The well-known phrase “transform or die” became a literal instruction manual for agricultural businesses that wanted to survive the outbreak of a full-scale war. There were many challenges, from the loss of some fertile areas and the prolonged blocking of the sea route for grain exports to russia’s direct attacks on the storage infrastructure. We had to adapt to each obstacle and rebuild the relevant business line.
The only positive aspect of the situation was that in June 2022, for the first time in the history of independent Ukraine, export quotas for the EU markets were cancelled. This fact and the development of new logistics routes for the safe export of agricultural products allowed the agricultural sector to continue generating significant foreign exchange earnings for the country’s budget. Thus, according to the Ukrainian Agrarian Council, in 2022, the share of agricultural products in the total structure of exports from Ukraine was about 53%.
Since last year, for the first time, Ukrainian sugar has been freely supplied to the European market. Astarta is convinced that the entry into the open market was booming. Under favourable conditions, Ukraine could replace up to 20% of European sugar imports. Ekonomichna Pravda interviewed Astarta’s commercial director, Viacheslav Chuk, about this, other prospects for Ukrainian agricultural products on European markets and the role of agro holdings in the war economy.
– The war and the uncertainty it caused prompted Ukrainian businesses to transform and quickly adapt to new circumstances. Let’s look back to February 2022. How did the full-scale phase of the war begin for Astarta?
– It all started with an alarm… But seriously, all businesses were preparing for war in one way or another. Everyone was developing an action plan based on possible scenarios. Everyone understood that the sea or any other routes could be blocked.
Where was Astarta in all this? We knew for sure that a domestic consumer needed our products. In the early days of the war, sugar and livestock products were actively consumed on the Ukrainian market. We donated some of our products as humanitarian aid, realising that we had to do everything possible to avoid a food security threat.
And when the EU markets opened for us in June 2022, we quickly found new partners there. Moreover, we already had certain developments that helped us along the way.
– What kind of experience?
– Western partners attach great importance to financial reporting and companies’ compliance with the principles of sustainable development. We were already ready for this.
Astarta has been a public company since 2006, so we have been publishing our financial statements and non-financial reports on our sustainability achievements analysed based on environmental, social and governance (ESG) indicators for quite some time.
We are convinced that we need to produce and sell more than just products; we need to focus on the value needs of people and their desire to preserve the planet for future generations. That is, Astarta’s efforts to address social and environmental issues are as important as the production of high-quality and safe products. All this builds a reputation.
Because we do everything publicly, people already know about us. In addition, they partially knew our product. For example, we have been selling soya products in Europe since 2015. We also worked with sugar within the limited quota (20kt) that we had before. So they were already ready to do business with us. We found logistics across the western borders, found a buyer – sometimes it was the other way round – and started selling immediately.
– Since the beginning of the war, quotas on agricultural products have been cancelled, and Europe has had the opportunity to get to know Ukrainian products better. To what extent do you think European buyers are interested in it? Will it be interested in maintaining intensive trade relations after the war?
– To maintain this interest, we must keep it ourselves. First, we must pursue a predictable state policy on exports and domestic consumption. As long as there is a springboard of opportunities for exporting agricultural and processed products to the EU, it should be used to the maximum.
Today, sugar production in Ukraine has increased. This year, we plan to return beet crops and sugar production to the level that was before 2022. We are creating a full-fledged ecosystem around us and engaging small farmers and other smaller companies in cooperation. We go to them and say: grow beetroot, and we will process it and increase our exports. The country plans to produce 1.6-1.7mt of sugar in total, compared to just over 1.3mt last year. The domestic market currently only needs 1mt.
On the other hand, Europe consumes 17mt of sugar per year. At the same time, a significant part of the product is imported. Based on its capabilities, Ukraine can cover about 20% of European sugar imports.
Thus, we can become one of the key players in the EU supply chain, replacing the existing Brazilian imports, which must meet sustainable development principles. It is worth talking about: it is a good chance for us, and for Europe, it is an opportunity to get an excellent sustainable partner that produces quality products and cares about the environment.
Instead, we have a situation with sugar exports when Ukraine has imposed restrictions on European markets (we are talking about a zero quota on sugar exports set by the government from 5 June to 15 September 2023).
The state should be careful about its regulatory policy towards export markets, especially during martial law. At the same time, the business is ready to increase the volume of processing of products and invest in ensuring that we do not export only raw materials. Business is prepared to ensure predictability and sustainability of exports and demonstrate reliable partnership. The government should do the same for its part. It is the primary wish.
– What else can we offer Europe besides sugar?
– Soya products. The European Union is a net importer of soya products. And we – a country that grows up to 4mt of soybeans a year – have to process it and become a key supplier for the countries of Central Europe! We have soybean processing plants and facilities that can process all oilseeds. It is enough to process all the soybeans grown in Ukraine. “Astarta has been supplying Europe with Ukrainian soybeans since 2015 and will continue to do so.
In general, most of what Astarta grows can be processed in Ukraine, and we are actively working on this – we plan to build a new technological line for deep soybeans processing.
But we also need to develop an appropriate state policy to engage more in the markets with a philosophy of transparency, honesty, openness, and sustainability to protect the national producers’ interests in Ukraine and abroad.
– There is a demand for organic products in Europe. What can Ukrainian businesses offer to this market?
– There is minimal organic production in Ukraine so far. But Astarta has organic crops in its crop rotation. Every year, we sow 2kha with it. These are mustard, flax, soya, millet, wheat, corn and sunflower. We also have experience in growing and supplying relevant certifications and a clean infrastructure. Machinery, transport, warehouses, and big bags should not contain chemical traces of the substances used in conventional non-organic production. Simply put, the entire infrastructure should not have any contact with products that have been processed at all. And this is constantly checked.
Organic products are mainly exported to the European market because there is an actual demand for them there. But we also grow such products because they meet sustainable business development goals.
If we want to do something and follow the future trends, we need to start now. To put it in perspective, the certification of organic grain alone takes three years.
– Following russia’s withdrawal from the grain deal, finding ways to export Ukrainian grain remains a hot topic. Can the maritime grain corridor work if russia does not return to the agreement?
– I am not a military expert, but if the international community our partners, support us, the corridor will be possible. They are interested in helping us and finding ways to export Ukrainian products. For example, China and other Asian countries, to which Ukraine actively exported corn and wheat before the war.
In October 2022, when the grain sea corridor was operating, Ukraine exported almost 2mt of wheat, of which about 40% went to Asian countries. In July 2023, Ukraine exported 800kt of wheat, but not a single tonne reached China, as all were exported to Turkey or to closer ports in the European Union due to russia’s naval blockade.
– Given the unpredictability of russia, international partners are still cautious about supporting the sea “corridor”. Instead, they are talking about finding “alternative ways”. What exactly are they talking about?
– We have western borders through which we can move by truck and rail. Plus, we have a river connection via the Danube. According to various estimates, we can transport 3 to 5mt of grain monthly through these corridors. It is enough to export what we have grown throughout the year gradually.
– Why, then, do we need the sea route so severely?
– We cannot influence global prices or make global products cheaper by using alternative routes. After all, by loading and shipping Panamax (a class of sea freighters – ed.), we can quickly “pay off” prices somewhere so they do not rise. It helps to fight global inflation, as a large volume of grain is simultaneously “thrown” onto the market. It proves that the world needs to import as much as we need to export Ukrainian agricultural products.
But we can gradually supply it. If we take the grain crops not processed in Ukraine, we will export them within a year.
– Can we expect russia to resist grain exports by other means besides sea?
– They certainly won’t be able to hit every truck and every road. They can damage the railway tracks, but they are repaired relatively quickly. They can injure some bottlenecks for passage. But grain exports are like water, which will always find a place to flow. If it is necessary for the economy, it will still be exported. Russia will not be able to stop it, and every such attempt will only further discredit them in the eyes of the civilised world.
– But they are hitting the grain storage infrastructure. How can losses be minimised?
– The solution is not to concentrate large volumes of products in one place but to work for a specific batch. This is how oil depots and food retailers have chosen to do things.
– Astarta, as a large agricultural business, was also involved in Ukraine’s fulfilment of its obligations under the grain deal. If it is not renewed, what will it mean for your company?
– We will adapt to other markets by increasing the company’s digitalisation to track all processes. It will help us understand even better where our reserves and opportunities lie.
We will increase processing and establish new supply chains. All this is already happening. For example, the agrarian products we grow can be used to strengthen our beef farming and bioenergy businesses.
Sugar is one of Astarta’s key businesses, so we will continue to work in this area as soon as the export restrictions are lifted. Our goal is to make the key players in the European market feel that Ukrainian sugar can be an analogue of what they bring from other continents and is better and healthier than any sugar substitutes. Astarta’s business is developing on sustainability principles, not neglecting nature, but taking care of it. Therefore, our values align with the European ones and can be combined.
During the war, the agricultural sector played a significant role in Ukraine’s foreign exchange earnings. Russia is interested in disrupting any initiatives that increase our revenues. But as we know, our European partners also have certain prejudices against Ukrainian grain…
– That’s right, we see that there are five countries – Poland, Slovakia, Hungary, Romania and Bulgaria – that have decided that they want to block our exports. It causes certain unforeseen obstacles in market processes. But if some European countries are defending themselves, we have to convince them of the benefits of the free market at the public policy level, especially in times of crisis.
To maintain the contribution of the agricultural and processing sector to the economy, it must be possible to export without obstacles from both our side and the other.
– What arguments can Ukraine use to defend itself in this situation?
– It is worth asking what would have happened to inflation in some countries without Ukrainian products last season, for instance, Hungary, which had inflation of 30% last year. Without Ukrainian products, the figures would have been even higher. Prices rise if there is a ban on imports and a lack of local products. And the state has to subsidise all this instead of launching a player that could curb the price increase.
We have a situation where a small European farmer, instead of contributing to food security and price stability, dictates rules that can affect the country’s inflation rate. And they say that extensive holdings are bad.
– How does Astarta interact with smaller producers within the ecosystem you mentioned?
– This is not just a buy-and-sell interaction. It is a synergy of our business and the business that people create in communities. Therefore, support and development of regional entrepreneurship is one of the main focuses of our social policy.
Last spring, we joined the partnership and supply chain for the World Food Programme in Ukraine. Among the mandatory requirements of cooperation are audit, quality control, absolute transparency, and exclusion of corruption. However, because Astarta is a public company, has a transparent business structure, and its products are certified according to international standards, we adapted to the WFP requirements quite quickly and relatively easily. Within a year, we became one of its crucial food suppliers for humanitarian purposes in Ukraine.
To support small and medium-sized businesses that cannot enter into cooperation with large international organisations or companies on their own but already produce very high-quality products, we began to engage them in trilateral collaboration with WFP. In other words, our reputation allowed us to become a bridge between WFP and regional entrepreneurs so that they could sell their products and, in the future, enter international markets on their own. In addition, such cooperation with local producers makes it possible to meet the humanitarian needs of Ukrainians without additional imports. And this is just one example.
– How else can significant business help communities during the war?
– We currently have three grant programmes for developing small businesses and women’s entrepreneurship in local communities: “Course for Independence, Courageous and Wings. In just over a year, we and our partners have funded the development of 174 businesses that have already created 528 new jobs. These grant projects are ongoing, so those who want to start or grow their business will have the opportunity to do so.
The source: Ekonomichna Pravda