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Analysis

Ukrainian processing industry booming

“The Ukrainian retail and food processing sectors are rapidly developing and have the potential to become significant regional suppliers, especially for former Soviet Union countries,” says a report by the organisations Foreign Agricultural Service.

The study found that over the last five years, the country’s food processing industry has seen an average growth rate of over 15 per cent, with output last year alone increasing by 13.7 per cent generating €8.2b.

So prolific has the industry’s growth been, that around 20 per cent of all manufacturing undertaken in Ukraine is by the food industry, with more than 19,000 companies supplying services.

While the food service sector may currently be a lot smaller, it is also seeing huge growth. Despite a large number of establishments offering “high-quality cuisine” already operating for wealthier Ukrainians, mid-level restaurants and fast food are becoming more and more popular amongst the countries everyday population.

The report found that as of 2005 over 56,600 restaurants were operating throughout the country, and the pattern is likely to increase.

The restaurants range from international fast food giants to more traditional local offerings like traditional Ukrainian food alongside home grown fast food chains like McSmak, “Pizza Chelentano” and “Kartoplyana khata” (Potato house). The country is alos beginning to witness the beginnings of a desire for diverse ethnic menus, with Chineese, Vietnameese, Mexican and Italian restaurants springing up throughout the country.

The report stresses that key to this growth is growing tourist interest in the country, which saw an estimated 17.6 million visitors last year. With the populace still yet to acquire the taste for the coffee culture prevalent in most other European cities, the growing market offers plenty of scope for expansion.

The writer of the report, Oleksandr Tarassevych, points out that “when disposable income grows in lower income countries like Ukraine, the first thing people tend to spend their money on is food.” He adds that “as margins are strong and there is plentiful supply’s of cheap raw ingredients, there is large profit to be made.”

With Ukrainian people adapting to various global tastes and larger numbers of foreigners experiencing its own native delicacies, there is confidence that the country could become a major food and ingredient supplier.

Despite the reports findings and their growing influence among Eastern European markets, the situation with its largest neighbour Russia, has taken a sour turn over the last year.

The country has spent much of this year facing bans on much of its agricultural produce with meat and dairy products being prohibited from entering Russia. Though the situation between the country’s appears to be abating, Tarassevych isn’t sure that exports will resume their previous levels.

“Russia is a tough market to export to, and I don’t see Ukrainian food exports growing. A decrease in trade to the federation is much more likely as we now currently supply very little to them,” he said.

Domestically however Tarassevych is confident that the food processors and other companies in the food sector will continue their strong performance of the last half a decade.

“We believe that over the next two to three years the industry will continue to grow, but it is too early to predict just yet what will happen over the next five years.”