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Ukraine's dairy sector sees strong revenue slump

Ukraine’s dairy sector has seen the strongest revenue decline in 6 years. In April 2020, Ukraine’s dairy index slumped 14.7%, according to Andriy Yarmak, economist of FAO investment center.

The Ukrainian dairy index reflects how much money an average Ukraine dairy farmer earns from producing and selling 1 litre of milk. That figure was around 3.9 hryvnias (€0.13) in April as compared to 5.1 hryvnias (€0.17) at the beginning of the year, Yarmak estimated.

Photo: Hans Prinsen
Photo: Hans Prinsen

The last time such a strong slump was recorded was in April of 2014, when it went down by 26.2%, following the Russian annexation of Crimea and the beginning of the armed conflict in the eastern regions of Ukraine.

The slump was primarily associated with the increase in costs of feed production, with some reduction in demand for dairy products on the market, Yarmak said.

The industry is still strong

Still, the industry is doing well, as on average Ukrainian dairy index between January-April of 2020 was the highest compared to the same periods over the last six years, Yarmak added. Profitability in the industry has been steadily growing during previous months, and even the recent slump will not dramatically change the trend. Even if milk production profitability declined by 10% or 12% in 2020 this would be still be a good result, giving the relatively high level achieved in 2019, Yarmak added.

Setback is on the horizon

Quarantine measures have impacted the demand for dairy products in Ukraine, dragging down the demand for milk in the country, Ion Moraru, head of Ukraine Meat Husbandry School wrote in a statement. The price of feedstuffs is on the rise because some neighboring countries, including Russia, Romania and Kazakhstan have limited grain export in order to protect their domestic markets amid the Covid-19 pandemic, Moraru explained.

These difficulties, however, are likely to be temporary, as withdrawal of grain export restrictions should bring a price relief to the feed market, while the end of quarantine measures is expected to spur the demand for dairy products in Ukraine, Moraru said.

Moraru further added that profitability in the industry should recover in the second half of the year. Despite the fact that the dairy cow population in Ukraine is likely to shrink in 2020, he added. The dairy cow population has been steadily falling during the past decade, in the midst of lower production of backyard farmers.