Illegal coffee imports to Ukraine – how shadowy schemes harm consumers and the budget

Main points

• The problem of shadow coffee trade is increasing in Ukraine, causing significant economic losses to the state budget and creating unequal conditions for legal business.
• Illegal coffee import schemes avoid customs control, which allows them to sell products much cheaper than legal suppliers.

Illegal coffee has flooded Ukraine / Pexels

The problem of shadow coffee trade is rapidly growing in Ukraine, and has already become systemic. According to experts, a significant part of the product enters the market in violation of customs and tax legislation, which leads to large-scale losses for the state budget.

How do illegal coffee import schemes work and why are they harmful?

Experts in a commentary for Channel 24 said that this is not only about economic losses, but also about risks for consumers and a threat to legal businesses, which find themselves in unequal conditions of competition.

• Previously, People's Deputy Danylo Hetmantsev said that approximately every second cup enters the market without proper customs and tax control.
• In addition, the official volume of imports is only about 49 thousand tons, which is about half of the volume of actual consumption.

Expert Gennady Kapralov said that in the context of the coffee market, it is more correct to talk about a broader phenomenon – violation of customs and tax legislation.

Currently, businesses use several of the most common schemes for circumventing customs control:

1. Undeclared or “black” imports.
2. Declaring coffee under the guise of other goods (e.g. chicory or food additives).
3. Repackaging of products after import under well-known brands.
4. “Business fragmentation” and selling products through a network of sole proprietors to evade taxes.
5. Undervaluation of customs value, when the importer submits documents with fictitious prices significantly lower than market prices.

Gennady Kapralov

Lawyer

As a result of such schemes, the state budget loses billions of hryvnias in tax revenues annually. At the same time, in addition to economic losses, there is a threat to public health: products of dubious quality or with an expired shelf life may enter the market, which, after processing and repackaging, are sold under the guise of premium segment products. Such practices significantly undermine fair competition in the market.

On the other hand, expert Andriy Shabelnikov believes that what is happening in the coffee market is not just individual violations, but a systemic problem that really affects legal business.

If you look at the situation through the eyes of “white” business, it becomes clear how different the playing field is. A legal importer is obliged to:

• declare the objective customs value of the goods;
• pay the appropriate import duty;
• pay 20% value added tax;
• undergo phytosanitary control;
• ensure traceability of the origin of grain and comply with storage conditions.

All of these legal obligations create a high but fair cost of legal coffee.

Instead, the shadow sector openly ignores these rules of the game, turning violation of the law into its main competitive advantage. For legal business, this situation is fatal: an entrepreneur who maintains a staff, pays taxes and rent, physically cannot compete with a counterfeit that is sold three times cheaper.

Andriy Shabelnikov

Chairman of the Committee of the National Bar Association on Investment Activities and Privatization

The main risk for the legal segment lies in how the state reacts to such public statements. Traditionally, high-profile news about smuggling becomes a trigger for mass inspections. However, it is much easier for regulatory authorities – the tax service or the State Service for the Protection of Food and Consumer Rights – to come and inspect a registered coffee shop in the city center or an official importer than to look for clandestine underground workshops in industrial zones.

According to the Law of Ukraine “On the Bureau of Economic Security of Ukraine”, this body, together with customs, should play a key role here:

1. Track schemes;
2. Analyze supply chains;
3. Stop problem parties at the border.

So, the real protection of business interests today lies in guaranteeing equality. Legal entrepreneurs do not need subsidies or benefits – they need confidence that the state is able to eliminate the black market. Any attempts to solve the problem by increasing bureaucracy, introducing new licenses or “carpet” inspections will hit only honest taxpayers,
– says Shabelnikov.

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What is happening with coffee prices in Ukraine?

• Many Ukrainians traditionally start their morning with coffee, but recently this pleasure has become noticeably more expensive. Some manufacturers have already revised their price tags towards a significant increase.

• According to the site, as of February 5, coffee prices have increased by an average of 75.6 hryvnias compared to January. In particular, Nescafe Gold with a volume of 210 grams now costs about 686.8 hryvnias, while a month ago its price was 610.2 hryvnias.

• Experts attribute this trend to logistical difficulties, storage issues, and a reduction in market supply. They predict that these factors will continue to put pressure on prices.