UKRAINIAN AGRICULTURE: Breadbasket of Europe suffers from lack of brand confidence

International investors still wary of taking on Ukraine market engagement risks due to negative past experiences and rule of law concerns

UKRAINIAN AGRICULTURE: Breadbasket of Europe suffers from lack of brand confidence
Ukraine has one of the most powerful agribusiness sectors in the world but negative experiences with the imperfect Ukrainian business climate have damaged the country's reputation and continue to scare off potential investors
Jean-Jacques Herve
Thursday, 15 December 2016 11:44

In late October, Ukrainian agricultural companies were among the many to exhibit their wares at SIAL, the world’s largest food innovation exhibition held each autumn in Paris. More than seven thousand companies took part in the annual event, which brings together players from what remains the largest single industry in the world – the food industry.

Of all the international events that Ukraine needs to target, this is arguably the one with the greatest strategic importance. Agriculture is currently the country’s biggest source of export revenues and by far the most attractive investment option. With Ukraine’s agricultural potential still significantly underexploited and a rising global population creating insatiable demand for foodstuffs, the rise and rise of the Ukrainian agribusiness sector is all but assured. Nevertheless, this event served as a reminder that much work lies ahead before Ukraine can hope to take up its rightfully prominent place on global food markets.


Ukraine’s rising international profile

SIAL is a forum that Ukrainians have been progressively discovering in recent years as the Ukrainian agribusiness sector becomes increasingly self-conscious about its huge potential as a worldwide grain basket. This mounting presence on the international stage also reflects the geopolitically driven need to find alternatives to Russian markets. This year’s event represented a landmark for Ukrainian participation – for the first time, Ukraine had its own national stand in the pavilion for international representations. Kudos for this breakthrough must go to the Kyiv Chamber of Commerce, which managed the Ukraine stand. A number of Ukrainian agribusiness enterprises were also present in an independent capacity at SIAL 2016, preferring to run their own stands in pavilions dedicated to their particular product lines. The most eye-catching and attention-grabbing Ukrainian presence came courtesy of MHP Group, which created a gorgeous ‘Meat Corner’ that stood out even in the company of many of the world’s top meat exporters. While these developments point to Ukraine’s growing awareness of the need to invest more into marketing the country’s agricultural opportunities to international audiences, conversations during the forum suggested that huge challenges remain. 


Lack of confidence in Ukraine

One very important French vegetable oil industrialist, who is also a key representative of the French farming industry as a whole, spoke to me frankly about the quality concerns he has regarding Ukrainian produce. “We have only just managed to resolve the problems created a few years ago by the delivery of contaminated sunflower oil,” he explained. “Now we find ourselves facing a new problem due to a cargo of sunflower oil that does not meet the necessary standards and differs from the tests conducted before freight transfer. How can we feel confident?”

Numerous high-profile forum participants shared this sense of scepticism. A potential buyer who is very interested in organic sunflower seeds (the EU currently has a huge deficit and is looking for additional imports) commented on his reluctance to purchase from Ukraine: “I fear we will have a repeat of our experience in recent years, when we received a delivery of products with falsified certification.”

Another Western company exploring the possibilities of purchasing organic fruit from Ukraine voiced similar concerns. After speaking to many professionals at the event, the consensus was, “We need to have more confidence before we start investing in Ukraine. First and foremost, we need to have confidence in the rule of law.” 


High price of a bad reputation

During the SIAL opening ceremony, the president of the fair, Jean Philippe Girard, concluded that the greatest challenge for next twenty years is to support sustainable development while improving confidence between farmers, industrialists, distributors and end clients. Confidence is the first step towards increasing investments, he stressed. Based on his own personal experience, he invited Ukrainian visitors and participants to focus on improving the rule of the law. This is clearly advice that Ukrainian agribusinesses would be foolish to ignore.

Mr. Girard’s comments reminded me of one of the key messages in Nobel Prize-winning economist Jean Tirole’s most recent book: “The collective reputation is a public good for the entire community. An individual has lower incentives to behave well if his community has a bad reputation. It is better to avoid a bad reputation at all costs because it becomes self-fulfilling.”

Confidence and transparency are growth drivers. Sustaining both should be the priority for Ukraine’s elite, in both business and government. Ukrainian agriculture has almost boundless potential, but negative international perceptions and a lack of trust continue to serve as major obstacles to fulfilling this potential.


About the author: French agro-economist Jean-Jacques Herve (This email address is being protected from spambots. You need JavaScript enabled to view it.) has been working in Ukraine for more than ten years. He was a councillor to the government for agriculture from 2005 to 2008 before joining Credit Agricole Bank to develop the financing of the farming sector in Ukraine. He now runs independent agricultural consultancy business AgriAudit JJ and has a special interest in supporting cooperatives.

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