Ukraine: How it became a net dairy importer

03-12-2020 | |
Photo: Jan Willem Schouten
Photo: Jan Willem Schouten

In 2020, Ukraine has become a net dairy importer for the first time ever, following a sharp rise in dairy export and a decline in domestic production.

This has been reported by Mikhail Sokolov, deputy chairman of the All-Ukraine Agrarian Rada, during a press conference in Kyiv. “The Ukrainian dairy industry is in deep crisis. The production is falling, strongly pushing the retail prices up,” Sokolov said.

Photo: Jan Willem Schouten

Photo: Jan Willem Schouten

According to Sokolov, the dairy cow population in the industrial segment, which accounts for 80% of milk production in Ukraine, has been falling during 2020. During the first 9 months of 2020, the overall dairy cow population in Ukraine dropped by 6.1% compared to the same period of the previous year to 1.75 million heads. “In 2020, the domestic market is short of 1 million tonnes of milk,” Sokolov estimated.

Global dairy market
Overview of prices for: raw milk, dry whey, skimmed milk powder, cheese and butter

Overwhelming import

Ukraine dairy companies fail to compete with European exporters, who are subjected to substantial state aid in their countries, said Vadim Chagarovsky, chairman of the board of Ukrainian Union of Dairy Companies.

“It is clear that imported products are cheaper in Ukraine than those produced locally, since the European Union (EU) suppliers are selling their products to us, getting 17% to 20% export subsidies as an additional profit,” Chagarovsky said.

Subsidies needed

To support the domestic dairy industry, the Ukrainian government needs to expand state aid, Chagarovsky added.

The milk industry’s potential would never be unlocked.”

To get out of the current crisis, the Ukrainian milk segment needs the government to allocate at least UAH1.7 billion (US$59 million) of subsidies to dairy companies in 2021, said Anna Lavrenyuk, vice president of the Ukrainian milk producers association.

“If this figure again is limited to UAH1 billion (US$35 million), the milk industry’s potential would never be unlocked,” Lavrenyuk said, adding that in that case, all milk companies in Ukraine would be getting fewer subsidies than they would claim for.

Rising costs

In 2020, the Ukraine dairy industry experienced a sharp decline in profitability, even though the retail prices have been soaring, said Andrey Yarmak, Ukrainian economist of the FAO’s investment department.

In October, the Ukrainian dairy industry’s average profitability hit the lowest level in the last 5 years, and it was 39% lower than in October of 2019, Yarmak estimated.

Global dairy market
Overview of prices for: raw milk, dry whey, skimmed milk powder, cheese and butter

The profitability was driven down by a price hike on the domestic grain market. The price for feed corn and wheat during the past few months jumped by 13% to 15%, so the cost of cattle feed increased by 11.2% in October compared to the previous month, Yarmak said.

However, it would be wrong to say that this year is catastrophic for the Ukraine dairy industry. Things were way worse for Ukraine dairy companies in 2004 and 2005, he added.

Vladislav Vorotnikov Eastern Europe correspondent