Information for fruit and vegetables business in CIS
Some canneries in Ukraine could go bankrupt as a result of the decrease in import duties on canned food
Beginning on August 16, 2005 the comparatively tranquil life of canneries and other facilities processing produce in Ukraine will dramatically change. The Law of Ukraine № 2775-IV "On introducing changes to certain Laws" enacted on this day stipulates a considerable decline of import duties on canned produce and other products of the produce group. According to AMP experts estimate actual expenses on imported groups of commodities will be decreased by 4 to 5 times. This Law was passed by the Supreme Rada on July 7, 2005.
Thus, import duties for canned produce will be considerably reduced, however cucumber and tomato duties will come into effect only beginning December 1, 2005. Most canned vegetables will be levied a 20% duty instead of as previously 1-2 Euros per kilo. Cucumber and gherkins will be an exception where the import duty will equal 17%. Also, the import tax for tomato will go down to 15%. Canned fruits will become easier to import since the duty on fruits will decrease to 20% from 1-2 Euros/kg.
At this level of import duties Ukrainian producers will have to be seriously concerned about increasing their operational effectiveness. Otherwise, with the rather high prices for vegetable raw materials which exist in Ukraine many processors will have to compete vigorously with imported produce. In any case an increase in the imports of canned food is to be expected by the end of this year or the beginning of the next year, and this may be accompanied by bankruptcy of less viable canneries.
The situation with green pees and sweet corn cause special concern for Ukrainian processors. The production of these crops has been dynamically increasing in recent years replacing imported products. It is likely the delivery of these products from abroad will sharply increase after changes to the Tax Tariff are put into effect. According to some analysts our domestic producers are not presently able to provide a competitive quality product for comparable prices.
It is remarkable also that import duties for juices and juice concentrates have also undergone considerable change. The new import duty varies from 2 to 10%, while the previous duty ranged from 2%, (but not lower than 0.05 Euro/liter of concentrate), up to 30%, (but not less than 0.5 Euro/liter for ready made juice). A higher duty is levied on juices and concentrates which are traditionally produced in Ukraine. There's a positive feature in this development which is that the cost of juice concentrates which are not produced in Ukraine, will decrease.
Processors (by no means farmers) will find themselves in an advantageous position when import duties are decreased for preprocessed vegetables, i.e. vegetables which were canned in bulk for later processing into a final consumer ready product. For example, Ukraine imports preprocessed vegetables out of season, e.g. cucumbers from India, which after receipt in Ukraine are final processed by Ukrainian canneries. New import duties for preprocessed cucumbers and gherkins, onions, peppers, mushrooms and vegetable mixes will be 20% of the value instead of the 0.2-0.4 Euros/kg as previously. However, preprocessed green and black olives, sweet corn and, other vegetables not mentioned previously, will be levied import duties at -5%. The new tax rate for preprocessed cucumbers will go into effect on December 1, 2005.
The import duty rates for dried vegetables were set at a privileged level of 0.6 Euros/kg, an exception being dried mushrooms and truffles, for which the rate is 5%. Import duties for dried fruits such as apples, peaches, pears, papaya will be considerably reduced while duty for prunes and dried apricots will be 0%.
Import duties for imported sour cherries, sweet cherries, apricots, oranges, papaya, currents, raspberries and mangos canned for temporary storage will be decreased to 20%. Previously this duty ranged from 0.15 to 0.30 Euros/kg.
Dramatic changes in customs tariffs occurred for the frozen vegetable group. The import duty for frozen French fries consumed by fast food restaurants was set at 15% of the value, vs. the prior rate of 0.2-0.4 Euros/kg. Import duty rates for other frozen vegetables will now range from 10 to 20% of value, vs. the prior rate of 0.2-0.4 Euros/kg.
Such significant reductions in import duties for canned produce and other processed fruits and vegetables will have a negative impact on the development of the Ukrainian industry, as some analysts claim, is accounted for by the absence of an industry association which could effectively represent and defend interests of the processing industry. It is hoped that the growth in production development of this industry will only slow and not turn negative.