Ukrainian retail chains actually bring to the brink of survival Ukrainian producers and processors of agricultural products.

Taking advantage of the established monopoly on the sale of food, they set requirements that literally kill Ukrainian food production and give preference to imported products.

The abuse of national trade networks by its prevailing market power has reached a critical point and has begun to depress activity of the national producers and processors.

In particular, because of the trade margin. Even if the contract between the manufacturer and the seller states a margin of 15-25%, it is not a fact that it will be so in reality.

Because of the additional expenditures stipulated in the contract (such as fees for services, retro bonuses and other payments of the supplier in favor of the network) it can be both 40% and 60%.

This situation is due to the fact that more than 70% of food sales go through retail chains, two of which control more than 50% of this market.

In other words, if you want to do business, sell food, you have almost no way to avoid working with networks.

Someone may object - in addition to large national retail chains, there are regional ones, there are small shops, and you can supply goods exclusively to them. And that person will be wrong.

It is critical for agricultural producers and processors to work with large networks. Because their production costs depend on the volume of produced products.

The larger the volume of produced products is – expenditures are lower. Accordingly, it is no longer possible to ensure sufficient sales to have the cost of production at competitive level without national networks.

After all, for example, heating or lighting of the facilities, the amount of taxes on land or property and the salary fund almost do not depend on how many products a particular company produces.

That means that processors, in order not to face bankruptcy and keep the volume, sometimes have to supply products to large networks, even at a loss.

And make money on products that are sold through bazars, regional shops or small shops within walking distance and thus survive.

Not only that large networks, taking advantage of their monopoly position, stifle Ukrainian producers with additional financial burdens. So, they still do not pay them on time - neither immediately, as with European suppliers, nor in 30 or 60 days, as required by European directives, but in 90, 120 or 180 days.

As a result, over the last 7-10 years, the networks have sucked out working capital from our producers and processors. According to various estimates, the amount, that networks keep and use for free, is from 5 to 7 billion dollars.

That means, producers - the same ones who create jobs, add value and pay taxes to the state - are forced to take expensive loans to replenish turnover. And retail networks, that don't actually produce products, use money that doesn't belong to them, and for free.

The monopoly of large national networks has also led to the refusal of small regional networks to work with Ukrainian producers.

This is explained simply: for them, the entry price from the Ukrainian processor is higher than the same product from their competitor in the national network.

As a result, regional retail chains begin to abandon Ukrainian goods and prefer imported ones, which can be sold at higher price because they are allegedly of better quality, and the consumer is not able to compare prices in other stores.

Large retail chains also began to import products, pursuing their own commercial interests. And this is understandable, because while we allowed retail chains to destroy their own producers for years, European countries, on the contrary, protected and supported it.

As a result, the same Polish plants have been modernized, so they can offer our networks more interesting products, which they will buy at the expense of funds that will not be returned to our producers.

This situation is unacceptable because it strikes national interests and destroys jobs in Ukraine, reduces tax revenues and destroys economy.

Therefore, we propose a simple algorithm - to ban this shameful practice at the legislative level, just as it was done in the EU. This requires a few steps.

• Firstly, to force national retail chains to settle with producers and processors of agricultural products no later than 10-60 days, depending on product’s expiration date.
• Secondly, to limit the cost of additional services, fines, retro bonuses and other additional payments to suppliers in favor of networks at 15% of the cost of delivered products.
• Thirdly, to create strict “safeguards” against possible evasion of their obligations - in particular, due to threats to refuse further cooperation with producers.

In particular, to introduce fines - but not formal, but those that would significantly harm these chains’ funds.

For example, 1% for each day of overdue payments to suppliers. That the cost of risks exceeds the amount they can afford, and that it is easier for them to settle with a producer than to sue and to be a bankrupt in case of loss.

It is clear that these steps cannot be taken without the participation of the state. And there is nothing anti-market in this.

The state must intervene when such monopolies arise, or when someone gains and abuses market power, destroying civilized competition and harming national interests.

Similar restrictions for retail already exist in developed countries. In the EU, they firstly emerged at the level of national legislation, and then became part of EU Directive 2019/633. It is time for Ukraine to do the same.

The UAC Deputy Chairman Mykhailo Sokolov

Column for the publication "Economic Truth"