How the Irish sugar industry lives on in Ukraine

Used equipment from Ireland’s closed sugar factories in Mallow, Co. Cork and Carlow have aided the resurgence of the sugar industry in southern Ukraine.

AgriLand recently sat down with Igor Buchatskiy, CEO of ED&F Man, to learn more about why the Irish machinery made the more than 3,000km journey.

He also offered some advice to Irish farmers that are now in the midst of a possible sugar beet industry revival.

Built in 1963, the Zasylsky Sugar Factory, located 40km from the Black Sea ship-building city of Mykolaiv, was a casualty of the collapse of the Soviet Union, when many inefficient sugar mills closed across Ukraine.

Ten years ago, one of the world’s largest sugar traders – UK-based ED&F Man – purchased the idle factory and refitted it with equipment from three European-based sugar plants.

Operational yet again, the Zasylsky factory has a capacity of 6,000t per day.

The company’s own 14,000ha farm is mostly located within a half-an-hour’s drive of the factory.

The company supplemented its processing enhancement with further investment in modern tillage and cultivation machinery, irrigation systems and GPS farming techniques.

ED&F Man plans to grow its current land base and farming efficiencies in line with future production growth output.

Global powerhouse

Buchatskiy is matter of fact when describing why ED&F Man has acquired farming and processing operations in Ukraine.

If you are a player in the global agriculture commodity market you have to be in Ukraine. We see the country as having the potential to be a global powerhouse in sugar production.

With 41 million hectares of farmland, all the major trading houses have been active in Ukraine for years. The large Ukrainian agri-holdings – some farming more than half a million hectares of land – are also increasing their trading competence.

Buchatskiy feels cost competitiveness is a key advantage for Ukrainian sugar producers.

The country is home to some of the most fertile soils in the world, where rents of €80/ha are not uncommon. Labour costs are also low, with salaries averaging €260 per month nationally. In rural areas, this figure is often lower.

However, Buchatskiy highlights some challenges including: a moratorium on land sales in Ukraine; an on-going war in the east of the country; and inflation currently running well over 10%. Short to medium term, he also describes testing conditions in the global marketplace.

We predict a nine million tonne oversupply of sugar in 2018. This will probably continue into 2019. There is huge overproduction in Europe, and Mexican sugar mills are processing sugar cane like there’s no tomorrow.

This is coupled with pressure on the consumer side, where consumer sentiment, labelling, and activist groups are hyping the perceived health risks of sugar consumption.

Headwinds aside, Buchatskiy sees one key advantage for Ukrainian sugar producers.

“Most sugar producers here are vertically integrated, meaning that in a bad market year, they can better absorb lower margins on the farm, and manage the risk further up the supply chain,” he said.

The advantages of eastern European sugar production would be further strengthened should future changes occur in European Union farming support structures.

If the EU starts to reduce subsidies to its farmers; Ukrainian, Belarusian and Russian sugar producers would be in a good position to increase output. Many inefficient sugar factories are now closed.

“Those that survived are becoming more efficient. Farm productivity and yields also continue to improve,” he said.

Ukraine’s position is further strengthened with a favourable infrastructure base and geographic location from which to serve markets across north Africa, the Middle East and Asia.

Irish potential

Buchatskiy offers words of caution for Irish tillage farmers looking to resurrect their own sugar beet sector.

He suggested Irish farmers “look beyond” sugar beet, to crops that are on the rise globally with respect to customer sentiment, demand and profit margin.

He recommends pulses, beans and lentils as good options for crops that not only offer a strong margin; but also fit favourably into a crop rotation.

With 150,000ha of land cultivated with peas and beans across the UK, Buchatskiy indicates that parts of Ireland – especially the south-east – may possess the climatic and soil conditions for similar production.

Buchatskiy feels Irish sugar beet producers will struggle to compete on cost and economies of scale with many eastern Europe producers.

However, he concluded by offering the following glimmer of hope:

Irish producers need to differentiate themselves in the marketplace. If the possibility existed to produce certified organic sugar in Ireland, there would be unlimited demand across mature European and North American markets.