The CEO of a frozen food company in Kyiv relates the difficulties of operating in a country at war, including logistics disruptions, power outages and damages from explosions.
Editor Emeritus Warren Thayer recently received a LinkedIn invitation from Vyacheslav Bublyk, CEO of Alte Foods in Kyiv, Ukraine, a manufacturer/exporter of IQF fruits, vegetables and berries. After accepting the invitation, Thayer sent Bublyk some questions about the difficulties of running a frozen food business in the Ukraine during the war. Here are Bublyk’s responses.
HOW HAS THE WAR AFFECTED THE FROZEN FOOD INDUSTRY?
The full-scale war, which Russia started against Ukraine in February 2022, has had a profound impact on the industry in Ukraine. In the initial days of the war, a large portion of the population relocated to the Western region and approximately 8 million people (20% of the population) left the country.
As a result, nearly all industrial enterprises came to a halt, leading to empty store shelves across the country. However, our enterprise took proactive measures to ensure the well-being of our employees, paid them in advance and left a few staff members on duty to manage the warehouse.
After a period of two to three months of ongoing war, people had to adapt to the circumstances to keep on running businesses, have jobs, live social lives. A de-occupation of the Kyiv region provided a positive impetus, inspiring many enterprises to make efforts to restore their activities. The motivation behind these efforts was primarily social responsibility. Gradually, merchandise started reappearing on store shelves, signifying a gradual return to normalcy.
In May 2022, our company made the decision to resume production activities. Our factory is located in Korosten, Zhytomyr region, approximately 200 km west of Kyiv. Unfortunately, during the period from February to April 2022, the Zhytomyr region experienced active hostilities, which affected the city.
At the beginning of the hostilities, the city was constantly bombarded by aircraft. We invested in efforts to restore the normal operation of our enterprise, including repairing minor damages caused by explosions and restoring logistics for both export sales and the delivery of raw materials for processing. Starting from June 2022, our company began processing berries.
Unfortunately, another crisis emerged in October 2022, known as the frozen food crisis.
Russian terrorist troops began bombing Ukraine’s energy infrastructure, resulting in severe blackouts. Many cities experienced prolonged periods without electricity, lasting two to three days, plunging them into darkness. This proved to be one of the most challenging periods for our industry. Enterprises that lacked backup power sources, such as diesel generators, suffered significant losses of their product stocks.
Our production facilities were put into operation in 2021 and were equipped with a diesel generator from the start. This generator fully covered both our storage and production needs. However, such working conditions significantly increased the cost of production, as the price of electricity rose by more than threefold.
Russian terrorist troops began bombing Ukraine’s energy infrastructure, resulting in severe blackouts… Enterprises that lacked backup power sources, such as diesel generators, suffered significant losses of their product stocks.
Furthermore, the active terrorist attacks by the aggressor country, particularly on Ukraine’s energy infrastructure in October, led to a drop in prices on the Europe-an market. Ukrainian processors, unable to provide proper storage conditions, were compelled to sell their products quickly. Consequently, the current price for frozen raspberries in Poland fell by 50% to 1.9 EURO/kg. In comparison, the average price for our company’s actual shipments between October and December 2022 was 3.80 EUR/kg.
The war-induced economic and currency crisis, along with the decline in the economy and purchasing power of the population, have had a significant and lasting impact on the industry. The primary goal for the majority of Ukrainian businesses is to fulfill their social responsibility and prevent a complete shutdown.
WHAT RAW MATERIALS ARE IN SHORT SUPPLY FOR FOOD MANUFACTURING?
Currently, there is no significant shortage of raw materials or any products for food manufacturing. If there are any interruptions in production, they can be mitigated by importing necessary materials. Logistics have been fully restored, but the lack of functioning ports has added complexity to the situation, resulting in price implications. The cost of raw materials has increased, and the purchasing power of consumers has significantly decreased. In fact, many items on store shelves are now more expensive compared to prices in Germany.
HOW HAVE YOU HAD TO CHANGE LOGISTICS OPERATIONS TO GET PRODUCTS TO STORES?
To ensure our products reach stores, we have had to make significant changes to our logistics operations. Currently, we export 99% of our products to various markets, including Germany, Poland, France, Italy, Canada and Israel.
One of the initial challenges we encountered was the lack of access to maritime transport through Ukrainian ports for container shipments. To overcome this hurdle, our company successfully adapted by mastering the transshipment of sea shipments through ports in Poland, Slovenia and Romania.
However, our main crossing points and sales markets are in Poland, within the European Union. This presented one of the most difficult tests for us. In early April 2023, Poland imposed a complete ban on the import of agricultural products, including frozen berries and fruits. This was a response to the economic difficulties faced by many Ukrainian companies, which resulted in some selling their products at significant losses in an effort to maintain any business.
In May, after the EU intervened, Poland lifted the ban on grain products but imposed enhanced controls and testing at the border for each shipment of frozen berries. This has caused delays, with each vehicle being held for seven to 10 days. As a result, there is still a queue of 10 to 14 days at the Ukrainian border. These challenges not only complicate logistics but also prevent us from synchronizing the logistics chain with more complex routes, such as those to North America through Polish ports.
These circumstances cannot be planned for, despite the fact that many in Ukraine expected that there would be a big war. We were all not ready for such a test and no one had practical experience.
We have had to adapt our logistics operations to overcome the lack of access to Ukrainian ports for container shipments. Transshipment through ports in other countries has been successful. However, the difficulties faced at the Polish border, including bans, enhanced controls, and delays, have added further complexity to our logistics.
WHAT HAVE YOUR PERSONAL EXPERIENCES BEEN TRYING TO RUN A BUSINESS AMID ALL THE DISORDER?
These circumstances cannot be planned for, despite the fact that many in Ukraine expected that there would be a big war. We were all not ready for such a test and no one had practical experience. The steps we have taken were attacked situationally, and as problems arise, we are trying to solve them. However, it is difficult to solve them when they are so large. Every day it becomes more difficult. We all believe in the victory and that the light will win over the darkness.