Having attracted major brands to set up in its country, Ukraine has been seen as a strong market for confectionery, despite experiencing war-torn conditions, as Eugene Gerden and Neill Barston report

The confectionery sector of Ukraine challenges, as the ongoing war
with Russia and the current economic crisis have impacted notably on
manufacturers in the country.

Since the beginning of the war, up to 20 per cent of confectionery producers in
Ukraine have been partially or completely destroyed. The conflict also saw a drop of domestic output by a quarter.

While as of now, the overall capacities of the industry have been generally recovered, the total output is still lower than pre-war figures.

As Confectionery Production has previously reported, major manufactures
and chocolate suppliers including Nestlé and Barry Callebaut, as well as many
machinery businesses have continued to be active in Ukraine itself – while somewhat more problematically, a number of major firms across the value chain have opted to continue previous relations with Russia,
despite the country being responsible for invading its neighbour over three years ago.

While other conflicts have occupied global headlines in recent weeks, including
the US and Israeli war against Iran, there have been some notable developments in recent months that have occurred in Kyiv.

Perhaps the most significant of these was the recent drone attack on the Ukraine capital, which struck a key factory from one of its most prominent confectionery businesses, Roshen, at the end of January.

Despite this, the company continued with its plans for exhibiting at the ISM
confectionery event in Cologne, Germany, delivering an extended range of chocolate confectionery.

With the conflict showing no signs of coming to an end shortly, despite Ukraine
calling for a ceasefire, its overall economy, and that of Russia’s, have been hit considerably.

Steep rise in costs
Consequently, the recent blackouts in some major cities of the country, caused by Russian attacks, led to a sharp growth of production and other costs for local confectionery manufacturers.

In order to compensate their losses, many producers have announced an increase of prices for their portfolios. Still, amid the fears of the loss of customers, the growth of prices will be unlikely significantly higher
than the country’s current inflation rate.

Oleksandr Baldynyuk, president of the core Ukranian industry association
Ukrkondprom, reported that the rise in confectionery prices this year is generally in line with the current rate of inflation in the country, which is presently sitting in the range of 15-20 per cent.

Commenting on the unpredictable state of the market, he noted: “We see that this price increase is actually in line with the overall inflation rate in the country.

Consumer price increases for chocolate products may be somewhat higher, but this is justified by the relatively unprecedented rise in cocoa
product prices.”

As he also added, power outages have a much smaller impact on confectionery
production costs than expected. This is due to the fact that most manufacturers have invested in their own alternative power generation.

According to producers and local analysts, besides the ever growing costs, a
shortage of labour, particularly drivers, remains another pressing problem for the industry.

Baldynyuk described the current situation with labour in the industry as
catastrophic. In general, the Ukranian confectionery sector is characterized by a generally strong competition, which prevents sharp price
increases.

Part of the domestic output is sent for exports, primarily to some EU states.
As a rule, among the major rivals of the Ukranian producers in the EU market are manufacturers from Turkey and Poland. The latter nation even blocked part of Ukraine’s confectionery exports to the EU. in 2023 in order to receive competitive advantages and provide support to domestic manufacturers.

In general, according to experts of the local industry association, exports play an important role for domestic producers, allowing them to stay afloat amid the
condition of weak domestic demand and the decline of purchasing power of local consumers.

However, the current shortage of drivers creates serious problems for
implementation of these plans.

Sales of sweets and other confectionery products for export are considered the main way to load the overall working capacity of industry’s enterprises, and also maintain sufficient profitability, as well as help measure planned economic indicators.

At the same time part of domestic needs is met by imports. Particular hopes of
producers are put on the supplies of their lines for requirements of the Ukranian armed forces, which takes place as part of public procurements and state contracts.

In accordance with the earlier report of the Ukranian Telegraph business paper, at present, confectionery consumption in the Ukrainian armed forces is growing, with the biggest demand being observed for biscuit and non-premium categories of cookies designated by the Ministry of Defence.

Therefore, many local confectionery manufacturers are competing more for the mid- and premium-end market segments, while simultaneously trying to make these products as affordable as possible.

Though there appears to be considerable determination being exhibited by the
country’s manufacturers across a number of sectors, including within confectionery and snacks, the longer the conflict goes on with Russia, the greater the damage to both country’s economies.