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A second raspberry boom in Ukraine?

EastFruit analysts draw attention to the threat of a new “raspberry boom” in the 2022 season. Representatives of berry nurseries confirm a sharp increase in demand for raspberry seedlings this year, given record high prices for raspberries on the fresh market, as well as for those for freezing and exports.

Unfortunately, the first raspberry boom of 2017-2018 is fading from the memory of many Ukrainian entrepreneurs. This means that the sad scenario for many is quite likely to repeat. Therefore, we decided to recall its developments, as well as explain what went wrong then, and why “Raspberry Boom 2” is quite possible.

After the ban on the exports of fruits and vegetables from Ukraine to Russia, many entrepreneurs started looking for investment opportunities in high value-added products for exports. At this time, Ukraine has already successfully exported frozen raspberries, although in relatively small volumes – about 3-5 thousand tons per year. Wholesale prices for high-quality raspberries in 2015 reached 40-45 UAH/kg ($ 1.9-2.2/kg), and the same was paid even for high-quality raspberries for freezing.

At the same time, the establishment of a raspberry plantation with certified planting material, including the costs of drip irrigation and other technologies, amounted to about 300-350 thousand UAH. Accordingly, upon reaching a yield of 10 tons per hectare, which is quite real for an intensive project, the investment paid off in one year. The raspberry orchard was designed, as a rule, for about 7 years of production.

Since 2011, the APK-Inform: Vegetables and Fruits project has been successfully holding an international conference “Berries of Ukraine: Freezing and Fresh Market”, which always attracts crowds. This helps to promote ​​growing berries and freezing them for exports. One of the largest agricultural conferences in the country “Million per hectare” was held at the beginning of 2016, where numerous ideas of highly profitable businesses on small farms were discussed. Notably, it was investments in raspberries cultivation that aroused the greatest interest among the participants.

During the conference, the Lviv Regional State Administration agreed to cooperate with representatives of the Food and Agriculture Organization of the United Nations (FAO) in promoting the raspberries cultivation for freezing and fresh market in the region. The regional budget allocated funds to support such initiatives, in addition to the funds to be obtained from the state budget.

The project of the FAO Investment Centre and the European Bank for Reconstruction and Development (EBRD), dedicated to supporting cooperation in agribusiness, helped the administration develop a program to support and promote the berry business in the region and hold a series of seminars on the cultivation and processing of raspberries. The events took place not only in Lviv, but also in other regions of the country, and were keenly covered in media.

Most of the event participants and media representatives talked about the potential profitability and payback of raspberry projects, while FAO and EBRD representatives drew attention primarily to the necessity of a clear understanding of how and where to sell raspberries for successful projects. Moreover, FAO and EBRD warned of a shortage of freezing capacity in the country, which could lead to a collapse in prices amid increased production, if producers did not cooperate to create their own processing and production of high-quality frozen raspberries.

At one of the seminars with about 100 people present, FAO economist Andriy Yarmak asked: “Raise your hand if you grow raspberries”. There was silence in the hall – only two raised their hands. However, it became obvious during the presentations that the majority had either already planted raspberries, or were establishing plantations, but did not want to reveal this to other participants. And this was a vivid representation of growers not being ready to cooperate and work together, which the organizers called the main threat to business.

Another problem is saving on seedlings. Many buy the so-called raspberry seedlings at 1 UAH/piece ($0.05/piece), while for high-quality certified seedlings you need to pay about 15 UAH/piece ($ 0.7). Naturally, most of the “seedlings” at 1 UAH/piece either perish or do not provide even the minimum productivity necessary for economically viable production. Raspberries grown from such planting material are not high-quality – and quality is the main prerequisite for getting a high price.

At the same time, freezing capacities were growing in Ukraine. However, the overwhelming majority of these projects were self-built and could not produce quality products. The same is with plantations from seedlings at 1 UAH/piece. Therefore, even if good-quality raspberries get here, which is unlikely, low-quality products are obtained.

No wonder that wholesale prices for raspberries fell sharply in 2017. Fresh raspberries were sold everywhere, and the retail price did not exceed 25-30 UAH/kg – even in retail raspberries were sold at less than $ 1/kg! For the first time, raspberries appeared in supermarket chains!

The freezing enterprises were also inundated with offers. They reduced prices, as producers did not have refrigeration and freezing and had nowhere to go – they had to sell at the offered price. The price reached 15-20 UAH/kg – only $ 0.55-0.70/kg.

For those who saved on seedlings, the yield of raspberries usually does not exceed 2-3 tons per hectare. Therefore, harvesting such raspberries costs more than 10 UAH/kg, which means the production becomes close to unprofitable. This was just the beginning of what we call “Raspberry Boom 1”.

By the way, many believe that this was a coincidence, and the demand for raspberry seedlings remained high. Raspberry orchards were actively further planted, hoping that the price would rise the next year.

Ukraine sharply increased the supply of frozen raspberries to the EU market at incredibly low prices that sometimes dropped to $ 1.5. The quality of these raspberries was so poor that the demand was respectively low, despite the attractive price. However, the price was set, and raspberry importers offered a similar price for berries from Serbia and Poland. But these countries were used to sell frozen raspberries at no less than $ 2.6-3.0/kg. By the way, the last batches of frozen Ukrainian raspberries of the 2017 harvest were sold for export at $ 1/kg.

Naturally, producers entered the new season of 2018 with large stocks of frozen raspberries and low prices. Despite the fact that the first growers had already stopped the production, there were even more raspberries planted. Therefore, the supply of raspberries in Ukraine remained high and even increased.

After another increase in the supply of raspberries, the purchase prices of frozen ones often dropped to 10 UAH/kg (less than the cost of harvesting), although for high-quality raspberries they paid more. There were cases when low-quality raspberries for freezing were bought even at 6-8 UAH/kg ($ 0.22-30)! And this was the peak of the “Raspberry Boom 1”.

Freezing enterprises were afraid to pay more for raspberries, bearing in mind the difficulties with exports and low global prices. They assumed that the global market might not recover amid high supply. Accordingly, by the beginning of August 2018, Ukrainian growers had no doubts that growing raspberries is completely unprofitable.

By the way, in 2018, prices for remontant varieties of raspberries, began to grow unexpectedly and even reached 40 UAH/kg, although only when sold on the fresh market. Freezing enterprises raised prices, but not more than 20-25 UAH/kg. By this time, many growers had already given up their raspberry plantations.

The global market for frozen raspberries was in a fever at that time. Growers in Serbia, as well as in Bosnia and Herzegovina, were protesting and demanding that governments solve the problem of low raspberry prices. There was also a decline in raspberry production under pressure of low prices in Poland. It was at this time that many Ukrainian entrepreneurs paid attention to blueberries and honeysuckle, which they considered to be more profitable.

In seasons 2016/17 and 2017/18, Ukraine exported about 15 thousand tons of frozen raspberries. It made the country one of the five largest net exporters of raspberries in the world. In terms of price Ukraine was a champion – Ukrainian raspberries were the cheapest. It is hardly worth being proud of this achievement – the residual batches of Ukrainian frozen raspberries at the end of the season were often sold at incredible prices, about $ 1/kg. For comparison, Serbia and Poland exported about 100 thousand tons of frozen raspberries and suffered greatly from low global prices that collapsed because of Ukraine, despite its small raspberry volumes.

According to analysts of the APK-Inform: Vegetables and Fruits, Ukraine could have exported even 25 thousand tons of frozen raspberries then. However, the lack of freezing capacities made this impossible. These thousands of tons of raspberries were not harvested, lost, distributed free of charge, used for the production of alcohol, homemade jam, etc. Of course, the consumption of fresh raspberries has grown sharply in Ukraine then.

According to Andriy Yarmak, these two difficult seasons have laid a good foundation for the further development of the raspberry market in the world. “Due to low global prices, frozen raspberries are becoming a good raw material for confectionery, bakery, dairy and other food industries. Raspberry smoothies became popular. Smoothies and healthy eating are in trend, and cheap raspberries come in handy here. The percentage of raspberries in frozen fruit and berry mixes is also growing quite sharply. Food producers promote raspberries as a very tasty and healthy product. In other words, the price cut has allowed millions of consumers in countries not producing raspberries to try them in other products. Many people liked them. Thus, the consumption of raspberries, including fresh, increased globally,”- Andriy Yarmak explains.

Of course, we can name another positive outcome of the “Raspberry Boom 1” in Ukraine – a sharp increase in investments in berry freezing capacities. After all, if raspberries are cheap, it is rational to make money not on growing, but on processing cheap raw material! And now, besides low or average-quality projects, modern enterprises for freezing berries, fruits and vegetables have begun to be created in Ukraine. By the way, it was raspberries that made Ukraine an exporter of frozen wild-growing mushrooms, but that’s a different story. In the meantime, we will return to raspberries and jump into 2021.

Raspberry prices in 2021 rose to an incredible 75-90 UAH/kg! Growers who did not give up growing raspberries sold them at almost $ 3/kg even for freezing – more than twice as much as before the start of “Raspberry Boom 1”! Moreover, raspberry prices sometimes even exceeded blueberry prices that were considered the highest for many years in a row.

Therefore, no wonder that many could not resist the temptation to grow raspberries again in 2021. What if prices don’t collapse?

We have to disappoint you, but the prices for raspberries, at least for those for freezing, will surely go down, as producers have not studied the reasons for such a dynamic rise in prices. They have risen because the harvest has sharply declined in several key raspberry producing countries due to unfavorable weather this year. Also, the low prices of “Raspberry Boom 1” knocked out of this business many inefficient participants in different countries, and the rising cost of labor and its shortage had an impact. Furthermore, the growth in global consumption of raspberries and the growth of freezing capacities in Ukraine played a role.

In the 2020/21 season Ukraine exported a record volume of raspberries – more than 20 thousand tons. This confirms the availability of sufficient freezing capacity, because exports increased given lower production volumes. Indeed, raspberries in Ukraine suffered from frosts in 2020, and the growing areas were lower than in 2017-2018.

What can you do to avoid another bankruptcy due to a very likely decline in raspberry prices in 2022?

We will repeat what we said before the start of “Raspberry Boom 1”, warning about its consequences. It goes without saying that you should not buy cheap seedlings of shady origin. It seems obvious, although questions on forums cast doubt on our belief. If we talk about serious investments, we need to, first of all, clearly understand what quality raspberries will be grown and how they will be sold.

For a fresh market, you need the right varieties, appropriate growing technology, which is fundamentally different from the technology of growing raspberries for processing, cooling capacity, packaging lines and materials, contracts with supermarket chains and/or other reliable buyers.

For processing, you need to understand that prices can only be partially controlled, even if you have your own freezing capacities. Therefore, it is also important to grow, first of all, high-quality raspberries and work with a reliable processor with good sales in export markets. Prices for high-quality raspberries will always allow to, at least, recoup the costs of production. In addition, after raspberry prices collapse the most inefficient producers leave the market, as a rule, and the prices rise next season.

Ukrainian growers should also understand that even large berry freezing enterprises in Ukraine are small compared to Polish or Serbian ones. That is why Ukrainian exporters cannot get a higher price, and are often forced to sell not directly, but through Polish processors, leaving them a significant part of the margin. We wrote about this in the article “How much money does Ukraine give to Poland when exporting berries”.

Accordingly, without cooperation and market consolidation, Ukrainian growers will continue to subsidize berry processors from Poland and other countries, leaving them a part of their profits.

What will be the raspberry prices in 2022? We do not engage in forecast them. Our colleagues from APK-Inform: vegetables and fruits have been doing this successfully for many years. However, we have seen business plans for new raspberry growing projects with very high prices. This suggests that Ukraine’s “Raspberry Boom 2” is almost the reality.

EastFruit

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