At the beginning of the year, I would like to comment on what the past year was like for Ukrainian dairy and what we are expecting for in the year that has already begun.

First of all, I think it is necessary to remind that the last year, the year when the war started, showed how the state executive bodies should work interacting with national manufacturers.  In the first weeks of the war, only national dairy companies remained operating in Ukraine. They took full responsibility for the country’s food security.  Import had stopped.  The state faced the issue of providing the population and the Armed Forces with food products in conditions of war.

It was in these conditions that national dairies became part of the resistance, fulfilling their task on the economic front.  They coped well with this task and cooperation with the state bodies during this difficult period was very productive.  All issues – those related to critical imports, setting up logistics, organizing public procurement, setting a preferential price for gas, solving labeling issues, deregulation, and others – were all being resolved very quickly and harmoniously.  As a result, our country did not have and does not have a shortage of food products, which both the Armed Forces and the population are fully provided with.

Foreign trade.  Exports

The Union of Dairy Enterprises of Ukraine constantly monitors trends in foreign dairy trade.  Starting October, the advantages that kept the trade balance positive began to melt away.  In December, for the first time during the war period, it became negative (-$2.2 million).  And this despite the fact that back in September, export volumes exceeded import volumes by 2.2 times, and the positive balance amounted to almost $20 million. A significant decrease in export volumes continues for the third month in a row.

There are several reasons for that.  The internal economic reasons are inflation, which caused a rise in prices and problems in energy that force enterprises to use generators and, accordingly, pay more for electricity.  For example, if the price of Ukrenergo electricity for enterprises is 3 UAH/kWh, the price increases to 15-20 UAH/kWh when a generator is installed.  Taking into account the fact that in the cost of production of both milk and milk products, electricity costs are on average 7%, it is clear that this affects the cost of production of both raw milk and dairy products.

There are also external reasons for shrinking of our exports.  Gas has become cheaper in Europe. Currently it costs 800 euros/thou m3. Our enterprises pay approximately the same amount (UAH 32000).  In addition, the price of raw milk began to decrease in the EU, worsening competitive conditions for Ukrainian dairy products.  At the same time, as usual, European dairy farmers receive state support for milk production and export promotion, which our national producers are not provided.

Therefore, our main task for the next year is to continue our efforts to convince the state bodies in the necessity of the state support in order our dairy could develop and maintain its position on the international market.

Unfortunately, the state budget for 2023 does not provide for such support.  The SMPU initiatives that were proposed during the last year – encouraging the delivery of milk for industrial processing, regulating supplies, fighting the shadow sector, implementing measures that would affect the cost of production and make our products both affordable and competitive, remained ignored and were not reflected in  the budget.

Current tasks

The new year actually begins with the same challenges we were dealing with during the last year – protecting our market from excessive imports, saving jobs, drawing the state’s attention to the problems of the industry.

Problems with export logistics have not disappeared, especially many of them our transport has when crossing the border with Poland.  The transport waits for entry to Poland for 2-3 weeks, or even longer, while the queue for departure is 10-12 hours.  Terms of contracts and expire terms are violated.  Old bureaucratic problems are not solved, while new ones appear.  We consider this as a means of protecting their market by our neighbors.  This should be done constantly.  And this is only one of the problems SMPU has to monitor and get engaged in solving.

The Union of Dairy Enterprises of Ukraine is a legal instrument for regulating the industry’s relations with the state.  By gaining experience and expanding connections, we defend interests of not only dairy processors, but also the entire dairy industry.  The extraordinary difficult past year showed that it is unrealistic to expect that all the issues can be solved by only the Dairy Union staff. Despite all the experience and hard working, SMPU has a very limited budget and personnel.  So, it is important and valuable for us to get support of the members of the Union members, as they understand that it is in our common interests to use the additional opportunities that SMPU dairy companies have: providing advice on financial, economic, technological and legal issues.

Therefore, we set working groups, which include representatives of our dairies.  We jointly discuss the issues important for companies, receive their feedback on certain innovations or legislative initiatives, also on the state initiatives that affect real business.

Two groups are working now.  One of them is headed by Vadym Chagarovsky, Head SMPU.  The group deals with the issue of repealing the Law “On Milk and Milk Products”, which duplicates the provisions of the Law “On Basic Principles and Requirements for the Safety and Quality of Food Products”.  We believe that a separate milk law is not a necessity. There is no such law anywhere in the world.  Just as there are no separate laws on bread or sausage or any other food product.

The second working group, which I manage with Leonid Tulush, Head Expert-Analytical Dept SMPU, deals with developing a common position of dairy processors and milk producers regarding the development of the dairy industry.  Recently, the Association of Milk Producers (AVM) proposed a road map for the development of the dairy industry, in which we pointed out the discrimination of interests of dairy processors and, at the same time, the shift of emphasis towards the interests of milk producers.  Although the main burden  – provision of milk intake, processing of raw milk and the sale of the finished products – is carried by dairy processors.

The group also works on the issues of financing and promotion of programs related to dairy industry, correct use of the law on self-regulating public organizations.  Guided by provisions of the policy of decentralization and reduction of corruption influence, we use American and European practices, according to which the formation of state policy should be transferred to associations as representatives of the industry.  That is, the industry must itself form the rules and plan the measures that will ensure the sustainable development of dairy industry.  And the role of the state is to listen to opinion of the industry experts and formalize their proposals and initiatives in the form of laws, regulations and regulatory documents.

Partners

SMPU closely cooperates with other associations.  For example, last year, together with food associations, we tried to regulate the relationship between food suppliers and retail chains at the legislative level.  Unfortunately, we can state that the lobby of retail chains is still winning: they are dodging the issue, decisions are postponed under various pretexts, and our proposals based on European practices and directives, are ignored.  In my opinion, the settlement of this problem is precisely the case when the state should act as an arbiter and introduce the rules that would not contradict interests of any subject in this chain.  So far, the lawlessness of suppliers remains, and in the conditions of growing imports, without solving this issue, 2023 will be difficult for dairy producers.

In our activities, we also rely on Parlamentary deputy groups, first of all, I mean the group “For the development of the dairy industry”, which includes more than 30 deputies.  This association is headed by People’s Deputies of Ukraine Andriy Bohdanets and Serhiy Bunin.

We cooperate with expert centers, for example, with analytical agency Infagro (Vasyl Vintonyak). They help us in the development of some strategic and tactic issues.

We would like to thank Iryna Vysotskа, coordinator of the “Dairy sector” component of the Swiss-Ukrainian Quality FOOD Trade Program for cooperation and mutual understanding.

SMPU has also managed to establish constructive relations with Association of Milk Producers, communication with which previously took place in the form of mutual accusations.  Last year, our relations became more civilized, understanding that both associations represent the same industry became clearer.  By the way, it is interesting that last year milk producers began to join SMPU activities, the union of processors.  A Committee of Milk Producers was established at the Union, which already has about 10 members.

Strategic tasks

SMPU is considering promotion of milk production and modernization of processing facilities as their strategic task.  We have to increase production of dairy products competitive on the world markets. We hope that we will be able to achieve noticeable results working within the framework of the Program for the recovery of the country’s economy in the part related to the new agrarian policy and dairy industry.

We will continue to deal with issues of quality and safety of dairy products, updating relevant standards, providing methodical support in the field of milk processing.

As before, we will pay considerable attention to legislative activity, providing expert support for legislative initiatives related to the industry.  We will propose changes to regulatory legal acts to improve credit provision of dairy processing enterprises, in particular, by improving the “5-7-9” affordable lending program.  We also have proposals for reforming public procurement procedures in order to “cut off” unscrupulous suppliers from participating in them.  We plan to work on the implementation of the “School Milk” program.

The SMPU is going to pay special attention to the improvement of the legislation on state support for development of the dairy industry.  We will promote the draft Law of Ukraine No. 7072 “On Amendments to Certain Legislative Acts of Ukraine Regarding State Support for the Development of Production and Processing of Animal Husbandry Products” which was developed in cooperation with SMPU experts. We will also promote implementation of some norms included in this Law.

We will not give up the fight for the settlement of relations with retail chains and will insist on solving this problem at legislative level.

SMPU will be promptly intervening when the situation requires protection of interests of dairy processors, participating in the settlement of issues related to export logistics and provision of natural gas to enterprises.  We will continue to provide SMPU participants with analytical materials, hold conferences and seminars.  We will cooperate with international organizations and technical assistance projects and seek integration of SMPU into international associations of processors.

We welcome competition, which implies a level playing field for competitors. We should become more than just competitors on the European market.  Our dairy community have both desire and need to become a part of this market, a member of the EU dairy community.