This Strategic Plan for Developing Agricultural Produce Market Infrastructure has been developed according to USAID AgroInvest Project Terms of References and major principles set forth by the Presidential Program for Economic Reforms, specifically, the Program for Ukrainian Rural Development until 2015. “Developing the agrarian market infrastructure and the network of wholesale markets of agriculture produce in particular is an essential component of this program”. The Ministry of Agrarian Policy and Food of Ukraine estimates that commissioning the network of such markets will help Ukraine mobilize over UAH 10 million investments in the agrarian market infrastructure, and export of Ukrainian agriculture produce will generate extra revenues of over UAH 200 million every year. The government strategy for developing wholesale markets of agricultural produce aims at improving marketing of domestically produced fresh fruit and vegetables that comply with international food quality and safety standards and increasing sales of such produce to Ukrainian consumers.
IFC/Ukraine specialists indicate that some five million tons of fresh fruit and vegetables are lost every year due to poor harvest, postharvest handling, and marketing practices. The monetary value of these losses exceed one billion US dollars and more importantly, require Ukraine to import fresh fruit and vegetable products for which it has the capacity to produce domestically. Moreover, IFC surveys show that as little as 4%, 10%, and 19% storage facilities for potato, other vegetable, and fruit, respectively, comply with modern requirements. Their analysis suggests that Ukraine needs new cold storage facilities for approximately four million tons of potato, one million tons of other vegetables, and 498,000 tons of fruit. The provision of modern cold storages located within logistics centers and at strategic producer and physical market sites is identified by these studies as a key constraint to transforming Ukraine into a net fresh produce exporter. Currently, Ukraine is a net fresh produce importer for many products for which it has a comparative advantage based on climate and soil conditions.
In addition to lack of modern storage infrastructure, informed estimates suggest that formal retail market outlets distribute from less than 10 percent to no more than 25 percent of basic agriculture produce (potato, onion, beet, carrot, cabbage etc.). Most of these vegetables are still sold at traditional urban and rural retail markets lacking in modern storage and distributional facilities. Market managers and other specialists indicate that total sales volume through these markets has been increasing since the economic downturn resulting from the 2008 global recession and this is confirmed by recent IFC studies. At the same time, while total sales of vegetables through supermarkets and other retail stores are relatively small, significant supermarket sales increases are being recorded in larger cities and urban centers. This trend is particularly true for the growing number of young families who do not have an established loyalty to the traditional markets and is likely to gain momentum in the future.
As mentioned above, the new wholesale markets of agriculture produce are expected to increase sales of fresh fruit and vegetables that are produced domestically, and comply with international quality and safety standards. Achieving this goal will help Ukraine solve the current problem of low quality domestically produced fresh fruit and vegetables in supermarkets and other retail outlets and the AgroInvest Market Infrastructure sub-component is designed to support this MAPF policy goal.
The Strategic Plan is developed based on the following considerations:
- There is currently no clearly stated concept or comprehensive national approach to developing an integrated agricultural market infrastructure. However, initial program documentation refers to construction of 25 new regional markets using as a model the Lviv (Shuvar) market that has successfully evolved since the beginning of the new millennium. Recent program documents include the June 01, 2011 MAPF resolution authorizing first phase implementation of seven wholesale markets to be built in Kyiv, Kharkiv, Donetsk, Lviv, Odesa, Zaporizhya, and Kherson. In addition, Cabinet of Ministers Instruction # 761 dated July 27, 2011 authorized allocation of UAH 200 million from the state budget for the purpose of developing wholesale markets in Kyiv, Donetsk, Lviv, Kharkiv, and Chernihiv;
- The MAPF (http://www.minagro.gov.ua/news/?pg=12221), indicates that wholesale markets of agriculture produce (WMAPs) are set up and operated as public-private partnerships (PPPs). However, guidelines are not available defining this term and to date, the process for selecting private sector partners has been neither transparent nor competitive. Moreover, information on actual market owners/shareholders or the market capital structure is not available;
- The lack of an articulated conceptual strategy creates a logical disconnect between the new market structures and the existing village/urban retail markets and wholesale/retail markets that now inadequately serve the AgroInvest SMP target growers. However, as the new market being developed in Kyiv incorporates innovations introduced in the Lviv (Shuvar) market designed to address this constraint, the development direction of the new markets can be described as tentatively positive, but lacking a national strategy focus and design.
The lack of a national integrated agricultural market infrastructure strategy remains a major constraint to developing an efficient nationwide fresh agricultural produce market system that includes programs and physical infrastructure at local, sub-regional, and regional levels to facilitate SMP market access. AgroInvest will develop a strategy paper in order to provide MAPF and others with a transparent statement of the AgroInvest Market Infrastructure Development strategy with the idea that it can be adopted and implemented in whole or in part by the MAPF. The strategy paper will address the following actions that constitute the Component 3.2 Implementation Strategy:
- Integrate the current system of local, sub-regional and regional market infrastructure with the emerging regional WMAPs;
- Implement market procurement strategies, grower and market site logistic centers (including packinghouse and cold storage facilities) and extension and outreach grower training capacity at selected WMAP market development areas to facilitate large scale SMP and PO product access;
- Use internationally recognized public-private partnership mechanisms in the processes of construction and operation of market infrastructure facilities to promote private sector selection transparency;
- Introduce democratic market management approaches.
The Strategic Plan does not envisage any direct AgroInvest Project financial support of WMAP development that is already under construction in Donetsk, Kyiv, and Lviv. However, should opportunities, such as introduction of market located SMP extension and outreach training, become viable at these particular sites, AgroInvest will evaluate them and respond accordingly.