Information for fruit and vegetables business in CIS
Increase in gas prices puts Ukrainian greenhouse sector at threat
Russia's cancellation of the natural gas price discounts for Ukraine puts the Ukrainian greenhouse sector at serious threat. Almost all growers say that the price of $485 per 1,000 cubic meters is impracticable for heated greenhouses. Under those conditions, production costs of Ukrainian greenhouse vegetables would grow to the level when the greenhouse business loses its economic viability.
The official data show about 400 hectares under “winter” greenhouses in Ukraine. Analysts of Greenhouses of Ukraine Association say of no more than 300 hectares being currently in operation with only 130 hectares of which using modern energy saving technologies. It was modernization that enabled those 40% of farms to have minimal profitability last year, while others earned almost nothing despite gas prices for commercial greenhouses averaging $340 per 1,000 cubic meters in 2013.
“An increase in gas prices to about $500 per 1,000 cubic meters will be disastrous for the greenhouse business in Ukraine”, says Mr. Yevgeniy Chernyshenko, President of Greenhouses of Ukraine Association. “The majority of heated greenhouses in Ukraine will literally become bankrupt. Even farms with investments in expensive Dutch technologies over past few years will be able to make profit only after a rise in prices of their produce, the thing that nobody can guarantee them”.
Prices of Ukrainian greenhouse cucumbers and tomatoes directly depend on possibility to sell in Russia. It is exports that enabled Ukrainian farms to continue their operations at least over the past 5 years.
“Exports are the key issue for Ukrainian greenhouses”, says Ms. Tetiana Getman, Head of Fruit-Inform. “We estimate that about 70% of all cucumbers and tomatoes grown in “winter” greenhouses are sold for export. It is the Russian Federation that imports about 80% of Ukraine's total tomato exports. Russia is also almost the only country importing Ukrainian greenhouse cucumbers”.
Finding new export markets is rather difficult for exporters from Ukraine. The industry experts believe that the EU, unfortunately, cannot become an alternative market. To enter the European market, Ukrainian farms must certify their production process that implies additional time and financial expenses. Furthermore, Ukrainian produce cannot be competitive in price in the EU market.
“It takes at least a year to carry out all certification procedures. In addition, it would imply large investments that Ukrainian greenhouse farms cannot afford now”, says Mr. Chernyshenko. “Production costs are another key issue, and they are at least 40% higher compared with European growers. We could also hardly compete in quality”.
Under those conditions, Ukrainian greenhouses should hope for growth in exports and stable demand in the internal market. The market analysts also say about importance of government support by means of canceling VAT payments for gas for greenhouse industry enterprises and VAT reimbursement during exports of greenhouse produce.