Download 2011 Dairy and Products Annual Ukraine and more Exercises Statistics in PDF only on Docsity!
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
POLICY
Date:
GAIN Report Number:
Approved By:
Prepared By:
Report Highlights:
Production of milk and dairy products is expected to contract in 2011/12. The number of dairy cows will decline insignificantly, continuing the 20-year trend. Exports in 2011 will be restrained by unusually high domestic milk prices and rather low quality of procured milk. Exports of cheese to Russia will contract, limited by strict sanitary measures. Exports of dried dairy products are well diversified and will remain sizable. Contrary to expectations, imports of butter will remain rather low.
Oleksandr Tarassevych, Agricultural Specialist
Randall Hager
Dairy and Products Annual
Ukraine
UP
Required Report - public distribution
Executive Summary:
Fluid milk production in Ukraine decreased in 2010 and expected further decrease by two percent in 2011. The number of animals is expected to decline in both the 2011 and 2012 years. Domestic milk prices are expected to remain high, complicating exports of Ukrainian cheese and dried dairy products. No significant shifts in domestic consumption of dairy products are expected. Consumers will remain price sensitive in all market segments, preferring price to quality. Use of cheaper palm oil in production of dairy products will remain significant.
The Ukrainian dairy processing market will follow the EU’s consolidation trend. Smaller mergers and acquisitions in the cheese sector may follow the 2010 Danone and Unimilk merger. This merger should be finalized by the end of 2011 with the combined company’s market share at 20 percent.
Ukraine will remain a big cheese exporter to neighboring Russia, but a raw milk shortage and problems with cheese quality will not allow for exports to increase. Imports of butter from Belorussia and/or New Zealand will remain insignificant. The cost of imported products is not attractive after the product clears customs and all duties are paid.
Record high milk prices have ignited some investment interest in dairy businesses. Throughout 2011 a number of agricultural companies announced plans to start or to expand their dairy herds, despite long decreasing trend in the number of cows and milk produced. Investments came mainly from big vertically integrated agricultural holdings previously specializing in crop production. These investments are numerous and usually range in size from 500 to 7,000 dairy cows per project. Investors are careful due to the significant investment needed, high risks, and long payback period. It is not clear if the flow of investments would continue if milk prices decline, but the need for diversification is apparent for many major grain and oilseed producers.
Production:
The bumper crop of feed grains expected in 2011 will help Ukrainian producers to keep their costs lower. It is expected that this year’s crop will be similar to historical maximums achieved in 1990 and 2008. Grain trade policy—tariffs and value added taxes-- have also held down input costs, helping industrial dairy producers to maintain profitable operations from 2011 into early 2012. However, the impact of lower grain prices on milk production in households will be minimal due to general inefficiency of the industry.
Although the price of beef has a limited impact on number of cows in Ukraine, this impact in recent years was negative. Consumers are losing interest to comparatively expensive beef. The shift in consumer preferences toward cheaper poultry meat reduced interests for livestock in recent years.
In 2010/11 the dairy market witnessed major fluid milk price growth that followed the continued decrease of animal numbers and major rise in feed costs. This raw milk price growth led to a record high processed dairy products price spike, which was not welcomed by the Ukrainian consumers whose incomes were slowly recovering after the financial crisis and currency devaluation shocks. Despite some dairy product consumption contraction (three percent in 2010 byu value) there was no major consumption drop.
Ukrainian dairy processors will continue to obtain milk from two major sources: industrial farms and private households. For many years the ratio between the two sources remained almost
costly and had limited impact. Inevitable milk pooling does not allow for establishment of individual responsibility for low-quality product.
Quality of Milk Sold for Industrial Processing in the first half of 2011 by
Households Industrial Farms
Source: State Statistics Committee of Ukraine
Milk Quality Norms (for Fat Content 3.4%, Protein 3.0%)
Indicator
Grade Extra Premium 1 st^2 nd^ Not graded Density (t=20ºC) kg/m^3 >1027 >1027 >1027 >1027 >10 27 Acidity, ºT 16 - 17 16 - 18 <19 <20 < Somatic Sells Count 1000/cm^3 ≤400 ≤400 ≤600 ≤800 ≤ Bacterial contamination 1000/cm^3 ≤100 ≤300 ≤500 ≤3000 ≤ Source: State Standard (DSTU) 3662- 97
Industrial production of milk remains unspecialized. The number of farms with dairy cows dropped from 4,093 to 3,741 just during 2010. Most industrial farms view dairy enterprises as an auxiliary one and keep from six to 300 animals. Below is a distribution of animals in industrial farms that keep dairy herds.
Graph 2. Distribution of 3,741 Industrial Farms by Cow Number (as of January 1st 2011)
<5 6- 21-49 50- 100-199 200-299 300-399 400-499 500-
Number of Frams
Source: State Statistical Service of Ukraine
High quality milk remains in great demand by milk processors who are ready to pay a premium price for it. According to Ministry of Agricultural Policy and Food information, in late September a typical dairy in central Ukraine would be able to buy raw milk from industrial farms at UAH 3.8-4. ($0.48-0.58) per liter for different milk grades. In 2010 the price fluctuated around UAH 3.50-4. ($ 0.45-0.51) in the same time period. Raw milk procurement price for households in 2011 even decreased to UAH 1.8-2.6 ($0.22-0.32) from UAH 2.50-3.0 ($ 0.32-0.38) a year before. Dairy processors continue to use specialized milk collecting companies that supply up to 70 percent of milk for further processing. Use of middlemen who break the monopoly of local dairy processors allows agricultural producers to receive a higher milk price, but prevent investments into milk collection system from the processors which in turn leads to lower quality of collected milk.
Information on fake cheese, butter marked spreads and faked whole dairy product was publicly available before, but the extent was not clear. The press has reported about dairy products with zero milk fat or protein content. Ukraine’s trade partners in Russia accused some Ukrainian producers in supplying cheese products with significant palm oil content. Lack of market control and reliable information made fluid use industrial milk estimates unreliable. Thus, from this year on Post will use official statistics for fluid milk industrial use.
Post also will continue to use official numbers for total milk production. This number is criticized by industry experts as being overestimated. Experts questioned how total milk yield was growing in recent years, while cow numbers were declining. They also questioned the data collection technique that is used for households’ surveys. In these experts’ view, no major improvement in animal husbandry practices took place that would explain such a productivity increase. However, possible productivity increases due to better feeding of smaller number of animals should also be considered.
Officially publish statistical information will continue being used in the report.
Consumption:
Slow economic recovery and continued crisis aftershocks will not allow major growth in disposable income in 2011/12. Analysts expect Ukraine’s GDP may grow 4.5 percent in 2011, if demand for Ukraine’s major exports, steel and chemicals remain stable. Although the disposable income is expected to grow in 2011 by 15 percent, Ukrainian consumers remain highly price sensitive, especially in lower income small towns and rural areas. Consumption of industrially produced dairy products in 2010/11 is likely to drop by 1-3 percent, although this drop will be uneven. Many producers show stable sales or modest growth in premium market segments for yogurt and infant formula. The biggest consumption drop is expected in the cheapest segment, as consumers shift from industrial to household products (mainly milk, soft cheese, and sour cream).
Prices of milk and dairy products are expected to remain high, which may lead to 2011 dairy market value increase despite a sales volume drop. Industry experts do not expect the price rise to be below the inflation level for 2011 (per the GOU forecast of nine percent). This price increase will result in further shift of demand into cheaper, lower quality market segments provoking producers on more intensive use of non-milk fat in dairy products, smaller packaging and other cost cutting methods. The demand for cheaper products is expected to continue throughout the rest of 2011/12. Consumers will be accepting lower quality for higher price and are used of vegetable oils in traditionally dairy products.
Trade:
The Russian Federation will be the major destination for Ukraine’s cheese exports in 2011, but trade will remain limited by short domestic fluid milk supply. Russian dairy producers openly lobby against Ukrainian imports pointing out the intensive use of vegetable oils in Ukrainian dairy products and raw milk shortages. The amount of trade in 2012 will remain to be subject to political bilateral negotiations. Ukraine and Russia have an FTA that technically simplifies exports. Only Belorussia has similar competitive advantages. Although Russia’s actively restricts imports trough the technical regulations Ukraine has a significant market share. Russia is likely to continue trade restrictions through veterinary and sanitary measures in 2011/
On July 15 th^ of 2011 Russian Veterinary Authority Rosselkhoznadzor announced results of the system audit of Ukrainian meat and dairy producers delisting 28 companies (six of them
temporarily). This inspection conducted by Rosselkhoznadzor was officially positioned as Custom Union (CU) inspection, so trade restriction would cover other CU members - namely Belorussia and Kazakhstan. Now only 23 dairy producers (three processors delisted in a result of audit) and can export to Russia and CU. A number of companies were denied market access.
Imports of cheese and butter to Ukraine remain the subject to multiple technical restrictions that combine into a significant trade barrier. Import restrictions are imposed through two key GOU institutions: Ukraine’s Custom Service (CS) and State Veterinary and Phytosanitary Service of Ukraine (SVPS). Importers complain that the CS assigns an arbitrarily high value for imported dairy products which results in increased associated import duty and Value Added Tax. In turn the SVPS indirectly qualitatively limited imports using the import permit procedures. Due to unclear and controversial legislation, the SVPS demanded import permits for all imported products of animal origin including dairy. In many cases importers were denied import permits because of some technicalities or errors in application. In some cases import permits were delayed, so importers suffered additional losses.
Trade estimates for 2010 were revised to converge with official statistics. The trade forecast for the remaining months of 2011, as well as for 2012 remains subject to trade policy changes and possible new TBT introductions.
Cheese
Cheese production in Ukraine decreased significantly in 2010 and continues to decline in 2011. Competition for raw milk in 2009/10 led to significant cost rise and consequent cheese price increase. According to industry experts, Ukrainian consumers faced two major price increases in
- Consumers were not ready for new price levels and responded by consumption contraction. For hard cheese internal demand in 2010 dropped by 14 percent. Facing lower demand the industry reacted in two ways: processors started to lower the price for traditional hard cheese (price started to decline in spring of 2011 stabilizing by mid-summer) and switched to production of cheaper cheese products using palm oil. In this way, producers were able to partially compensate the profit margin decline in production of hard cheese and meet increased costs.
The price drop in hard cheese helped to stabilize consumption in the middle of 2011, but expensive raw milk limits producers’ ability for further price decrease. Production of cheese somewhat recovered, but is not going to grow back to the 2010 level.
Production of hard cheese-like products with extensive use of palm oil continues to gain popularity in 2011. Analysts believe that their share in production reaches 20 percent while in domestic retail they occupy even bigger share of 30 percent. The product is significantly (10-20 percent) cheaper than regular hard cheese and often sold as such without proper labeling. An outdated system of technical regulations allowed for marketing of this cheese product as regular cheese confusing consumers. The ―palm oil cheese‖ is not welcomed by the traditional export market in Russia where import control is strict. Official appearance of this product on Ukrainian market provided Russian lobbyists with additional arguments to limit Ukrainian exports.
A lack of trust in Ukrainian producers led to an increase in imports of high quality cheese. Another factor that supported imports was Ukrainian cheese price growth. Previously imported cheese was significantly more expensive creating a distinct market segment. Nowadays imported (mainly from EU countries) cheese continues to be more expensive, but mass consumption cheese (Gauda, Emmental type) is just 10-20 percent more expensive in Ukrainian retail. Many affluent consumers prefer a safe bet and choose Polish, Dutch and German cheese over Ukrainian.
Statistical Tables
1000 HEAD, 1000 MT *These are not official USDA numbers
*These are not official USDA numbers
1000 MT *These are not official USDA numbers
1000 MT
