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Danube Region to fill the loss of some agrifood imports from Ukraine (working paper)

As part of our work on value chain resilience, in the past few months Anteja ECG conducted a study to determine the impacts of the conflict in Ukraine and the consequent value chain disruptions, and to formulate recommendations for their amelioration. The study was focused on the supply chains in the bioeconomy sector, which includes agroforestry, agriculture, food, and wood industry, among others.

While preparing the study, we determined that the European products most affected by the conflict were apples, wood, sunflower seeds and sunflower oil. We also established that the potential alternative suppliers from the Danube Region might be able to step in to fill at least a part of the gap created by the Ukrainian shortages and disruptions. There is no need to build value chains from scratch, as the products needed are already cultivated in the regions. Interviews with the cluster managers who are already involved in resilience promotion confirmed that there’s demand and supply for these three products. Additionally, we found that 45 clusters active in the agrifood and wood sectors across the Danube Region can help to locate alternative suppliers and match them with buyers.

Potential new value chains for the Danube Region. (Impacts and Potentials of the Ukraine Crisis on Supply Chains Development for the Danube Region, 2022)

However, interviews with the cluster managers disclosed some challenges and obstacles. For example, the study showed that the clusters are not yet adequately prepared for a quick transition to new value chains, a much needed response during such crises. Most clusters operate within traditional and well-established value chains, or focus on research and innovation and far less on business matchmaking for commercialisation and business development of their members. Clusters also lack specific trade-related information about their members’ products (e.g. quantity, quality, certifications, storage capacities), which buyers require. Interviews with the cluster managers further revealed the absence of cross-regional value networks together with relevant information at firm’s level, which is required for effective matchmaking and companies’ visibility. Nevertheless, there are excellent examples in the wood and fruit clusters that indicate the clusters’ valuable role in supporting SMEs’ inclusion in more sustainable and resilient value chains.

During the study we found that despite an increased Covid-related transition to online interactions and data analytics supported by digital tools the majority of cluster managers interact with their cluster member representatives mostly individually, with a limited use of modern IT tools. In particular, we observed that the cluster managers have the necessity for a systematic method for obtaining specific information about the available produce, such as quantity, quality, certifications, seasonality etc. of the produce, so that they may easily and rapidly advance their discussions with alternative buyers.

The cluster managers noted that in addition to losing large export markets in Ukraine and Russia, farmers have experienced high costs and a lack of fertilisers, fuel and other supplies and materials. Even so, farmers fear a loss of income, as the price increase of their products might not be sufficient to account for the higher costs of supplies and living expenditures. Furthermore, it was pointed out that given the disruption of most logistics routes, there is a need to establish new routes and logistics hubs. Eastward European transit corridors are no longer functional. Even if the conflict subsides, these effects may persist in the near future. The cluster managers also expressed concerns about the lack of a skilled labour force in the Danube Region, as many workers migrate to Western Europe to earn higher wages. Immigrants and refugees coming from Ukraine are able to make up for some of the workforce shortfall, but most Ukrainians are also ultimately aiming to migrate to Western European countries. The inflow of people and companies from both Ukraine and Russia has also led to an increase in real-estate prices in the Danube Region, causing economic difficulties for the producers.

EU trade with Ukraine: agricultural trade by product in 2020 (Source: European Parliament Research Service)

In the study we outlined three key recommendations:

Recommendation 1: Awareness increase on the policy and intermediary levels about the importance of supply chain development as a long-term task. 

About 45 clusters active in the agrifood and wood sectors that we identified are currently not connected, and there is no information flow between them. The integration of the Danube clusters in functional networks would increase awareness of the importance of value chain resilience and facilitate the creation of concrete business cases. 

Recommendation 2: Strengthening the role of the Danube Alliance as the source of support for supply chain development. 

Although the Danube Alliance is a relatively new initiative, it has already proven its potential to support the private sector to become fully engaged in new supply chains. This role shall be strengthened. The Danube Alliance can provide analysis and design actions for stimulating the development of supply chains. The Danube Alliance can respond to broken / disrupted supply chains (e. g. through Covid-19 or the war in Ukraine) or support the development of new supply chains with significant bioeconomic potential and increasing resilience through new collaboration approaches, capacity building, and new digital solutions. This includes the support of infrastructural elements, such as the Value Chain Generator, which enables the cluster managers to identify opportunities to form new value chain partnerships across Europe with the use of AI at the level of products, residuals and side streams. This flagship is constrained by a two year time frame. The partnership and commitments created will be hard to maintain beyond the project end. Turning projects into mid-term programs can significantly improve the situation and allow the consortium to focus on short-term activities and to gradually extend to mid and long-term objectives.

Recommendation 3: Support PA8 for mainstreaming supply chain resilience. 

PA8 deals with competitiveness improvements of the private sectors under EUSDR. Due to the recent supply chain disruptions, the future work of PA8 should include designing a problem-solution plan for resilience and digital infrastructure to provide immediate support and longer-term assistance to the Danube clusters and related actors. PA8 can support the efforts of the Danube Alliance from both the policy and macro-regional perspectives.

The study was conducted by Anteja ECG with the support from the Danube Alliance and VDI/VDE-IT as part of the framework of the Danube Alliance, the flagship initiative of Priority Area 8 of the EU Strategy for the Danube Region.

The full study report is available to download via this link.

This article was written by Tomaž Cigüt, Sustainability Consultant at Anteja.

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