Ukrainian agricultural export revenues reached a new record high of USD 18.8 billion in 2018 as the country continued to expand its geographical reach and enter new global markets. This trend is very much in line with acting Agrarian Policy Minister Olga Trofimtseva’s vision for the development of Ukraine’s agriculture industry from Europe’s breadbasket to supermarket of the world. French-Ukrainian joint enterprise Lactalis is at the forefront of this process in the Ukrainian dairy industry. Lactalis, which has two internationally certified and EU compliant production facilities located in Ukraine, began placing greater emphasis on exports from Ukraine five years ago. This strategy is paying dividends, with Lactalis ranking among the country’s largest consumer dairy product exporters in 2018, in terms of both volume and value.
Renato Ruszczyk has been CEO of Lactalis Ukraine for the past twelve years and testifies to the often turbulent evolution of the Ukrainian dairy market during this period. “It’s been like a tango. Two steps to the right, one step to the left,” he quips. Ruszczyk says the company’s current emphasis on exports is designed to capitalize on the strengths Lactalis enjoys in Ukraine, while at the same time offering an alternative to the challenges of a domestic market suffering from problems such as regulatory ineffectiveness along with the large-scale presence of falsified packaging and counterfeit goods. “It is difficult to compete successfully in such a market and win the battle for price as we cannot cut corners,” he reflects.
The answer has been to focus increasingly on production for international markets where domestic headaches do not apply and Ukraine enjoys a number of competitive advantages. Ruszczyk identifies consistent quality as the key ingredient driving the growth of Lactalis exports from Ukraine. The company also benefits from Ukraine’s geographic location at one of Eurasia’s great crossroads, offering relatively convenient access to Asian, African and European markets. “Ukraine enjoys considerable logistical advantages that are worthy of further investigation,” he notes. “From Odesa port we can reach Black Sea countries like Georgia and Turkey. Once you are through the Bosporus, the way is open to North African markets.”
As Lactalis expands its export operations from Ukraine, the company must also confront the looming issue of labor migration. Ukraine has seen large-scale outflows of the country’s workforce in recent years, with hundreds of thousands of Ukrainians seeking larger pay packets in neighboring EU member states which are in turn losing manpower to wealthier EU countries further west. As the bottom rung in this labor supply chain, Ukraine finds itself with little choice but to become more competitive on the job market or risk losing more workers. Lactalis has addressed this problem by offering greater opportunities to existing staff members. “We are lucky to have a very loyal team, but even so, we face a lot of recruitment issues in the current environment,” says Ruszczyk. “Our response has been to invest in our employees in terms of training and career enhancement, while putting the emphasis on internal promotion.” In line with this strategy, the company now seeks to fill 80% of all vacancies from within its existing pool of over 750 employees.
Lactalis Ukraine’s Business Development Director Roman Myakota is charged with navigating the company’s overseas expansion and cooperates closely with Lactalis Group’s global network. He has overseen the rapid expansion of the company’s international penetration in recent years, moving beyond traditional export destinations in the former Soviet Union to enter a growing number of Asian and African markets. Lactalis Ukraine currently exports dairy products to a total of 21 countries including Qatar, Saudi Arabia and the United Arab Empires in the Middle East, alongside attractive Asian markets such as Singapore, Malaysia and the Philippines. Myakota expects to add Cambodia, Chad and Tanzania to the list in the first half of 2019, while noting that China remains the biggest prize on the horizon. Chinese certification procedures are among the toughest he has encountered, but he remains optimistic that the long certification procedure begun in February 2018 will bear fruit during the current year.
Myakota says the company is currently on track to meet ambitious targets that envisage 20% of all Lactalis Ukraine production going for export by 2022. Last year, the figure was 14% of total output, up from 12% in 2017. Securing access to new markets will be crucial to achieving the 20% export objective, but much will also depend on the product assortment Lactalis Ukraine can offer. At present, some of the most robust growth has come in Africa, where Lactalis exports of UHT milk have proved particularly competitive. The logistical issues of shipping dairy products to distant markets in places like West Africa tend to favor products with longer shelf lives, meaning that the company must take this into consideration as it looks to boost the share of exports within its overall Ukrainian output. “A lot will depend on the assortment of goods we are producing and their suitability to different markets,” explains Myakota. “In practical terms, this means focusing on products with longer shelf lives as we look to expand our reach further geographically.”
As head of the External Economic Relations and Certification Department at Lactalis Ukraine, Vladimir Martynchuk is engaged in the technical details of maintaining the momentum of the company’s growing global presence. A veteran of Ukraine’s border veterinary service, he says the country’s approach to agricultural exports has undergone significant changes as a result of the economic and geopolitical turbulence of the past five years, with mixed results. Prior to 2014, he recounts, the greatest challenge was securing inclusion on lists of approved exporters compiled by state officials. In practical terms, this was often impossible due to political considerations and oligarch influence. That is no longer the case, but the relaxation of export restrictions has resulted in a number of entirely new challenges. “Before, nobody could export. Now everyone can,” observes Martynchuk. “This creates opportunities for unscrupulous producers to export cheap and poor quality products. By acting in bad faith, they risk damaging the credibility of Ukraine’s international brand for all of us.”
Nevertheless, he argues that a combination of quality and price factors makes Lactalis Ukraine’s exports globally competitive, and acknowledges that the shifting attitudes of the Ukrainian authorities towards agricultural exports have also brought considerable advantages. “Since 2014, government officials have been forced to recognize that limiting export potential to a select few is not the way to develop the economy. Instead, it is essential to promote exports in order to help boost the country’s trade balance.” This is making life easier for exporters like Lactalis. “The government no longer obstructs us,” says Martynchuk. “In some cases, it even helps.”
About the interviewees: Renato Ruszczyk is CEO of Lactalis in Ukraine. Roman Myakota is Business Development Director of Lactalis Ukraine. Vladimir Martynchuk is Head of the External Economic Relations and Certification Department of Lactalis Ukraine.