"Starting from Scratch"
Ukraine's struggle toward a market economy gets an assist from a Western-style meat plant
by Ken Krizner, senior editor
Communism in the former Soviet Union may have died four years ago, but remnants of the old order remain intact.
In Ukraine, the lines are long and the selection is poor for meat products-unless a person can afford to shop in a hard currency store, which sells meat imported from Western nations. But with inflation at about 1,000 percent, that number is very small.
After more than 300 years of Soviet and czarist Russian rule, Ukraine celebrated its fourth anniversary as an independent nation in August. It is considered the most stable of the former Soviet states.
But there is a plethora of problems: Crime is rampant with the Mafia moving into many parts of Ukrainian society; the government is still run by old-style Communists who are stifling free-market enterprise; there are high prices and high taxes; and the nation's infrastructure is nearly non-existent.
Equally as important, Ukrainians getting into business have virtually no reference points from where to start.
"People don't understand why they might have to work eight to 10 hours a day," says Sandra Gascoigne, who has spent time in both Ukraine and St. Petersburg, Russia. "They ask: 'We never had to work this long before, why do we have to do it now?' It is a matter of starting from scratch when they try to start a business."
People who have returned to the United States after working with meat processors in Ukraine say that while there is potential, the nation remains far away from having a sound market economy.
But they maintain their optimism for the future.
Ukrainians "are smart people who come from a first-rate education system," notes Jack Allen, a professor of food industry management at Michigan State University. "People know how to think, they know how to analyze. It is their greatest resource.
"But for decades, businesses were directed by a central authority," he adds. "To turn that on its head and say: 'No, the way it works is you go out and find what consumers and customers need, and fulfill those needs'-it will take Ukrainians some time to adjust."
Allen has traveled to Ukraine as a volunteer marketing adviser to a meat wholesaler. He and his wife Linda addressed the challenges of providing Ukrainian consumers with wholesome and good-tasting beef and pork products in a market-driven economy.
It has not been an easy task.
A typical meat marketing plan in a state-run store is putting product out in a 8- to 10-foot high pile in an open air market complete with flies and smoke. Consumers, some with long ashes dangling from their cigarettes, will handle the meat and throw it back on the pile if they find it unsatisfactory. When the day is done, meat is not kept at the right temperature.
And a typical Ukrainian meal consists of cow liver, brain and blood sausage.
"It is nothing more than a big, bloody package," says Julie Cooper, who advised a joint U.S.-Ukraine company that was manufacturing and selling fresh packaged meat. "But they don't know any better. As long as the meat is sold, that's what counts.
"They need to work on the fundamentals; we have to teach them about shelf life and food safety," she adds. "This is foreign terminology to Ukrainians. They simply have no conception of what these words mean."
Allen points out: "Stores and public markets that sell fresh meat contradict every principle of sanitation and wholesome handling."
Teaching Ukrainians and other people living in the former Soviet Union about the fundamentals and about the intricacies of a market-driven economy is the goal of the Citizens Network For Foreign Affairs. Gascoigne and Cooper both went to Ukraine as Citizens Network volunteers.
The Washington-based organization, comprised of more than 200 agribusiness and food companies, trade associations, and farm and commodity groups, sends volunteers to Ukraine and Russia to work directly with farmers and entrepreneurs. Several meat processors and meat trade organizations are involved in the network.
Volunteers address post-harvest links in the food chain, including processing, distribution, marketing, transportation, storage, handling, wholesaling and retailing.
Volunteers have helped the owners of CIL, a joint U.S.-Ukraine venture that established the first fresh packaged meat company in Ukraine, form a marketing plan. The goal is to help Ukrainians produce good-tasting and wholesome beef and pork products while developing a company that can thrive in a market economy.
They train locally-hired employees in marketing and sales techniques and offer advice to improve the quality and packaging of meat products.
Agricultural products-including meat processing-are vital, accounting for 30 percent of the work force in Ukraine and 25 percent of its gross domestic product.
Ukraine accounted for more than 25 percent of the food eaten in the Soviet Union. But since the Soviet Union's fall, meat production in the Ukraine is down about 25 percent.
Part of the problem is a reduction of food exports to Russia; another part is a lack of knowledge of a market economy in a country whose economy remains largely state-controlled, and is struggling to overcome high inflation and low wages.
Sometimes, the shelves are not even stocked.
Gascoigne recounts one of her early days in the capital city of Kiev when a cook went to five different stores and could not find butter or bread.
"Based on what I saw and learned, people are worse off now than they were [before communism's fall]," she stresses. "They went from one system [socialist] to another [capitalist] in a such a short period of time. If you try to imagine the implications of that, you can see why it is such a tough life. It will probably be that way for 50 years."
But she adds: "I think Ukrainians are past the point of no return, but it will still be a rocky road. I guess it depends on how it is all managed."
What the Citizens Network volunteers did was assess marketing possibilities for packaged meat produced through CIL, and help train locally hired staff in marketing techniques.
They also helped implement a marketing plan for the company and an export distribution strategy.
Allen says the marketing strategy had to start from scratch.
"The biggest adjustment in shifting from a command economy to a market-driven economy is going beyond that principle," he cautions. "It's having the ability to key into the marketplace, to know what your customers and consumers want, and deliver that product."
Sometimes, CIL employees didn't understand marketing's finer points.
"We told them that they had a good brand and with a little more promotion, it could become a good seller," Allen points out. "They didn't want to do that because they felt it would make their company too conspicuous. This is an example of what Ukrainians have to overcome in their thinking."
Cooper notes: "A businessman in Ukraine can put his company logo on the side of a train car for $50; it's great advertising. But in the end, we found out as long as they can sell their product, they prefer to remain subdued in their marketing."
Part of that is lack of marketing knowledge. However, part of that is fear of the Ukrainian Mafia, which controls many local markets.
"Some people selling meat in local markets pay the Mafia for the 'right' to sell that meat," Cooper says. "A businessman told me he does not want to attract too much attention because he will also attract the Mafia. A business plan includes payoffs to the Mafia."
The government's role
On top of other problems experienced by entrepreneurs, their government still hasn't gotten the hang of market-driven economics.
It is still unusual for a person to own land. Most of the 30,000 farmers work on collective farms, which are more like small communities because they encompass food processing plants, schools and bakeries. These farmers can buy supplies only from the government and must sell their crops and livestock back to the state.
There are about 6,000 private farmers who can grow whatever they want and can transact with anyone. But even they cannot own land.
And when products are ready to be shipped, such as meat from CIL, they can only go to state-operated stores. Another type of store-hard currency-is reserved for products imported from Europe.
State-operated stores, where a person can find the aforementioned pile of meat, are for Ukrainians. The stores are described as "stark and dreary" where a person can purchase a limited amount of "grungy processed meat."
The ironic twist is when the meat leaves CIL's processing plant, it's a high-quality product. But because of government policies, domestic meat produced cannot be sold in hard-currency stores, where it would command a premium price.
"The government says domestic meat has to be purchased with domestic money [which cannot be used in hard-currency stores]," Allen points out. "It's a case where the government is hurting the very people who are trying to become entrepreneurs."
Cooper stresses that for Ukraine to take the next step in capitalism, the government needs to evolve.
"There has to be a mental change; the government has to become more supportive," she notes. "From talking to business people, my impression is that the government says: 'OK, you wanted freedom, you have freedom. If you want to own a business that's fine, but don't ask us for help. In fact, we will fight you the whole way.' "
Patience is a virtue
Citizens Network volunteers believe that their work will provide small steps that lead to a long-term positive impact.
"If you have the patience and perseverance, there is a lot of opportunity for entrepreneurs in Ukraine," Cooper points out.
It's patience that people need to practice if they are considering going to Ukraine or other parts of the former Soviet Union to help establish businesses, Gascoigne says.
"People who don't practice patience will be frustrated and disappointed," she stresses. "The more time a person invests, the more results will be achieved.
"A person also needs to respect and understand the culture," Gascoigne adds. "You cannot just go over there and say: 'I'm here; this is what you have to do to succeed,' and expect the Ukrainians to accept that and integrate it into their everyday lives. If you don't at least understand their culture, history and view of the world, they will resist you."