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Prospects for the Ukrainian market of organic products

Organic market is developing at a confident pace in Ukraine as well as all around the world. The fashion for organic food has come to Ukraine from Europe, where this sector has been developing for about 30 years.

If in 2008 the Ukrainian market of organic products amounted to 0.65 million dollars, in 2011 the market grew to 4.5-5.5 million.

Decision of Ukrainians to switch to organic products depends primarily on the financial ability to pay more for higher quality products and understanding of the benefits of organic products in comparison with inorganic. About 60% of Ukrainians are ready to switch to organic food if its price exceeds the cost of standard products only by 10-25%; if the cost will be higher by 25-40%, the number of potential consumers will fall to 47% of Ukrainians. The main consumers of organic food are educated people, young families with children, and residents of cities.

Environmentally friendly and safe food, which once compiled the regime of every inhabitant of the Earth, now is a fashionable and quite an expensive trend. And the reason for this is not distributors’ desire to make money on new products for Ukraine but the cost of production of organic products, which exceeds the cost of raising the standard agricultural products by 30-70%.

By European standards margin for organic products is justified at a rate of 20-30% due to the need to use non-mechanical processing and storage. However, due to not fully formed demand for organics in Ukraine, the price has to lay additional costs, such as, for example, insurance against non-realization of perishable goods. As a consequence, the final margin may reach 100%. For comparison, the price of regular milk in the store is about 10 UAH and the price of "organic" milk is 16-20 UAH; a kilogram of "organic" meat is 140 UAH versus 60 UAH for a usual one. And the most popular product is organic milk.

To make the sector develop more actively it is necessary to start with its development in people's minds. It’s important to raise awareness about the benefits of organic food products for people to understand what they overpay extra 40-50% or even 100% for.

Investment in organic production can be recouped from 2 to 10 years. This is due to the specifics of production and the limited demand, caused by low paying capacity of population and the lack of public awareness of the benefits of organic products. However, demand for organic products is gradually increasing. The evidence is that since recent times the major supermarkets have got interested in organic products. Organic food has appeared on the shelves of “Silpo”, Metro and "Megamarket". So far, the products which are provided by the networks are imported. This is caused by the fact that today the majority of organic producers in Ukraine are small processing productions and farms. Due to the lack of a single pool of organic producers in Ukraine, entrepreneurs face the problem of distributing their products. For products to get to the store shelves, it is necessary to issue a number of permission documents. For the majority of small producers this procedure is too complicated.

One of the biggest items of expenditure for organic producers is certification. The cost of certification can vary from 2.4 to 25 thous. UAH. It depends on the type of products and production volumes. Basically, this service is in demand for manufacturers of organic products for export.

Most of the organic products produced in Ukraine is exported. Primarily these are raw materials: corn, beans, oil crops. For example, "Argo Dakor Holding", one of the leading agricultural companies in Ukraine, in the first quarter of 2012 announced its intention to start producing organic crops and export them to EU countries where the price is 40% higher than the price of the usual wheat.

In Ukraine, the share of sales of organic products is not more than 1% of total agricultural products. For comparison, in Europe this ratio is 5%, and consumption of organic products is increasing by 8-11% each year .

The market of organic products attracts investors by its high profitability, which is 30% and higher, unsaturated domestic market, increasing demand. At the moment the industry is more popular among domestic investors, but its active development and a high level of profitability will make foreign investors to believe in it as well. Moreover, while the market is not yet saturated and the main players on it have not yet been formed, it is the best time to invest. Therefore, we can state with confidence that the market of organic products in Ukraine is in anticipation of the boom.