               |                       |                   |
+---------+---------------+-----------------------+-------------------+
| **Fish  | 1\. US -- 4%  | U.S. share on         | Local production  |
| and     |               | Ukrainian market is   | limited mainly by |
| fish    | 2\. Norway -- | quickly growing while | fresh water fish  |
| pro     | 59%           | share of traditional  | and Black sea     |
| ducts** |               | exporters (Estonia    | basin fish.       |
|         | 3\. Estonia   | and CIS countries) is | Atlantic fish     |
| Net     | -- 9%         | shrinking. Norway     | quotas for        |
| i       |               | promotes its products | Ukraine are       |
| mports: | 4\. UK -- 5%\ | very aggressively,    | small. Many       |
| 245.1   | 5. Iceland -  | investing in          | popular among     |
| TMT     | 4%            | processing and cold   | consumes species  |
|         |               | storages. Russian     | are not supplied  |
| US\$    | 6\. Russia -- | share is stable and   | by local          |
| 88.4    | 2%            | surprisingly low.     | fishermen and     |
| mil     |               |                       | have to be        |
| (CIF)   |               |                       | imported.         |
+---------+---------------+-----------------------+-------------------+

*\* The poultry ban was introduced in 2002 and lifted in late 2003, so
2001 data are used.*

*Source: State Custom Committee, own calculations.\
\*\* In value*

# SECTION IV. BEST PRODUCT PROSPECTS

## A. Products present in the market which have good sales potential

The following import sectors are the best developed and most likely will
continue to grow in short term:

-   Poultry meat (where U.S. produce is dominating) will continue to be
    a major export commodity for the next 3-4 years if the current open
    trade regime remains. It is likely that local producers of chilled
    and frozen poultry will be able to expand production and increase
    their market share. The size of the market is estimated at \$ 208
    million and growing with local producers capable of supplying only
    one half of it;

-   The seafood products market will develop very fast. Record high U.S.
    exports in 2003 prompt for good perspectives for 2004 and beyond.
    Insignificant domestic production of low quality products opens it
    for the imports. The annual consumption of fish and fish products in
    Ukraine have reach 445 TMT in 2003 with growth perspective to 816
    TMT by 2010.

-   Almond imports are growing due to the booming Ukrainian
    confectionary industry. The growth rate will slow down in 2004-2005,
    but market will continue to be sizable and attractive for American
    business.

## B. Products present in small quantities but which have good sales potential

There are a lot of food products that are not exported to Ukraine in
quantity for various limiting reasons. The major one is limited consumer
incomes. Markets of commodities listed below are in the stage of
development and larger quantities are likely to be supplied only in 3-5
years. Local production currently is limited and demand, though showing
increase, is still small:

-   Processed vegetables, ready-to-cook dishes and snacks (excluding
    chips);

-   Baby food;

-   Cheese and dairy products;

-   Wine and hard liquors;

-   Food ingredients for processing sector: non-sugar sweeteners
    replacing sugar, fructose, vegetable oils, protein or vitamin
    additives for production of diet and health food;

-   Products for dietary consumption.

Due to complicated epizootic situation in EU countries and declining
imports from there, US exporters may discover markets of albumin, dried
whole egg powder and yolk, agar-agar, gelatin and similar products.

## C. Food product imports not present in the market because they face Significant Barriers

-   Read Meat (Beef and pork) is not present on the market due to lack
    of agreed health certificate. Ukrainian Veterinary Inspection
    Service demands imported beef not to be obtained from the animals
    treated with natural or synthetic estrogenic or hormonal substances
    and thyreostatic drugs. For pork there are some diseases control
    measures that prevent from signing a certificate;

-   Some food additives and processed food products containing food
    additives are not permitted in Ukraine (thickeners, sweeteners,
    stabilizers, etc.). The list of allowed food additives available
    from the FAS-Kyiv office.

## 

# SECTION V. POST CONTACT AND FURTHER INFORMATION

Should you have any questions about this report or need assistance in
accessing the Ukrainian market of food components, please do not
hesitate to contact FAS/USDA post in Kyiv at the following Address:

Agricultural Affairs Office

10 Yuriy Kotsyubinsky St.,

Kiev, 01901

Tel: +38-044-490-4005

Fax: +38-044-490-4110

e-mail: <AgKiev@usda.gov>

Hompage: <http://kiev.usembassy.gov/faskyiv_index_eng.html>

Lists of importers are available from our office to exporters of U.S.
food products. Country Commercial Guide Prepared by U.S. Foreign
Commercial Service is available at
[[http://www.buyusainfo.net/body2.cfm?dbf=ccg1&search_type2=int&country=Ukraine&logic=and&loadnav=no]{.underline}](http://www.buyusainfo.net/body2.cfm?dbf=ccg1&search_type2=int&country=Ukraine&logic=and&loadnav=no)

For the most recent "The Exporter Guide" and product briefs on the
market potentials for U.S. foodstuffs in Ukraine as well as in other
countries, please visit Foreign Agricultural Service official page at
[[www.fas.usda.gov]{.underline}](http://www.fas.usda.gov/).