Investments in the Sustainable Development of
the Potato Sector in Ukraine based on the Optimal Balance
of Production and Consumption
RUSLAN LAVROV1, LYUDMYLA REMNOVA2, ІRYNA SADCHYKOVA3,
HENNADII MAZUR4, MYKOLA TYMOSHENKO5, VOLODYMYR KOZLOVSKYI6,
SERHII KOZLOVSKYI7
1Faculty of Economics and Management, European University, Kyiv, UKRAINE.
2Educational-Scientific Institute of Business, Quality Management and Life Support,
Chernihiv Polytechnic National University, Chernihiv, UKRAINE.
3Educational-Scientific Institute of Economics, Chernihiv Polytechnic
National University, Chernihiv, UKRAINE.
4Department of Management and Administration,
РHEE “Vinnytsia Аcademy of Сontinuing Еducation”, Vinnytsia, UKRAINE.
5Zhytomyr Agrotechnical College, Zhytomyr, UKRAINE.
6Department of Enterprise Economics and Production Management,
Vinnytsia National Technical University, Vinnytsia, UKRAINE.
7Department of Entrepreneurship, Corporate and Spatial Economics,
Vasyl’ Stus Donetsk National University, Vinnytsia, UKRAINE.
Key-Words: - Investments, potato farming sector, potato production/consumption balance, agri-food added
value chains
Received: May 19, 2021. Revised: December 20, 2021. Accepted: January 10, 2022. Published: January 11, 2022.
1 Introduction
Today, investing in agri-food added value chains is
an important factor in developing the modern
global economy. At intensive globalization
processes, the chains have major impact on
individual companies and the entire countries,
causing the worldwide movement of investment
flows. At that, experience of recent global
tendencies affected by pandemia shows the
growing role of agri-food chains in food security
system and need to attract additional investment in
their preservation and process restructuring – given
the need to supply the local markets and increase
the export potential.
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Ruslan Lavrov, Lyudmyla Remnova,
Іryna Sadchykova, Hennadii Mazur,
Mykola Tymoshenko, Volodymyr Kozlovskyi,
Serhii Kozlovskyi
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Abstract: The increasing role of potato breeding in the country’s food security system calls for additional investments into
maintenance and technological reconstruction of the branch on the basis of scientifically proven methods and approaches
to defining the optimal potato production volumes, its processing and storage to avoid surplus stock, unnecessary losses
and inefficient investment resource use at all stages of agricultural and food chain. The aim of the research is to substantiate
the conceptual investment model into the development of potato breeding in Ukraine on the basis of estimating the optimal
structure of balance between potato production and consumption, as well as efficient combination of the volumes of fresh
and processed produce to ensure the competitive potato market parameters in the modern market environment. The object
of the research is the process of formation and increase of added value in the agricultural chain through application of
optimal parameters of the balance between potato production and consumption. The methods of the research are based on
the system analysis law, which enable to substantiate competitive parameters of the potato breeding branch in Ukraine in
the changing economic environment, thus to reduce unnecessary losses in the “production-processing-delivery-sale-
consumption” chain. Incorporation of the developed optimization model of the balance between potato production and
consumption according to the criterion of minimization of potato rest at the end of the year enabled to discover its extreme
surplus of 2,4 mln. tons at the beginning of the 2020 year, which was not balanced by consumption demand. The inefficient
distribution of the gross domestic potato stock in Ukraine made it possible to draw a conclusion about the need to reduce
its surplus production by 17,5% and redirect the main investments into the development of potato processing industry,
improvement of its export power and extension of foreign markets for selling Ukrainian potato ready and intermediate
products, with further possibility of selling raw potatoes of ensured required quality. In this context the authors proposed
the conceptual model of investment into potato breeding in Ukraine proceeding from the optimal balance between potato
production and consumption by 2027 year that enables the achievement of strategic effect under the conditions of the global
competition.
It is known that potato and products of its
processing play an important role in agri-food
chains. According to actual statistics, potato is the
world’s fourth consumed food crop – after rice,
wheat, and corn. Given the leading position of
Ukraine, as the world producer of potato (among
the TOP-5 producers), investment strategy for
development of Ukrainian potato farming shall be
reviewed from the perspective of increasing the
added value share in global “potato-potato
products” chain. Today, part of Ukraine, as the
world potato market player, is very insignificant
and export-import operations of Ukrainian
businesses do not play a significant role in the
world market. At present, potato-growing
companies are practically not involved in forming
the global added value, as they sell fresh potato,
export of which is limited – due to incompliance
with phytosanitary regulations, high prime cost of
Ukrainian potato growing, and uncompetitively
high prices of the final product. At the same time,
Ukrainian producers make little use of
opportunities to participate in all stages of
producing the finished items (starch, frozen potato,
chips, semi-finished products, etc.) with chance to
cooperate with other economic entities. So, it
would be wise to ensure scientific justification of
competitive parameters for Ukrainian potato
growing in modern market environment and
determine on their basis the investment in optimal
structure of potato production/consumption
balance, as well as the need for additional
investment in processing segment, as pre-requisite
for further integration of the sector into global agri-
food chains.
2 Theoretical Background
Value-added chain concept was first introduced
into scientific use by M. Porter in 1985 – in view of
studying the competitive advantage (Porter, 1985).
Problems of value-added chain formation were
studied by Ukrainian and foreign scientists:
T. Andreieva, Y. Fang, V. Hubina, V. Ivanenko,
R. Johnson, R. Kaplinski, O. Kovalenko, B. Meng,
G. Noger, M. Porter, S. Sokolenko, O. Svitovyi,
N. Yamano, Zh. Yermakova, I. Zvarych, et al.
Specificity of agri-food chains lies in degree of
combining the production and processing of raw
materials into finished products. Two main types of
agri-food chains are distinguished depending on the
minimum and maximum parameters of their
dimensions (Krysanov et al., 2017):
a) the simplest (or primary segment) chain includes
two links: production and processing of food
raw materials, issue and direct sale of food
products;
b) full chain – at least 5-6 links: production-
transporting-processing-storage-transporting-
sale.
At that, to save the costs, various optimization
types are possible at forming the complete
agricultural chain, namely:
- merger, consolidation, separation, division (e.g.,
forming the agri-food chains in agricultural
holdings) (Dankevych, 2011);
- use of outsourcing – can be used to reduce the
costs or as strategic partnership. I.e.,
outsourcing is ability to transfer some functions
or business processes to subordinate firms or
individual experts, who can perform this work
better (Sadchykova et al., 2018);
- use of outstaffing – sending the staff (most often,
food-processing entities) for certain period to
companies involved in sale of food products,
etc. (Krysanov et al., 2017).
The following is most often distinguished among
the main reserves for increase of added value in
agri-food chains: increase of profit at using the
previous amount of capital; increasing the range of
finished products with new consumer properties;
optimizing the staff number/structure; reducing the
amount of capital used at keeping the profit on
previous level; reducing the costs for involving the
capital; market expansion; increasing the amount of
invested capital, etc. (Bryl, 2018; Dankevych,
2011; Seredynska, 2010; Shevchuk et al., 2007;
Aliev et al., 2018).
Based on systematizing the actual scientific
approach to forming the agri-food chain, we
defined the main stages of added value in the field
of Ukrainian potato growing, depending on degree
of their integration into this process (Fig. 1).
Thus, added value grows at each stage and
maximum increase is observed at stage of
processing the raw materials (potato) into finished
products (potato products).
In developed countries of the world, increase of
the total added value in agri-food chain pays much
attention to potato storage and processing. In
Ukraine, structure of using the produced potato is
completely different (Table 1). As shown in Table
1, potato in Ukraine is used for food purposes – 26-
32%, livestock feed – 29-33%, and processing for
non-food purposes – up to 10% of its gross
production.
Significant share is occupied by potato-planting
costs – 22-27%, which is 2.5-3.0 times more than
in all other countries. Potato losses are unreliable –
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Ruslan Lavrov, Lyudmyla Remnova,
Іryna Sadchykova, Hennadii Mazur,
Mykola Tymoshenko, Volodymyr Kozlovskyi,
Serhii Kozlovskyi
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7.6-11.0% total. No country has such low losses. At
the same time, scientists note that “field-storage-
consumer” chain loses 25-40% of potato, including
8-10% during harvesting, 4-5% during transporting,
up to 25% of harvest after storage. In this view, it
must be noted that increasing the scope of
industrial potato processing can minimize these
losses (Stoliarov, 2002; Patyka et al., 2021).
Fig. 1: Process of added value forming by
agricultural entities
While share of potato consumption fund in total
scope of its production decreased and made 28.1%
in 2019, potato consumption for livestock feed was
32.9% (in the US – 2% only) (Food and
Agriculture Organization of the United Nations,
2020). In foreign countries, the feed mostly utilizes
waste of potato processing into chips, fries, etc.,
which further increases the profitability of primary
production.
Now, global use of potato for feed and technical
purposes is constantly dropping – compared to
other types of feed and raw materials, potato is
more expensive. In general, due to low yield/large
loss of potato in “field-consumer” chain (up to
50%), ratio of potato production to consumption by
Ukrainian population is 1.5-2.0 times higher than in
developed countries.
3 Research Objective
Purpose of the article is scientific justification of
conceptual investment model for added value
forming in agri-food chain “potato-potato
products”, based on defined optimal structure of
balance between potato production and
consumption, effective combination of fresh and
processed products – to ensure competitive
parameters of potato farming in Ukraine, in modern
market environment.
4 Methodology
Methodological basis of the study is using the
balance method for assessment of situation in
potato market and achieving the equilibrium in
“demand-supply” system, methods of mathematical
statistics, extrapolation and expert assessment – to
outline the promising values of technical and
economic indicators for potato sector. Correlation-
regression analysis was used to mathematically
formalize the statistical dependence of performance
indicators on individual factors.
To develop the forecast balance of potato
production and consumption in Ukraine, for the
period till 2027, we considered the scopes of its use
by population, their reduction trends over the past
decade, feed consumption scope, possible potato
loss, and results of yield forecasting in different
categories of farms, based on revealed regularities.
While developing the optimal balance of potato
production and consumption, we made some
assumptions on minimum allowed level of potato
stocks, given the need for seed potato, feed
consumption, losses, non-food processing, and
Wholesale
entities
Retail entities
Specialized
entities
Specialized
potato-
processing
entities
Specialized
agricultural
entities
Household
entities
Sale of final
product
(potato
products)
Processing of
raw materials
(potato)
Production of
raw materials
(potato)
Occurs directly
at potato-
producing
companies:
Added value =
Revenue
(income from
sale
of potato to
legal and
physical
persons) –
Prime cost
Occurs via
accounting all
costs
related to
manufacture
of potato
products:
Added value =
Labor
costs + Social
deductions +
Depreciation +
Other operating
costs + Gross
profit
Potato
production
Potato
processing
into potato
products
Added value forming subjects
Stage results
Added value formation
Added value forming stages
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Mykola Tymoshenko, Volodymyr Kozlovskyi,
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scope of consumption fund (population needs for
potato till August).
Working hypotheses on defining the optimal
scope of potato production/consumption in fresh
and processed form were developed on the basis of
actual recommendations from Potato Farming
Institute at NAAS (National Academy of Agrarian
Sciences of Ukraine) of Ukraine – on need to bring
the promising scopes of potato processing into
various food products (semi-finished or finished) to
20% of the total gross harvest (National Academy
of Agrarian Sciences of Ukraine «Potato Farming
Institute at NAAS of Ukraine», 2016).
Table 1. Structure of potato consumption in different fields of use, % of its gross production
Source: (State Statistics Service of Ukraine, 2020).
Table 2. Balance of potato production/consumption in Ukraine for 2010-2019, thousand tons
Source: calculated and compiled by the authors under data (State Statistics Service of Ukraine, 2020).
Items
Years
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Stock at the beginning of year
Production
Import
Resources for use
Export
Feed consumption
Planting consumption
Losses
Non-food processing
Consumption fund
Stocks at the end of year
Sown area, thousand hectares
Yield, dt/ha
13,183
18,705
30
31,918
8
5,606
4,897
1,493
1,227
5,914
12,773
1408
132
12,773
24,248
41
37,062
13
6,906
5,377
1,854
1,539
6,368
15,005
1439
168
15,005
23,250
23
38,278
7
7,434
5,873
2,260
1,675
6,394
14,635
1440
161
14,635
22,259
23
36,917
16
7,377
5,660
1,967
1,742
6,161
13,994
1388
160
13,994
23,693
40
37,727
17
6,970
5,650
2,098
1,726
6,061
15,205
1348
176
15,205
20,839
17
36,061
15
6,538
5,416
1,943
1,989
5,892
14,268
1291
161
14,268
21,750
27
36,045
5
6,769
5,490
1,938
1,235
5,966
14,642
1312
166
14,642
22,208
24
36,874
18
6,821
5,565
2,110
1,251
6,091
15,018
1323
168
15,018
22,504
28
37,550
22
6,911
5,570
2,276
1,523
5,893
15,355
1319
171
15,355
20,269
32
35,656
20
6,677
5,530
2,234
1,637
5,705
13,853
1309
155
For forecasting and statistical modeling of
indicators it is necessary to investigate patterns of
their dynamics, ie to study the general tendencies of
development (trend). The construction of the trend
on the basis of statistical data for the relevant
period (expression of trends in the form of
mathematical equations, where the only
independent factor is time) allows you to choose an
analytical function that most accurately describes
the change in time series (until 2027).
5 Results and discussion
Balance of potato production/consumption in
Ukraine over the last ten years, given in Table 2,
shows excessive process consumption (for seed
material), high share of livestock feed
consumption, and storage losses of potato. Under
provided data, during the study period, despite the
growth of potato production, scope of its
consumption by Ukrainians decreased by 3.5%.
However, it does not indicate the drop of potato
consumption, as observed in leading countries of
the world. On the contrary, total consumption of
potato in Ukraine decreased, but increased per
capita – due to reduced number of the residents.
In Ukraine, only about 0.3% of gross potato
harvest is sent for industrial processing and making
2 types of products: chips and minor amount of dry
mashed potato (developed countries – over 100
types) (Tsarenko, 2002). Increasing the share of
industrial processing will not mean the increase of
potato need for food purposes. Ukraine needs to
develop the export markets for potato products, but
product quality requirements (especially, seed
material) will restrain manufacture of potato
products and export of seed potato for a long time.
According to V. Riznyk, absent demand for
Ukrainian reproductive material is also caused by
Indicators
Years
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Feed consumption
Planting consumption
Losses
Non-food processing
Consumption fund
Stocks at the end of year
30.0
26.2
8.0
6.6
31.6
68.3
28.5
22.2
7.6
6.3
26.3
61.9
32.0
25.3
9.7
7.2
27.5
62.9
33.1
25.4
8.8
7.8
27.7
62.9
29.4
23.8
8.9
7.3
25.6
64.2
31.4
26.0
9.3
9.5
28.3
68.5
31.1
25.2
8.9
5.7
27.4
67.3
30.7
25.1
9.5
5.6
27.4
67.6
30.7
24.8
10.1
6.8
26.2
68.2
32.9
27.3
11.0
8.1
28.1
68.3
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its quality incompliance with modern international
requirements – in terms of fierce competition at the
world market of potato seeds (Riznyk, 1999).
According to State Statistics Service of Ukraine,
food industrial processing of potato in recent years
(2015-2019) actually resulted in 65-75 thousand
tons of potato products and semi-finished products,
while only 190-220 thousand tons of fresh potato
was received for processing (State Statistics
Service of Ukraine, 2020). Even in the UK, at high
income of population, scope of potato used for
processing increased over 25 years (1955-1980)
from 115 to 1,074 thousand tons, which was 21.2%
of the local production (Kalinchik et al., 2010).
The following equation was developed based on
dynamics for short-range scope of industrial potato
processing in Ukraine (2015-2019):
Q=7,937.4хLn(t–60,325) (1)
where Q – scope of manufactured potato
products and semi-finished products;
t – years (2015-2019).
Solution of this equation (t = 2027) shows that
scope of potato products/semi-finished products
manufactured in 2027 will be 112.8 thousand tons
only. To do this, about 340 thousand tons of fresh
potato or only 9.5% of scope predicted in Sectoral
Comprehensive Program “Ukrainian Potato – 2016-
2020” will have to be processed (Potato Farming
Institute at NAAS of Ukraine, 2016).
According to our calculations, scopes of export
by 2027 will not exceed 31 thousand tons, and
import – 43 thousand tons. In this situation, hopes
for potato sector recovery via export of potato and
potato products are not justified (especially, for
export of seed potato). Under customs statistics, 95-
99% of the total potato scope was exported to
Commonwealth of Independent States (CIS)
countries every year. At that, every year, the top
share was formed by new CIS country. Given that
Ukraine imports potato from limited number of
permanent countries, and trend of export to other
countries is random phenomenon, it is hard to
expect the significant increase of export, although
potato import rates may grow.
To develop the forecast balance of potato
production and consumption in Ukraine, scope of
its use by population (P) was calculated. Trends of
their decrease by years (2007-2019) are described
by the following equation:
P=36,681–15.203хt (2)
where t – years (forecast years – t = 2020-2027).
Feed potato consumption (Fk) is calculated as
trend of changing the percentage to gross potato
harvest:
Fk=(0.01х(0.1304хt–292.27))хY (3)
where "Y" – the volume of gross production
(harvest) of potatoes for the analyzed period
Potato loss (W) is taken as 0.10114 of gross
production, as observed in recent years (2007-
2019):
W=0.10114хY (4)
When developing the perspective potato
balance, yield forecast is of particular importance.
The whole structure of fresh potato
production/consumption balance depends on its
absolute value. So, to prepare the potato balance
optimizing model (Matviychuk et al., 2014 ),
system of equations/identities shall be developed in
Excel environment – first of all, for potato yield
dynamics (U).
Under conducted analysis of potato yield
dynamics for all categories of Ukrainian farms in
1995-2019, in 25 years, the yield decreased till
1999 and then began to increase. Fresh potato yield
forecast for 2020-2027 was made via equation
describing the established pattern:
U=219,040–221.65хt+0.0561хt2 (5)
Consumption rate of seed potato per 1 ha was
taken at the level of actual average consumption in
2013-2019 – 4.18 tons per 1 ha or 33.3% more than
assumed by Sectoral Comprehensive Program
“Ukrainian Potato – 2016-2020” (Potato Farming
Institute at NAAS of Ukraine, 2016).
In 2007-2019, potato stocks at the end of year
ranged from 12.6 million tons (2007) to 13.9
million tons (2019) or 1.1 times more. First, it does
not stabilize the situation in potato market and
second – it leads to major potato loss. Thus,
optimization task assumes setting the rational scope
of stocks at the end of year and scope of
consumption for planting (depending on potato
planting area, i.e., need for seed potato indirectly
depends on predicted gross production), scope of
livestock feed consumption and potato loss during
storage, parameters of which depend on gross
production of fresh potato. All the above functional
consumptions or product stocks are unknown
(when solving the optimization task, you need to
calculate their parameters). Yet, since they are
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interdependent, there is every opportunity to find
their optimal values.
At that, it is accepted that minimum allowed
level of stock is share of gross potato production,
which should remain at the end of year and will be
able to meet the needs for potato till the mass
harvesting (till August). This included 1/2 of feed
consumption, all needs for seed potato, 1/2 of losses
and scope of non-food processing, 7/12 of potato
consumption fund (need of population for potato
till August).
All formulas related to developing the optimal
potato production/consumption balance during
2020-2027 will be summarized in the following
diagram (Table 3).
Table 3 shows logical sequence of equations
and identities, limitations, unknown values used in
development of optimal potato
production/consumption balance (to be determined
for calculation of all other indicators
mathematically related to them). In equations, some
values depend on calendar time only (import,
export, industrial processing, consumption fund,
potato yield), others – on gross potato production
(loss) or planted area (seed potato consumption),
and others – on calendar time and gross potato
production (feed consumption). Stocks at the end of
year and need for fresh potato, since January 1 till
start of mass harvesting, simultaneously depend on
three factors: calendar time, planted area, and gross
production of fresh potato.
The problem was solved in Excel environment,
using “Solution Search” software. The results of
solution are given in Table 4.
Table 3. Algorithm of developing the optimal potato production/consumption balance
Source: calculated and compiled by the authors
Equations and identities
Clarification
It = – 2,600.9 + 1.3042 х t
Scope of import
Rt = Zpt + Yt + It
Resources for use
Et = – 2,803.7 + 1.3986 х t
Scope of export
Fkt = (0.01 х (0.1304 х t – 292.27)) х Yt
Feed consumption
Nt = 4.18 х St
Planting consumption
Wt = 0.10114 х Yt
Losses
Gt = – 62,607 + 31.836 х t
Non-food processing
Pt = 36,681 – 15.203 х t
Scope of consumption by population
Zkt = Rt – (Et + Fkt + Nt + Wt + Gt + Pt)
Stocks at the end of year
Need since January 1 till start of mass harvesting
Planted area
Ut = 219,040 – 221.65 х t + 0.0561 х t2
Crop capacity
Limitations
Clarification
Total scope of production in 2020-2027
shall be equal to or exceed 138,765 thousand tons
Zkt ≥ Dzt
Stocks at the end of year shall be equal to or exceed
the needs since January 1 till start of mass harvesting
Zpt + 1 = Zkt
Stocks at the beginning of next year are identical
to stocks at the end of previous year
Unknown values
Clarification
Yt
Annual scope of gross potato production
Zp1
Stocks at the beginning of 2020
Optimization criterion
Clarification
In 2020-2027, total stocks at the end of year shall be minimal
By results of optimizing calculations for potato
production/consumption forecast balance in
Ukraine till 2027, which utilize potato stock
minimizing at the end of year, the following
important conclusions can be made:
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1. In early 2020, actual residues of potato made
13,853 thousand tons, which is 2.4 million tons
more than optimal values of this indicator (under
optimization model in Table 3). It means that this
output value had no consumer demand and
financial resources for manufacture of extra
products were used inefficiently. As a result,
business activity in potato forming drops,
warehousing costs increase, and financial status of
producers gets worse. Under calculations of
forecast balance till 2027, to meet the demand of
potato consumers since January 1 till end of July,
potato stocks at the end of year shall be maintained
at 62-63% of gross production or 10.3-11.3 million
tons – in contrast to actual 68% in 2019.
2. To meet local potato demand under current
consumption structure, much lower gross harvest
(than actually formed in Ukraine) is enough. Thus,
in 2020, potato production should decrease to 17.9
million tons, in 2021 optimal scopes are at the level
of 17.8 million tons, in 2022 – 17.6 million tons, in
2023 – 17.4 million tons, in 2024 – 17.3 million
tons, in 2025 – 17.1 million tons, in 2026 – 17.0
million tons, in 2027 – 16.7 million tons.
3. If during 2020-2027 potato yield will increase
by another 25% (relative to our forecast indicators),
the need for seed material will decrease and in 2027
will be only 2,123 thousand tons or 2.6 times less
than in fact in 2019. At the same time, the scope of
harvest in 2027 will be reduced to 15.9-16.1
million tons or 4.2-4.4 million tons compared to
2019, and the area of planting potato – up to 508
thousand hectares. The situation is completely
different, when the yield will remain at the level
reached on average for 1995-2019 – 133 dt/ha.
Reducing the cost of seed material and losses in the
chain “field-consumer” can significantly increase
the level of marketability of potato and revenue
from its sale. According to our calculations, potato
industry as a whole becomes profitable, if its
marketability exceeds 50.6%.
Table 4. Results of optimizing the forecast balance for potato production/consumption
in Ukraine till 2027, thousand tons
Source: calculated and compiled by the authors
Indicators
Years
2020
2021
2022
2023
2024
2025
2026
2027
Stocks at the beginning of year (Zp)
Yield (Y)
Import (I)
Resources for use (R)
Export (E)
Feed consumption (Fk)
Planting consumption (N)
Losses (W)
Non-food processing (G)
Consumption fund (P)
Stocks at the end of year (Zk)
Ratio of stocks at the end of year
to production, factor (Zk / Y)
Need till start of mass harvesting (Dz)
Planted area, thousand hectares (S)
Yield, dt/ha (U)
11,440
17,942
34
29,416
21
5,179
3,449
1,815
1,702
5,971
11,279
0,63
11,279
826
217
11,279
17,759
35
29,073
23
5,102
3,336
1,796
1,734
5,956
11,126
0,63
11,126
799
222
11,126
17,583
36
28,745
24
5,029
3,228
1,778
1,765
5,941
10,980
0,62
10,980
774
227
10,980
17,415
37
28,432
26
4,958
3,125
1,761
1,797
5,925
10,840
0,62
10,840
750
232
10,840
17,257
39
28,136
27
4,891
3,027
1,745
1,829
5,910
10,707
0,62
10,707
725
238
10,707
17,095
40
27,842
29
4,822
2,931
1,729
1,861
5,895
10,575
0,62
10,575
703
243
10,575
16,984
41
27,600
30
4,769
2,846
1,718
1,893
5,880
10,464
0,62
10,464
682
249
10,464
16,730
43
27,237
31
4,676
2,741
1,692
1,925
5,865
10,307
0,62
10,307
656
255
Thus, the analysis shows that in Ukraine there
is a significant overproduction of potato. Over the
last 10 years, about 1.3-1.5 million hectares have
been allocated for potato, and the average annual
potato harvest was almost 22 million tons (490 kg
per capita). Despite the fact that the consumption
of potato in Ukraine reaches a very high level
(144 kg per 1 person per year), only 6 million tons
are needed to meet the needs of the domestic
market and about 5.5 million tons are needed for
planting. Then a logical question arises – where
does the remaining 10 million tons go? Some of
them, unfortunately, are fed to livestock (6.5
million tons), and everything else spoils during
storage (annual losses of potato within the state
are almost 103 times higher than its exports). That
is, in fact, almost 20% of the potato crop is fed to
cattle every year or lost in the process of
harvesting and storing. This amount is equivalent
to half of the harvest in neighboring Poland. At
the same time, potato in Ukraine are practically
not processed, because industrial processing will
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Mykola Tymoshenko, Volodymyr Kozlovskyi,
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be profitable only at a yield of 30 t/ha, while now
the yield of potato in farmers in the best years
does not exceed 25-27 t/ha, and in households in
general 12 t/ha (average European yield – almost
50-55 t/ha, and reaches 70 t/ha).
According to Food and Agriculture
Organization statistics, Ukraine is among the top
ten largest potato producers in the world (ranked
4th in terms of cultivation), but has never been
included in the list of leading “potato” players in
the global market (less than 0.1% is exported to
foreign markets). At the same time, potato have
significant potential for diversification of
Ukrainian agricultural exports. During 2011-2019,
total potato exports almost doubled, which is not
the limit, given its significant domestic production
and growing demand in the global agri-food
market. At the same time, it should be borne in
mind that in most European countries the vast
majority of potato are sent for processing, and the
share of products for the fresh market is relatively
small (Food and Agriculture Organization of the
United Nations, 2020).
With the right target orientation and sufficient
investment in the development of processing
infrastructure, the agricultural sector of Ukraine
(Kozlovskyi et al., 2010) can additionally receive
from the export of one tenth of the output of the
industry about 1.1 billion dollars USA export
earnings, and with the increase in the average
yield of potato growing twice and the further
sustainable development (Kozlovskyi et al., 2018)
of production capacity for its processing, the
export potential of Ukrainian potato industry is
quite real to increase to 3-5 billion dollars USA
(Cabinet of Ministers of Ukraine, 2020).
At the same time, Ukraine’s participation in
global value chains is constrained by a number of
objective investment factors that prevent the
possibility of exporting potato in larger quantities
and at a much higher price. In particular, the EU
market is unfortunately closed to Ukraine now, as
the EU has a Council Directive № 2000/29/EC,
which prohibits the supply of potato from
countries where soil quality does not meet the
phytosanitary standards of the EU, and Ukraine is
just part of this list (Council of the European
Union, 2000).
Thus, we are convinced that the problems of
forming a rational structure for the use of products
for technological and food purposes by
developing industrial potato processing, finding
new sales channels and ensuring their stability,
expanding export-import operations remain
relevant for Ukraine. From these positions, we
have developed and substantiated a conceptual
model of investment taking into account the
optimal structure of the balance of production and
consumption of potato in Ukraine.
Conceptual model is based on the mechanisms
of investment cooperation between the business
sector and the state and coordination of their
economic interests and intentions, as well as
stimulating sustainable development (Koziuk et
al., 2020) of domestic and foreign consumer
market of potato processing sector of Ukraine
based on strengthening its competitiveness, which
will ultimately accelerate integration into global
agri-food added value chains.
It must be noted that even in developed market
economy, the mechanism of state regulation of
investment processes plays a crucial role in
creating a favorable investment climate and
investment attractiveness of certain industries.
That is, there is an objective need to identify
strategic areas of state support and investment in
the structure of the chain “potato-potato
products”, in particular:
- improvement of credit and tax policy of
Ukraine, formation of reliable incentives for
investment in potato business;
- harmonization of European and Ukrainian
legislation, introduction of new standards in the
field of potato growing;
- state financial support of breeding centers
and basic farms that grow certified potato seeds;
- strengthening and updating the material and
technical base of Ukrainian potato growers by
investing in technical equipment with modern
agricultural machinery and equipment;
- partial compensation to producers of potato
suitable for processing into potato products, the
cost of officially purchased certified seed (≈ 60
thousand UAH per 1 farm);
- restoration and modernization of artificial
irrigation systems (drip irrigation system ≈ 3.0
thousand USD per 1 ha, sprinkler system ≈ 3.0-
3.5 thousand USD per 1 ha), subsidies for water
and electricity, etc.;
- reconstruction and construction of the latest
technologies of potato storages with a total
capacity of 450 thousand tons, as well as other
infrastructure facilities of the potato market (≈
UAH 3.1 billion);
- investments in equipment for post-harvest
processing and pre-sale preparation of potato, in
particular lines for washing, sorting, packing, etc.
(line with a capacity of 200 tons per day ≈ 200
thousand euros);
- construction and commissioning of
enterprises with primary (washing, removal of
defective products), secondary (cleaning, slicing,
vacuum packaging) and deep (cooking, freezing,
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Mykola Tymoshenko, Volodymyr Kozlovskyi,
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drying, canning) processing of potato (≈ 15
million euros);
- attraction of financial resources (Kozlovskyi
& Fonitska, 2013) for creation of integration
complexes on production, storage and processing
of production;
- contracting in the domestic market with
supermarkets and HoReCa system;
- development of the institute of profile traders
for the organization of export of potato and potato
products.
Based on the analysis of strengths and
weaknesses of increasing the level of integration
of the Ukrainian potato market into global value
chains, as well as an assessment of existing
opportunities to optimize the balance of potato
production and consumption by 2027, it can be
argued that potato growers in Ukraine have
significant potential for foreign economic activity
and entering the EU market. The following
vectors of development can be outlined as time
guidelines for the future formation of rational
economic behavior of Ukrainian processors and
the revival of the potato processing segment as a
whole:
- prospects up to 5 years: further development
of the value chain by investing in in-depth
processing and storage of potato, focusing on
domestic consumers, increasing competitiveness
and preparing to enter world markets;
- prospects for 5-10 years: expansion of
exports of processed products, focus on regional
markets, search for markets with strategic
advantages;
- prospects in the time horizon of more than 10
years: the development of large-scale production,
investment in strategic cooperation between
farmers and processors.
An important point is the optimization
parameters. These parameters are calculated
taking into account the conditions of storage of
products according to the standards of the
European Union. Also, it should be noted that
there are variations of product varieties. In this
case, the authors made the calculation in weighted
average.
In our opinion, a promising direction for
solving problems in potato growing in Ukraine, as
well as harmonizing the interests of market
participants on a cost-effective basis is to change
approaches to investing in the potato industry in
order to transfer it to modern technologies, revive
industrial potato processing and create a network
of specialized food production enterprises (in
particular, chips, French fries, semi-finished
potato, etc.). Intensification of investment activity
in accordance with the identified optimal
parameters of the balance of production and
consumption of potato will increase the
competitiveness of the industry, achieve better
economic results and strengthen financial stability
in a constantly changing market environment.
6 Conclusion
The optimization of the structure of the balance of
production and consumption of potato by
minimizing its stocks revealed unnecessary losses
in the chain “production-processing-
transportation-sale-consumption”, as well as
reserves to increase the level of marketability and
profitability of the potato industry in Ukraine.
According to the results of modeling the forecast
balance of potato production and consumption in
Ukraine until 2027, it was found that the actual
potato balances at the beginning of 2020 were 2.4
million tons more than the optimal values of this
indicator according to the proposed optimization
model.
Determining the optimal size of stocks at the
beginning of 2020 (11,440 thousand tons) made it
possible to calculate the rational parameters of
other functional costs and forecast indicators of
gross potato harvest until 2027. In particular, it
was found that by increasing potato yield to 255
dt/ha and achieving marketability of products over
50.6% reduced planting costs (2,741 thousand
tons in 2027) and total losses in the chain “field-
consumer” (1,692 thousand tons in 2027). All this,
in turn, will ensure the profitability of potato
production at the level of 30-35% and will help
improve investment and innovation (Heyets et al.,
2021) attractiveness and increase investment
activity in the potato sector of Ukraine. In this
case, innovative development of the sector should
be not only on the basis of increasing scope of
investment per unit of sown area, but also with
use of scientifically grounded, economically
feasible, resource-saving, and environmentally
safe modern production technologies.
In the course of solving the optimization
problem, the rational size of potato stocks at the
end of each forecast year and other functional
costs is calculated. As a result of studying the
relationship between individual components of the
balance (imports, exports, processing,
consumption fund, feed costs, planting costs, etc.)
and the amount of losses in the chain “field-
consumer” we concluded that the reduction of
gross potato production to 16.7 million tons in
2027. At the same time, the low level of potato
yield and its instability over the years necessitates
the cultivation of potato on large areas (up to 1.5
million hectares), which significantly increases
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Mykola Tymoshenko, Volodymyr Kozlovskyi,
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the unbearable for the optimal economy stocks
and increases the unpredictability of price
tendency in the market.
Therefore, depending on the causes of
excessive potato residues, it is necessary to
develop effective measures to reduce them, in
particular, by finding new markets for potato,
which, accordingly, requires a significant
reduction in production costs, expanding product
range, improving quality, increasing storage
capacity and in-depth processing. It is quite
possible to do this if we pursue a balanced and
consistent financial and investment policy
(Kozlovskyi, 2010) in potato processing sector of
Ukrainian economy.
Based on conclusion about the inefficient
distribution of the gross harvest of potato grown
in Ukraine, it is logically necessary to reduce
investment in overproduction by 17.5%
(according to our optimal balance, potato
production by 2027 should be reduced to 16,730
thousand tons) and the direction of major
investment flows for the development of the
potato processing industry, increasing the export
potential and expanding the boundaries of foreign
markets for Ukrainian potato products and semi-
finished products, and subsequently fresh
products, provided that its appropriate quality.
Global consumption trends suggest that, despite
the higher price, buyers prefer peeled, vacuumed,
frozen and canned potato, rather than the usual
unprocessed product (Moskovchuk, 2019). In
addition, given the fact that implementation of
processed potato income in monetary equivalent is
2 times higher than indicators for fresh products,
Ukrainian potato shall seriously calculate all
possibilities of investment in deep crop
processing, period of their payback, and scope of
investment costs.
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DOI: 10.37394/23207.2022.19.19
Ruslan Lavrov, Lyudmyla Remnova,
Іryna Sadchykova, Hennadii Mazur,
Mykola Tymoshenko, Volodymyr Kozlovskyi,
Serhii Kozlovskyi
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