Margarine march on the West

In the first half of MY 2016/17, Delta Wilmar fulfilled its development plan and remained on the top of the list of 10 largest Ukrainian exporters of margarine and oils. During this period, the company supplied about 7,000 tonnes of products to the world market, which accounts for one-fourth of the products exported from Ukraine in total (27,000 tonnes). In fact, 60% of Delta Wilmar’s volumes went to the EU. Specifically, over 6 months of the season, 3,940 tonnes of products were exported to this market, exceeding the results of the first half of 2015/16 season by a factor of eight. The company’s product line fully meets EU requirements owing to low trans-isomers level. Quality of Delta Wilmar margarine products has been recognized by large confectionary, dairy and bakery enterprises in Poland, Romania, Lithuania, Bulgaria, Moldova etc. More details about the future of Ukrainian fat and oil products export to the EU are provided in the interview to APK-Inform by Delta Wilmar CIS B2B sales manager Ruslan Zahrebelnyi.

 

Mr Zahrebelnyi, what could you say about Ukraine’s readiness to export fat and oil products to the EU?

First, I want to note that there are two branches of fat and oil industry in Ukraine: plant oils and margarines and fats. While the first branch, more stable and annually growing, has bright prospects in the EU due to the cancellation of duties, the situation with margarines and fats is just the opposite, both on the domestic and global markets. In 2012, Ukraine started losing outlets in the countries of the Eurasian Customs Union. The greatest sales decline was related to the political and economic situation in 2014. As Russia started blocking sales of Ukrainian products (spread, cheese etc.), it hit our dairy industry particularly hard. The situation with confectionery exports is the same. Both branches rely on Delta Wilmar’s B2B products: confectionery and filling fats, margarines for puff pastry, milk fat substitutes. Exports to the EU were opened at the right time, but confectionery and dairy producers failed to reach out to this market and started redirecting themselves to the eastern markets. Jumping ahead, I can say that confectioners and dairy merchants started to intensify their exports to the EU only in the end-2016 and early 2017, and it took them more than 3 years to do that. Domestic demand was also declining because the East of Ukraine was “lost” as a market and the population declined in the country.

During that period, Delta Wilmar products were not in-demand in the EU. The company was not considered a supplier of products of unfailingly high quality. We faced a new task: to find alternative directions to sell products of the fat and oil complex located in the Odesa region. All of the above shows that we started export sales development from scratch.”

 

What were the challenges your company had to face?

Of course, our main challenge was that nobody knew us in the EU, we had no history of cooperation with the clients and therefore no personal relations. Since 2014, we started analysing the markets and their potential; we changed the approach to sales of our range of products and gradually created a new sales team. Information was painstakingly gathered by participating in the European conferences and exhibitions. Research gave us general information, but details were out of our grasp, so this information turned out to be of little use. We discovered the actual specifics while communicating with the European clients. And first of all, it should be noted that there are special European sales requirements that are different from those of our domestic market. We have been refining the formula of our products for years: it is a mixture of sunflower and palm oils in different proportions. The European market users impose strict requirements on trans fatty acid isomers levels, the term of storage and even pack design and size. Our domestic clients use 20 kg packs, but in Europe, they buy products in 10 kg packs or in bulk.

The Europeans also hesitated to consider us as a potential supplier. They doubted our ability to meet their quality requirements not only in our test samples but in commercial batches as well. There were also lots of doubts related to delivery terms since any problems due to lack of raw materials or late delivery would cause downtime. The Government also has “helped” us by introducing the law about 10% extra duty on imported tropical materials and thus actually undermining all our efforts. We became uncompetitive as exporters. Moreover, the extra duty also resulted in an increase in material costs at the domestic market thus affecting purchasing power and making Ukrainian confectionery and dairy enterprises uncompetitive as exporters of ready-to-eat foods.

We realized that the duty was temporary and decided against changes in our export pricing strategy. We worked without revenue and sometimes even at a loss. The company had to take root in Europe and to receive income in foreign currency in difficult times when inflation in the country was gaining momentum. As a result, in 2014 Delta Wilmar had sold 2,600 tonnes of its products in the EU. For market operators working with bulk products, this amount is small, but for B2B margarines it is a considerable figure.

We have faced fierce competition on the European market. Local producers of similar products extended the term of deferred payment and began to dump prices. But it did not stop Delta Wilmar because we have been hardened by the tough business struggle on the domestic market in Ukraine. Experience and competence of the sales team formed during development of the fat and oil complex on the domestic market allowed us not only to stay in business on the European market but to triple our sales in the following years. We started to develop new contacts, winning the trust of European distributors and manufacturers.

 

What are the main advantages of Delta Wilmar products?

In MY 2014/15, we developed a new range of products to meet the clients’ requirements that contained no trans fats, preservatives, or oxidants. We also changed our facility management and logistics strategy with regard to products exporting. Here are the first results:

– Delivery of products to our clients within 2 days including customs clearance

– We have started sending bulker cars with special filling fats—a breakthrough in this area for us

– Clients’ orders are executed in a week

– Packing was changed to meet clients’ requirements

– We have found new distributors, more ambitious and aimed at promotion of our products, and created focus groups

– Stocks of goods have been arranged in the distributors’ warehouses in Poland, Lithuania and Romania.

All the efforts mentioned above began to pay off: while in the first half of 2015/16 season we sold to the EU 500 tonnes of our products, in the first half of MY 2016/17, we sold as much as 3,940 tonnes—eight times as much. By financial years, we sold to the EU 3,600 tonnes in FY 2015, and 10,600 tonnes in FY 2016, so the sales almost tripled year-on-year.

 

What are your plans for MY 2017/18?

We always make ambitious plans, and MY 2017/18 is no exception. We want to double sales to the EU. We will pay special attention not only to volume but also to the range of products because we do not want our company to be considered as a producer of palm oil only. We wish to focus on production of specialized fats and margarines thus providing an opportunity to sell higher-margin products. We intend to proceed with our goals with the pilot unit we purchased in end-2016—allows to manufacture small batches of high-quality products for testing at the client’s facility prior to the launch of commercial production.

 

About Wilmar Group

Delta Wilmar Group is an owner of the only Ukrainian sunflower processing facility with equipment for refining and transhipment of plant oils located at the Yuzhnyi Port. The enterprise is certified by ISO 9001:2000, ISO 22000:2005, FSSC 22000:2013 and has Kosher certification.