Russian missile strikes on retail distribution centres (DCs) have disrupted Ukraine’s established food supply chain. Who should bear liability for destroyed goods — and can dairy producers realistically replace DCs? – in an interview with with Arsen Didur, executive director of the Ukrainian Dairy Enterprises Union (UDEU).
Mr Didur, missile strikes on retail distribution centres have changed the supply market. What exactly broke down in the logistics chain?
The model used to be simple: a producer shipped large consignments to a distribution centre, which then distributed the goods across the chain’s stores. Today, part of that infrastructure has been destroyed. The established supply system has essentially been dismantled, and the entire market faces an urgent need to find new solutions.
How have retail chains responded to the new situation?
Some chains are trying to transfer the consequences of the destruction onto producers. We are seeing demands to compensate 50 to 100% of the value of goods destroyed at distribution centres as a result of missile strikes. At the same time, producers are also being expected to arrange direct deliveries to individual stores — while everything else remains unchanged: penalties for short deliveries, retro-bonuses, other charges and extended payment terms.
Why does the Union consider such demands unacceptable?
Dairy producers fully understand the difficulties retail chains are facing and do not downplay the scale of their losses. But we categorically cannot agree with attempts to shift the consequences of destroyed logistics onto suppliers. The destruction of goods by a missile strike is a war risk — not the result of any action or inaction by the producer. Demanding that producers compensate for such losses is unacceptable.
Are producers technically capable of taking over the functions of distribution centres?
Physically, no. A producer cannot, in a short time, take on the responsibilities of a DC and begin delivering to hundreds of stores. That requires additional vehicles, requisitioned drivers, other personnel, new warehouses and established routes — all in conditions of labour shortages, a lack of transport and high logistics costs. The UDEU therefore proceeds from the understanding that direct deliveries are only partially feasible: in core regions, to priority stores and for a limited period.
What will happen to the market if pressure on producers persists?
If the problem is addressed by pressuring the producer — who is a key link in the supply chain — the entire market will feel the consequences. Costs and prices will rise, product ranges will narrow, supply disruptions will emerge, output will fall, and as a result, purchases of raw milk from farmers will decline. That is a direct risk to the country’s food security.
I want to stress that there is currently no problem with dairy production itself — the problem is getting the product to stores that are part of national retail chains. Everyone has their own business: plants produce food, retail chains sell it. If retail continues to refuse a partnership approach, we will be forced to seek alternative sales channels and logistics solutions.
