XI National Conference with International Participation
15 November, 2018
Premier Hotel Rus, Kiev, Ukraine
Organizers: Infagro, Dairy Union of Ukraine
For the eleventh year in a row, traditionally in November, Ukrainian dairy community will gather to discuss the old and new problems of the industry, try to find ways to solve them and just communicate with colleagues.
What are the pressing issues to consider this time?
UKRAINIAN DAIRY INDUSTRY TRENDS
Milk production is still decreasing
- Milk production in Ukraine is still declining, and this trend will not be overcome for at least three more years. This is bad. But it’s good that agricultural enterprises have been increasing the supply of high-quality raw milk for the past six years. At the samr time, rural households steadily reduce milk production and agri enterprises can hardly compensate for this decline.
- Not the best possible factors are saving dairy industry from a full-fledged milk decline crisis. One of these factors is a low level of consumption of dairy products in Ukraine due to both low incomes of Ukrainians and significant decrease in the number of consumers due to loss of the territories and labor migration. The dairy exports status of the country also helps to keep the balance.
The protracted general dairy industry crisis is almost overcome
- Ukrainian dairy industry has largely overcome the consequences of the deep geopolitical and economic crisis which began in 2014. There is hope that the bottom in dairy production and consumption has been already passed. This year, most likely, there will be a growth in the output in the domestic market at the expense of both projected price stabilization and expected improvement in the well-being of Ukrainians. However, there is no sense to expect a significant increase of dairy consumption. A significant growth in industrial production is possible only for certain commodity positions, and only at the expense of the predicted reduction in supply of dairy products provided by households. This concerns, in the first place, ordinary milk, fresh cottage cheese, sour cream, that is, dairy products, which are still sold in large quantities in the markets. But the volume of such trade will definitely decrease.
Ukraine exports one million tons of milk
- The structure of exports of dairy products by both product types and geography has changed dramatically in recent years. Before 2013 most of the exporters bet on the trade with Russia and went there, mainly with cheeses. Now the basis for external sales is butter and the byproducts adjacent to its production. At the same time, most of the dairy export is already carried out outside the countries of the former Soviet Union.
- Exporters now are more concerned with the issue of assortment, what means more profits: butter + skimmed milk powder, or butter + casein, or butter + cheese product. The question is also whether to sell these products to traders or try to enter the final sales markets themselves.
- Ukraine will not be capable to return soon its past glory of a large cheese exporter. Since the loss of the Russian market, cheesemakers have not found new markets and they are not trying very hard, because our products apart from much else are simply not competitive in the world market. Moreover, for the same reason cheese imports is again growing rapidly in Ukraine. It already exceeds exports of this product from the country. This makes domestic cheese-makers worry. We need to drastically change the marketing policy.
- For the third year in a row there exists a certain imbalance in milk protein and fat on the world market. The growth in supply of protein products, primarily skim milk powder (SMP), was not provided with adequate demand, which led to the accumulation of record stocks in EU and the US (totaling more than 500 thousand tons in April). Such surplus of the goods contribute to formation of very low world SMP prices. Even if production of this product does not grow, the process of equalizing the balance will continue for another two years. The world demand is weak and, in addition, prices for dry protein whey products are low.
- At the same time, the world demand for dairy fats has increased and the growth in its supply has slowed due to overproduction of skimmed milk powder. Particularly noticeable is shortage in the EU countries, where prices last year rose to a record high. Butter will be quite expensive also in current year, as well as the wholemilk milk powder.
- Lately, the market for cheese has been the most stable one. The supply of cheese was growing, but world prices for it did not fall and there was even some growth. However, the trend may change if the surplus raw materials which was traditionally directed to production of SMP will be massively used for cheese production. Then prices may fall again.
Changes in the Eastern Europe market
- Over the past decade Poland has made a real breakthrough in the dairy industry becoming one of the largest European exporters of dairy products, including innovative ones.
- Belarus is still planning to significantly increase milk production by 2020 despite the current worsening exports of large surpluses of milk due to Russia’s large-scale trade restrictions
- Russian Federation, thanks to sanctions (ban of imports from the world’s leading exporting countries), has significantly increased production of milk and dairy products. However, consumption of dairy products in the country is declining, and this has led to a significant reduction in dairy prices. This April prices for some dairy products in the Russian market are competitive with the world ones. That is, in the long term it is possible that Russia can become an exporter of dairy products.
REGULATORY, MARKETING AND TECHNOLOGICAL FEATURES
- Is the cooperative movement a sort of tribute to fashion or this is the reality of a new round of the country’s dairy industry development? Some agricultural enterprises has long been nurtured the idea of creating their own milk processing referring to the successes of well-known world cooperatives – Netherlands’ FrieslandCampina, New Zealand’s Fonterra, many other similar companies. But it is still unclear whether the first cooperative model of dairy business will take root in Ukraine, will the first dairy cooperatives be operating soon and will others follow them? There are still a lot of questions.
- Recently, apart from the topic of supplementing industrial dairy farms with their own processing facilities, the topic of association of households in service cooperatives was again activated. This year, to support such associations, the government even provided substantial funding. Nevertheless, there are some doubts about the effectiveness of such cooperatives. It is not clear if they are able to ensure the quality of raw milk in the conditions of today’s village realities, there are also thoughts that these cooperatives may simply be used as a mechanism to increase the purchase price of milk bought from the households.
- It is possible that the cooperatives will eliminate the constant strife between dairy farmers and milk processors. In particular, agricultural enterprises complain that processors do not want to pay them decent money for milk and get super profits from selling expensive dairy products. In the US, farmers get 31 cents of every dollar received for the sold dairy product. May be it is just proper time for Ukrainian dairy market operators to “show their cards” to let all the market players see at last how much everyone in the dairy chain earns, what the real profitability of milk production and processing is and what dairy trade profits are.
- The government boasts that in 2018 it has alloted an unprecedentedly large amount of the state funding for the development of animal husbandry. However, milk producers are dissatisfied with the existing mechanism of distribution of these funds and have very much doubt if getting the funds is real. By the end of the year it will become clear who would receive and how much and whether it is possible to trust the government in the future investing in the development of the dairy industry.
Dairy falsification and media
- “Fake dairy products”. Such headlines are very often used in Ukrainian mass media. Are the falsifications so large? Will it be possible to overcome this shameful trend with the help of new capabilities given to the controlling bodies? How should responsible producers of good dairy products rehabilitate their name?
Who will be working in dairy industry
- Staff hunger complicates the development of business in the dairy industry in Ukraine. Earlier dairies were complaining about poor training of specialists by specialized educational institutions. Recently there has appeared a trend towards massive outflow of already trained specialists abroad. How to deal with this? To raise wages? Educate dairies’ own specialists?
These are in brief main topics that will be discussed at the conference by the recognized Ukrainian industry experts and their foreign colleagues.
Welcome to DAIRY BUSINESS – 2018!