How much do Ukrainian producers earn from growing potatoes?
Despite the fact that potatoes are a fairly high-margin crop, the real return on investment in growing potatoes is about 30%. This opinion was expressed Nikolay Gordiychuk, director of the company “Agrico Ukraine” – a leader in the market of seed potatoes imported and grown in Ukraine, in the Aggeek video blog.
Read about how much you can earn on potato production and what you need for systemic profit in the EastFruit article.
Costs per hectare of table potatoes are on average $ 5.6 thousand, profit – $ 1.9 thousand.
“Growing potatoes is only 50% of success. It is also necessary to properly preserve the culture in order to sell it during the season at the most acceptable prices for the producer. In addition, our manufacturing partners want us to deliver consistently good quality products throughout the season – this is not possible without a modern storage facility. Today we have a storage facility with a capacity of 1200 tons. Its construction cost us $ 500 thousand, ”says Nikolay Gordiychuk.
Initially, the company’s seed potatoes were grown on 20 hectares of land. Today, about 200 hectares are occupied by potatoes in Agrico Ukraine.
According to the director of “Agrico Ukraine”, now the requirements for cultivated varieties are growing on the potato market. They are dictated by consumers. “If earlier we grew the so-called universal varieties, today the consumer wants separate varieties for cooking, for baking, for making French fries. Accordingly, taking into account the preferences of consumers, the HoReCa segment turns to us with requests for such varieties, ”says Nikolay Gordiychuk.
If we talk about the profit received by the company from 1 hectare of table potatoes grown, then, according to Mykola Gordiychuk, on average it is 50 thousand UAH ($ 1.9 thousand).
“Potatoes are a high-margin crop in terms of getting profitability per hectare. At the same time, the potato growing business is very capital-intensive – the average cost of growing 1 hectare of table potatoes is 120-150 thousand UAH ($ 4.5-5.6 thousand), and seed – about 250 thousand UAH / ha ($ 9.4 thousand). This includes the cost of seed, technology, fertilizers, harvesting. For example, one box for storing potatoes costs about UAH 2,000 ($ 75.25). The annual costs for the repair of the harvester operating in our sandy soils are 250-300 thousand UAH ($ 9.4-11.3 thousand). Based on this, the return on equity is about 30%. That is why many companies with a large bank of land today have left the potato business and started producing crops with 100% profitability, for example, soybeans. Small and medium-sized farmers often enter the potato business, for whom potato cultivation has a social component, ”explains Nikolay Gordiychuk.
Read also: Ukrainian farmers choose mainly drought-resistant early potato varieties – Nikolay Gordiychuk, “Agrico Ukraine”
According to the director of “Agrico Ukraine”, his company works with farms, which supplies its seed potatoes. “And in order to understand what is better to offer them, we decided to work in the segment of table potatoes. It takes no more than 10% of our business turnover. In addition, in recent years we have been working with Metro Cash & Carry, Good Wine, WineTime chains. At the same time, we do not carry out deliveries of young potatoes – this is not our niche, but we work in a clearly defined season – from September to the end of April, ”Nikolai Gordiychuk notes.
The Ukrainian seed potato market will be reformatted taking into account the development of the processing segment
The driver of the seed potato market development, according to the director of “Agrico Ukraine”, is the processing segment. In the markets of the USA and Western Europe, 90% of potatoes are sold in processed form. “In Ukraine, at the moment, the opposite is true. And in the future, the Ukrainian potato market will be completely reformatted. So far, the processing segment is gaining its position in the market rather slowly. For example, when Pepsico started operating in Ukraine, a sales market appeared for local farmers with an annual volume of 50 thousand tons, as well as with stable prices.
However, today there is not a single large producer in Ukraine, for example, french fries. I am sure that its appearance is a matter of time. So far, the entire volume of French fries necessary, in particular, for the HoReCa segment, is imported from Belgium, the Netherlands, and Poland. As soon as the capacities for the production of French fries are put into operation in Ukraine, I am sure that our company will receive requests for the supply of the appropriate seed potatoes from farmers who want to grow the appropriate varieties, ”the market specialist notes.
At the same time, Nikolay Gordiychuk draws attention to the fact that the production of French fries is a rather energy-intensive process.
“At the same time, the cost of energy carriers in Ukraine is quite high today. The second is the value of money. It is necessary to invest about 20 million euros in the construction of a plant for the production of French fries. Accordingly, today in Ukraine it is practically impossible to create a production that will compete with the products of Polish, Belgian or Dutch enterprises in terms of cost. In addition, a plant that can compete in scale with the aforementioned imports should produce 40-50 thousand tons of French fries per year. Domestic consumption of the Ukrainian market is at the level of 16-20 thousand tons. Accordingly, even at the stage of building a plant for the production of French fries, it is necessary to think about selling its products in export markets. Thus, we can come to the conclusion that the construction of such a processing plant in Ukraine can only be undertaken by a large international company that has established sales channels, ”explains Mykola Gordiychuk.
The development of the potato processing segment in Ukraine, according to the director of Agrico Ukraine, is also hindered by the lack of communication between market players, for example, in the chain “farmer – intermediary – trade network”. “The best thing, in my opinion, is when the“ intermediary ”link is excluded from this chain – this promotes better cooperation between the manufacturer and the retail chain,” Nikolai Gordiychuk is sure.