Information for fruit and vegetables business in CIS
AMP survey: the contracts on commodity production for processors do not work in Ukraine
In connection with the rather tense situation on the market of fruit and vegetable raw materials, the processing enterprises have to work more actively in the direction of raw material zones development and suppliers' attraction.
In March 2005 Agricultural Marketing Project conducted the survey which proves that the processing enterprises tend to pay more attention to the contracts on commodity production. This year, according to our evaluations, the processing enterprises will cover their needs in raw materials due to the contracting production on 7-10% more than in the previous year. So, the share of raw materials supplied subject to earlier signed contracts will grow in average up to 55-60% of the needs of the processing enterprises.
Nevertheless, about 25% of the enterprises do not practice the contract signing with the suppliers at all. In major cases they are the enterprises - fruit juice producers and the processors which mainly deal with tomato commodities.
Despite of the obvious necessity to sign contracts, very often the contract conditions are not fulfilled and even do not oblige the parties to anything. It is caused first of all by the imperfect contracts. As the survey shows, only one of the surveyed enterprises stated the fixed price in the contract; 24 enterprises stated the minimal prices on which they'd like to purchase the commodity, 71% did not mentioned the price at all.
This situation results in the practically not working contracts, cause it is very hard for the other party to claim, and often it is fully impossible. Except price, such essential conditions as volumes and terms of commodity supply are not mentioned in the contract.
To the opinion of the Project's specialists, in the next years the growth of competition on fruit and vegetable raw materials will make the processing enterprises and even wholesalers sign the contracts on commodity production more actively and treat this question more seriously.