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IOP Conf. Series: Earth and Environmental Science 1269 (2023) 012019
IOP Publishing
doi:10.1088/1755-1315/1269/1/012019
1
Improvement of pricing on the market of organic products
L Stepasyuk1, O Cherednichenko1, A Sukhostavets2 and N Volkova3
1National University of Life and Environmental Sciences of Ukraine, 15, Heroyiv
Oborony St., Kyiv, 03041, Ukraine
2Sumy National Agrarian University, 160, Herasyma Kondratieva St., Sumy, 40000,
Ukraine
3Poltava State Agrarian University, 1/3, Skovorody St., Poltava, 36003, Ukraine
ya1971@ukr.net
Abstract. Modern organic agriculture is increasingly gaining momentum against the background
of worsening economic, social and environmental problems. In recent years, interest in
environmentally friendly production has been growing in many areas. In particular, agriculture
in this direction satisfies the needs of mankind for quality products and has a positive effect on
restoring the natural fertility of the soil, which contributes to the maintenance of the natural
balance. The purpose of this study is to analyze the pricing process on the market of organic
products and the justification of recommendations for improving the pricing methodology and
determining the equivalent price for organic agricultural products. The work uses: dialectical
method, methods of systematic and comparative analysis, economic-statistical and graphic
methods, methods of computer information processing. It has been established that the leaders
оf organic agriculture are countries that have formed systemically influential supranational
institutions and societies. When comparing the economic efficiency of production, it was
determined that an agricultural enterprise with the production of organic products receives less
gross production, net income and profit per 1 ha of farmland than conventional ones. The price
analysis of the organic market in Ukraine revealed the need to modify generally accepted
approach to pricing. The proposed equivalent price can be a guideline for improving the price
policy in organic production.
1. Introduction
The formation of the modern economy is significantly influenced by the processes of globalization and
integration. Organic production is one of modern social trends in the world market of agricultural
products. The dynamic development of countries strengthens the tendency among the public masses
with the slogan "you are what you eat". Farms that previously intensively used various chemicals and
grew products according to traditional technologies are paying more and more attention to organic crop
production. Therefore, "organic" is a promising segment in the modern agro-industrial market [1].
Russia's large-scale invasion of Ukraine emphasized the importance and relevance of the
development of organic production as a result of the number of economic, ecological, social advantages
and existing global problems. Widespread intensive technologies in global agricultural production have
a negative impact on the environment and lead to the depletion of natural resources. Therefore, an
alternative to this is organic agriculture, which has many opportunities to eliminate the negative
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consequences of a social and ecological nature, in particular, reducing emissions of carbon dioxide,
nitrous oxide and minimizing the impact of toxic substances on public health.
The development strategy of the leading countries includes an active investment and scientific and
technical policy regarding the search and implementation of alternative systems of farming in order to
obtain environmentally friendly products using organic and biological technologies. A feature of such
technologies is their focus on the production of products with strict quality control regarding the use of
preservatives, GMOs, chemical fertilizers and pesticides. The result is the output of products that differ
from the usual excellent freshness and quality, ecological safety and excellent taste properties for proper
nutrition, which is confirmed by a certificate, and also contributes to the health of the nation and
increases the level of food state security. As a result, the structure of the soil and its fertility improves
in the long term; biological cycles in the farming system are supported; environmental pollution
decreases; biodiversity is preserved, etc. Therefore, the alternative to traditional methods of farming is
the use of organic technologies. However, for its further development, a number of problems still need
to be solved so that the prospects of organic farming, on which the food security and health of the nation
largely depend, become more promising. This is, first of all, about the further formation on the basis of
farms with organic farming of ecologically balanced integral terrestrial ecosystems, in which the
harmonization of agricultural and natural lands is ensured, which creates prerequisites for scientifically
based farming on an organic basis.
The purpose of this study is to analyze the pricing process on the market of organic products and the
justification of recommendations for improving the pricing methodology and determining the equivalent
price for organic agricultural products.
The novelty of the conducted research is the development of a modified approach to the process
pricing organic products. It should be expected that the proposed organic allowance will allow producers
of products to recoup costs, ensure the break-even of organic production and obtain an economically
justified profit.
The study of the scientific literature indicates an underestimation of research on the pricing
methodology and the model for determining the equivalent price for organic agricultural products.
Research of this kind does not have sufficient theoretical and practical development in the scientific
literature. This study complements the existing literature by proposing to include an organic premium
in the price of the relevant products.
2. Material and Method
Bearing in mind the research purpose, formulated research tasks, methods and results of previous studies
in the field of pricing for organic products, the authors developed proposals for improving the
methodological approach to pricing organic agricultural products, taking into account the organic
premium.
Reference materials of IFOAM, Federation of Organic Movement of Ukraine, United Nations, State
Statistics Service of Ukraine, as well as authors' works are used in the article [2-5].
The main methods of research are methods of dialectics and system analysis, thanks to which the
essence of organic production is defined, its basic principles are substantiated, and the factors and
directions of efficiency improvement are determined; comparative analysis, which was used when
comparing indicators of development in domestic organic production with indicators of EU countries
and the world; the economic and statistical method of researching trends and patterns of development
of the organic sector; the graphic method, thanks to which changes in indicators during the development
of the research object are clearly displayed; computer processing of information using the ME program
- when conducting a complex analysis determined by the purpose and tasks of the study.
The article is structured as follows: the conceptual framework and hypothesis are presented in the
previous section. After that, a critical review of the existing literature was carried out, which became the
starting point for the study. Next, the results of a comprehensive analysis of the market of organic
products are presented. The detailed analysis was carried out on the materials of the domestic
agricultural enterprise "K Agro", which is one of the leaders in the market of organic products in
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Ukraine. Then the formation of the price for organic products is justified, taking into account the organic
premium. The document concludes with recommendations for improving the methodological approach
to pricing organic products, taking into account the organic premium.
3. Theory/calculation
Modern researchers pay considerable attention to the peculiarities and prospects of the development of
organic production. In particular, Madhusudhan L [6] emphasizes the importance of switching to organic
farming and supporting this direction in the development of agriculture. Lioutas E and Charatsari Ch [1]
emphasize the need for greater motivation in organic production. Ayuya Oh [7] examines how different
organic certification schemes affect the cost of their implementation. Czy˙zewski B, Mi´skiewicz R and
Matuszczak A [8] emphasize the significant range of retail prices of organic products by region.
Lupenko Yu [9] and others emphasize that prices for organic products should be attractive to buyers.
They should not slow down sales and be low for producers and at the same time should not be too high
for consumers willing and ready to buy organic products [10].
Mahrinasari M [11] believes that producers should compromise on the pricing of organic food to
make it affordable for consumers, as this is important in promoting people's purchase intentions.
In particular, Eyinade G, Mushunje A and Yusuf S [12] report that about 39% of US consumers
indicated price as the main deterrent to buying organic products. Torres-Ruiz et al. [13] also draw
attention to the problem of the high price of organic products, which is identified as the main obstacle
to increasing consumption.
In the USA, Australia and Western Europe, organic products are sold at prices with a premium
surcharge, to establish which the manufacturer must obtain a special certificate confirming the
compliance of the manufactured products with the organic standards in force in the country. Pawlewicz
A [14] notes that consumers were willing to pay a price premium of up to 244% for USDA-certified
organic chicken breast.
Price premiums for "organic" products are often higher than for conventional products, ranging from
5 to 80% depending on the species, and higher for processed products than for raw products [15].
However, consumers are not always willing to pay too high a premium, and not all organic products are
sold at a high price [16].
The motivating aspect of the transition of agricultural commodity producers to the production of
organic products is the use of state mechanisms for their support in the form of state orders, subsidies,
targeted programs and guaranteed prices. In particular, the pricing system for organic products in
Ukraine is not sufficiently formed and needs improvement.
In their works, many researchers draw considerable attention to the importance of solving problems
related to promoting the development of the organic direction in agriculture, setting up and organizing
efficient production of products, conducting certification, etc. At the same time, such important aspects
of the functioning of organic sector as pricing and formation of the value of organic products have not
been sufficiently investigated [17].
Agriculture and the food market are important strategic structural components in the economy and
the most important condition for the existence of humanity, therefore, in order to study various important
directions for their development, it is necessary to carry out an in-depth analysis.
Ukrainian agricultural enterprises realized the advantages of organic production at the end 1990s. In
our country, the internal market is developing intensively and is developing more and more the
international market of organic products: areas of organic farmland and the assortment of organic
products are increasing, the geography of supplies is expanding [18].
Over the past 15 years, the Ukrainian agricultural sector has grown dynamically. Having achieved
certain results regarding the production volumes of the main agricultural crops, processed products, their
export volumes, stability in the fulfillment of obligations to trade partners, Ukraine today is one of the
guarantors of global food security. Along with this, it is a promising producer and exporter of organic
products and occupies a significant place in the world market. In 2021, our country ranked 5th among
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126 countries in terms of the volume of "organic" imports to the EU, even with the disruption of logistics
due to the pandemic.
Today, healthy eating ceases to be just a hobby, and the approach to choosing products is becoming
more and more conscious, so organic production is becoming the common trend in the modern consumer
market, as more and more people are interested in healthy eating. Even those who had never thought of
doing it before became interested in production of organic plant products. Even despite the global
economic downturn and reduced consumer spending due to quarantine restrictions, demand for organic
food products has increased. Data released on February 15, 2022 by FiBL and IFOAM reveal a global
trend towards a rapid increase in the area with the use of organic technologies and the number of
operators of this market [3, 19].
The modern agrarian sector of the economy considers agro-food systems not only from the standpoint
of quantitative indicators of production, but also qualitative ones [3].
Demand for organic produce is growing in developed countries, and analysts predict it will grow at
a faster rate than their own production capacity. This creates opportunities for increasing the volume of
exports of Ukrainian products. Therefore, in order to enter international markets, Ukrainian companies
should follow modern trends and use various platforms to find foreign partners.
Production of ecologically clean products is the practical embodiment of the concept sustainable
development, in which economic, social development and environmental protection are important
components of the strategic development [17].
Sales of organic products in 2020 reached $130 billion, which is significantly less than analytical
forecasts. As a result of the pandemic, a significant number of sectors of the economy of many countries
are experiencing stagnation. However, the organic market had high growth rates.
On an area of 75 million ha, almost 3.4 million enterprises are developing organic production. In the
EU countries alone, over the past 15 years, the number of farms with "organic" production increased 20
times. In Ukraine, according to the results of 2021, 422.299 thousand hectares were used for the organic
production [20].
The growing number of consumers of organic food around the world believe that it tastes better than
non-organic food. In particular, it is a healthy food that contains more vitamin C, essential minerals and
antioxidants, fatty acids and vitamins. Banning the use of harmful pesticides, antibiotic additives and
genetically modified technologies under organic regulations is a way to reduce their consumption. "No
pesticide residues, the best taste, health benefits and safety for the environment" - these are the most
common demands consumers make of the organic food.
Organic production has always been of interest to producers as an opportunity to increase profits.
Such production requires special equipment, qualified personnel, compliance with technologies, so price
of such products will be more expensive. Ukrainian organic producers mostly exported their products:
in 2020 - by 204 million dollars, in 2021 – by 220 million dollars. For comparison - in 2020, domestic
organic products were sold for 25.1 million dollars on the domestic market, and for almost 33 million
dollars in 2021. In 2022, 418 Ukrainian enterprises had the status of producers and processors of organic
products [5, 21, 22].
In recent years, domestic farmers have demonstrated positive dynamics of land area expansion with
certified organic production (462.2 thousand ha in 2020), the number of operators in the organic market
(549 operators) and the demand and consumption of «organics» in Ukraine are constantly growing (38
million euros). Such shifts in the domestic market are facilitated by its rapid filling with its own ready-
made organic products by establishing the processing of organic raw materials [5]. The industry is now
facing unprecedented challenges as a result of russia's attack.
Organic production does not become profitable from the very beginning. In addition, the risks of
growing such crops increase. In the production of any product of improved quality, costs increase and
its cost price increases during the life cycle, and the sales price also increases. For the most part, costs
of producing organic products are mostly higher than costs of producing conventional products,
however, there may be exceptions, as it depends on the types of products, the season and region. The
price of organic and conventional agricultural products takes into account the same factors, namely
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production, storage and transportation, but the peculiarities of organic production increase the cost of
the mentioned for producers.
High requirements for certification complicate the process of organic production as a whole. Organic
farming requires significantly more time and money to control weeds and pests without chemicals than
conventional farming.
In addition, organic products are stored much less than conventional products, which is due to the
absence of preservatives. Thus, manufacturers are forced to produce a smaller volume of products, pay
more attention to prompt delivery, environmentally friendly packaging and certain service, which also
affects the price increase [6, 7].
4. Results/Discussion
In Ukraine, a very urgent problem is the transition from traditional to organic use of land resources.
Ukrainian chernozems are an opportunity for Ukrainians to be wealthy, provided they treat the land with
care and use it correctly. As a result of excessive anthropogenic load, attention is drawn to ecologically
clean soils, which are the main factor in the formation of the raw material base for safe food products.
Organic farming is considered to be a socially responsible project because it contributes achieving
the goals of sustainable development thanks to:
- increasing and stabilizing productivity, increasing the resistance of agricultural crops to diseases
and pests, reducing costs due to the abandonment of expensive chemicals (№ 2: zero hunger);
- supporting agricultural producers in the application of holistic practices to prevent the use of
pollutants, which is important for reducing their harmful effects and contributing to the improvement of
well-being (№ 3: good health and well-being);
- creating effective value chains and improving the local economy (№ 12: responsible production
and consumption) [2, 4].
The leaders of organic production have become those parts of the world where influential
supranational institutions have been formed and there is a relatively newly created system of society. In
particular, Oceania with dynamic economic growth and high level of the social responsibility occupies
49.6% of the world's agricultural land under organically grown crops, conservative Europe in conditions
of limited land resources is gaining momentum and has reached 22.8% of the total area (table 1).
Table 1. Agricultural organic land in 2020
Regions
Organic farmland,
million ha
Shares of regions in the world
agricultural organic land, %
World
74.8
100.00
Oceania
35.9
47.99
Europe
17.1
22.86
Latin America
9.9
13.24
Asia
6.1
8.16
North America
3.7
4.95
Africa
2.1
2.81
Source: [3]
Despite the multifaceted nature of society's problems, organic agriculture has significant potential
and can be considered as an important tool for improving the environmental, economic and social
situation.
The demand for products that do not use chemicals, but organic farming is constantly growing has
become an attractive industry for investment. But the land areas allocated for such production, in
particular, in Europe have already reached their maximum possible. Ukraine still has reserves to meet
this need, even in the face of russian aggression. Ukraine uses several directions of export of its own
organic products: grains, legumes, oil crops; fruits and berries. These promising directions are being
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developed by many companies that are leaders in the organic market of Ukraine. Despite the existing
problems and terrible events, the company continues to work.
Company "K." engages in agricultural activities and produces products with high added value, using
innovations that allow to reduce the negative consequences of intensification. Land bank of the company
is 14661 ha, of which organic production is located on 833 ha. The company grows organic sunflowers,
rye, winter wheat, strawberries and peas [23].
The actual level of efficiency in the production of inorganic (traditional) and organic products
indicates that with production of organic products, this farm receives less gross product, profit and net
income per 1 ha of agricultural land (table 2).
Table 2. The results and economic efficiency of K. production on average for 2019-2021
Source: Compiled by the authors
According to the results of the calculations, it was found that increasing the share of agricultural
organic land to 15% leads to a shortfall of UAH 5 million in profit and UAH 21 million in revenue.
Based on 1 hectare of agricultural land, this will amount to UAH 304 in profit and UAH 1.402 thousand
in revenue, despite the increase in profitability by 1.7 percentage points.
Such an ambiguous situation is caused by: a decrease in soil fertility in organic farming, as part of it
is allocated to pure steam; lower productivity of organic crops compared to inorganic ones; increasing
the risks of damage to crops by pests and diseases, since the cost of biological preparations is higher
than that of chemical means of control [8, 20].
We consider this situation to be unjustified, since enterprises developing organic production should
receive no less revenue (profit) than in the case of traditional agriculture.
Another exceptional situation regarding the results and indicators of economic efficiency at the
production of an organic product is an example of growing sunflowers. Thus, lower crop yields in
organic production affect the increase in the cost of 1 ton of grain and reduce profits from 1 ha of sown
area.
Table 3. Еconomic efficiency and results of sunflower cultivation on the farm
Indicator
Inorganic production
Organic production
Area, ha
4067
858
Yield, quintals/ha
32
21
Gross harvest, quintals
13014
1802
Indicator
Actual level
With an increase in the share
of organic land
Deviation
Total
including
Total
including
organic
inorganic
organic
inorganic
Cost of gross production,
UAH million
394
14
380
379
37
342
-15
Profit, UAH million
205
9
196
200
24
176
-5
Full cost, UAH million
334
10
324
318
26
292
-16
Revenue, UAH million
539
19
520
518
50
469
-21
Area of agricultural land, ha
14661
833
13828
14661
2199
12462
-
The share, %
100.0
5.7
94.3
100.0
15.0
85.0
-
per 1 ha of agricultural land, thousand UAH
- gross production
26.9
16.9
27.5
25.9
16.9
27.5
-1,0
- profit
14.0
10.9
14.2
13.7
10.9
14.2
-0.3
- full cost
22.8
11.7
23.5
21.7
11.7
23.5
-1.1
- net income
36.8
22.6
37.6
35.4
22.6
37.6
-1.4
The level of profitability, %
61.4
90.0
60.3
63.0
93.2
60.3
1.7
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Total costs of 1 ton of grain, UAH
8663
9109
Total costs per 1 ha, UAH
27723
19129
Sale price 1 ton, UAH
15556
18097
Profit per 1 ton, UAH
6893
8988
Profit per 1 ha, UAH
22058
18875
The level of profitability, %
79.6
98.7
Source: Compiled by the authors
In the cost of production of the agricultural crops, material costs occupy the largest share, regardless
of the method of production. Planting material, pesticides and fertilizers have the largest specific weight
of them.
It should be noted right away that the company, when using organic technologies, uses
phytobiopreparations instead of toxic chemicals. Cost production of 1 ton of the organic sunflower is
446 UAH higher than when using traditional cultivation technology.
At first 5 years of activity in organic farming, the yield of agricultural crops falls, compared to
intensive farming. But at the same time, the selling price of organics is up to 60% higher. By selling
sunflower, the company receives significant profits. But the realization of organic sunflower is more
profitable [1]. In particular, price of its realization is higher by 2541 UAH, profit is obtained by 2095
UAH, and the level of profitability is higher by 19.1 p.p. EBITDA (analytical indicator, which is equal
to the amount of profit before deducting expenses for interest, payment of taxes and amortization
deductions) from 1 hectare will be practically at the same level [24]. Therefore, it can be concluded that
organic farming is economically, ecologically and socially feasible. For organic products, it is also
important to plan a short period of sale, and when there is storage - to prepare special warehouses.
The results of calculations show that it is not profitable for producers to sell organic products at
normal prices. Therefore, we propose to introduce an organic surcharge, which includes three main
components: the coefficient of variation of crop yields, total costs and shelf life [9].
Organic surcharge (НО), we propose to determine on the basis of the generalized formula (1):
( )
О
Т
Т
о
ТО
О
Т
ОТЗ
ТЗ
ПС
ПВ
)VV(
У
У
Н+= 1-
(1)
УТ - average crop yield by traditional technology, quintals/ha.
УО - average crop yield by organic technology, quintals/ha.
VО - coefficient of variation of crop yield by organic technology.
VТ - coefficient of variation of crop yield by traditional technology.
ПВо - full costs for organic technology, UAH / ha.
ПСТ - full costs for traditional technology, UAH / ha.
ТЗТ - shelf life of traditional products, days.
ТЗО – shelf life of organic products, days.
The organic surcharge includes:
• Coefficient of equivalent yield, which is used due to the ban on the use in organic production of
synthetic fertilizers and growth stimulants (1,52).
• Coefficient of variation of yield, or coefficient of risk of crop loss (1,14)/
• Cost ratio (0,69).
• Storage ratio according to expert assessment depends on the shelf life of organic and inorganic
products (1,04).
Calculations show that with the recommended organic premium - 1.244, the price of 1 ton of organic
sunflower should be UAH 19.352 thousand. In turn, at such a price, the profit from 1 hectare will be
UAH 21.51 thousand, with the actual value - UAH 18.875 thousand (figure 1).
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Figure1. Change in profit taking into account the organic surcharge.
Source: Compiled by the authors
The given recommendations are proposed to improve the pricing methodology and the model for
determining the equivalent price for organic agricultural products, which will contribute to the
reimbursement of costs, ensuring the break-even of organic production and obtaining an justified profit.
Some researchers consider it expedient to set more attractive prices for organic products with a focus
on buyers. But such prices should not be low for producers and inhibit sales, and at the same time be
too high for buyers who are ready to buy organic products at higher prices compared to prices for
products produced by intensive technologies.
Reasonably increasing the price of such products will help manufacturers offset higher labour costs,
improve management skills, administrative costs, and inspection and certification costs.
We believe that price increases and some difficulties at implementation of organic farming are
justified by the positive effect for society as a whole, which will be ensured in the long term (preserving
and strengthening the health of the population, preserving and restoring ecosystems, protecting flora and
fauna, ensuring cleanliness of the soil, water and atmosphere). Modern humanity must choose the
priorities of further development, on which the future of our planet depends.
5. Conclusions
The conducted research showed the importance of the pricing process on the market of organic products
from the standpoint of substantiating the equivalent price, which will contribute to the reimbursement
of the costs of its production and provide an economically justified profit to the producer. The novelty
of the conducted research is the development of a modified approach to the process pricing organic
products.
Improving the pricing methodology and the model for determining the equivalent price for organic
agricultural products will contribute to understanding at what price level the production of organic
products will provide producers with the expected result.
The actual selling price of organic products depends on the ratio of supply and demand for it.
However, each producer, taking into account the actual and forecasted market conditions and the
available business conditions (technology, labour supply, its cost and the cost of resources), based on
the estimated price of the offer, can predict the economic feasibility of producing certain products, the
type of organic products, the possibility of diversification and reorientation of production.
The estimated price of the offer can be a reference point for the formation and implementation of the
price policy in organic production.
22058 18875 21510
15556 18097 19352
0
5000
10000
15000
20000
25000
inorganic production organic production (fact) organic production (at a fair
price)
UAN
Profit per 1 ha, UAH Sales price 1 ton, UAH
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Ukraine has every opportunity to become one of the European leaders in the production of
ecologically safe food products. The main problems of the development of the domestic market of
organic products are: the imperfection of the regulatory and legal framework; limited access to foreign
markets for organic products; the lack of marketing experience of the enterprises in the production and
sale of the specified products.
The social advantage of organic agriculture is that it is important for preserving and strengthening
the health of the population, preserving and restoring ecosystems, protecting flora and fauna, ensuring
the purity of the soil, water and atmosphere. Modern humanity must choose the priorities of further
development, on which the future of our planet depends.
The practical significance of the presented work is that the obtained research results can be used by
domestic agricultural producers in the process of developing a strategy for forming the price of organic
products.
The scope of further research will be to develop tools for stimulating agricultural enterprises to
produce organic products under the conditions of preferential taxation, subsidies and pricing with
premium allowances, without which the domestic organic sector will not be able to increase its
competitiveness. A limitation of further research is the affordability of prices for organic products for
consumers, the ability to increase their purchase intention and the satisfaction of producers' desire for
profit.
This research was limited to the analysis of the market of organic agricultural products on the
example of the leading enterprise in the production of such products. Limitations regarding
methodological aspects related to the processes of price formation for organic agricultural products. A
limitation of further research is the affordability of prices for organic products for consumers, the ability
to increase their purchase intention and the satisfaction of producers' desire for profit.
References
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[2] Website of IFOAM. URL: https://www.ifoam.bio/our-work/what/sustainable-development
[3] Website of Federation of the Organic Movement of Ukraine. URL: http://organic.com.ua/
[4] Website of United Nations. URL: https://www.un.org/sustainabledevelopment/
[5] Website of State Statistics Service of Ukraine. URL: http://www.ukrstat.gov.ua
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