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How profitable was the quick freezing of raspberries in 2016-2022?

On March 16, 2023, the EastFruit project held the first online conference on the situation in the market of frozen fruits, berries, and vegetables. The video of the conference is available at this link (in Russian).

The participants of the event were most interested in issues related to the freezing of raspberries and their exports. How profitable is the business of freezing fresh raspberries?

In this regard, EastFruit experts prepared calculations of the profitability of freezing raspberries in Ukraine in  2016-2022, using the kindly provided data on prices for fresh and frozen berries by the APK-Inform: Vegetables and Fruits project. See the price chart below.

Based on the price levels for raw materials and prices for finished products, the marginality of the freezing business can be calculated. It turns out that the most profitable year for freezing enterprises was 2017 when the margin reached $2.25 per kilogram of raspberries.

We want to note that we are talking about the difference in prices between the purchase of raw materials and the cost of finished products. Although the margin is an indicator of the trend in business profitability, a positive margin does not ensure the profitability of the business.

“In the 2022/23 season, labeled “2022” on the chart, the average raspberry freezing margin was the lowest historically. However, the estimated margin of $0.7 per kg means that many enterprises may have been operating in the red or with minimal profitability. Ukrainian companies that rushed to sell raspberries immediately after freezing actually earned higher margins last season than those who decided to wait for more favorable prices, because the price of frozen raspberries on the EU market decreased from July 2022 to February 2023 almost doubled,” explains Andriy Yarmak, economist at the Investment Center of the Food and Agriculture Organization of the United Nations (FAO).

“It should also be taken into account that from 2016 to 2022, the costs for the production of each kilogram of frozen raspberries have increased significantly. At the same time, as we see, the margin has tended to decrease since 2018. This stimulated consolidation in the industry since with low margins, a producer is forced to operate with higher volumes of production to cover rising costs. On the other hand, an increase in the number of freezing enterprises and their capacity increases the level of competition for raw materials and therefore does not contribute to reducing the cost of purchasing products. Obviously, as the competition in the industry grows, the pressure on the marginality of the freezing business in Ukraine will continue, and the importance of the quality parameters will continue to grow. This also means that the entry to the industry will become increasingly expensive, and the minimum size of the enterprise to ensure even the theoretical profitability of the business will grow,” the FAO expert believes.

Read also: Raspberry price cycles and forecasts for 2023

According to Andriy Yarmak, Ukrainian freezing enterprises will be very careful with the pricing of raw materials in 2023, given the experience of the outgoing season. “In order to return to the average level of marginality for freezing raspberries, processors, subject to maintaining global prices for frozen raspberries, will need to reduce the purchase prices for raw materials by approximately 17-19 UAH/kg compared to 2022. However, so far no one can guarantee that global prices for frozen raspberries will remain at the same level as they are now. Moreover, no one will undertake to forecast their growth. After all, the stocks of frozen raspberries from last year are still quite high today, the global economy continues to stagnate, and the production of raw materials will once again increase if there are no weather disasters in the next couple of months. It will be extremely unprofitable for freezers to work with such a low margin as in the outgoing season. Therefore, the attempts of processors to reduce the price of raspberries even more in 2023 cannot be excluded,” says the analyst.

EastFruit

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