Export to the world market becomes unprofitable, and Russia closes Ukraine again

Now the dairy branch of Ukraine goes through the period of changes. Milk prices have been promptly increased, processors try to increase the prices for dairy products too. But hardly this will become a long tendency. The situation worsened again on global markets – export does not rescue so much.

Certain success in trade with Russia will hardly last for long. It is not known at which price level the Ukrainian consumer will start to refuse dairy products, but it is already close.

Actually, it may happen that milk will become too expensive for processors again by the end of the year. Milk prices can stop the growth even in conditions of seasonally low deliveries.

Ukrainian products are not competitive on the foreign markets already now, and Russia will probably try to close the borders once again from the next year.

Possibility of Russian food embargo is actively discussed again. It is said in Moscow if the agreement on a free trade zone between Ukraine and the EU enters into force on January 1, 2016, the sanctions for Ukraine will be the same as for Europe, moreover duty-free trade within contracts of the CIS will be abolished.

Ukrainian officials believe, after introduction of sanctions by Russia the Ukrainian farmers will not incur heavy losses, as the most part of Ukrainian products are already banned in Russia. They estimate possible losses at USD 140 mio. It may be that amount is not big for someone, but it is very essential for Ukraine. This scenario will have especially negative impact for milk operators. After all, now some companies still sell dairy products to Russia, others counted on renewal of trade.

Even termination of deliveries to Crimea (because of blockade) yielded losses to the plants delivered the dairy products there before. At the same time the situation is not clear with Crimea in the conditions of official ban on import of Ukrainian food. The region is obviously unable to provide itself with products. Even Crimean authorities declare that it will take 7-10 years to raise the dairy branch of the peninsula to Ukrainian level. And salaries of Crimeans are not so high to buy products at Russian prices. So, food embargo of Russia for Ukraine will cause indignation of Crimeans. Russia cannotallow Crimea to buy the products from continental Ukraine, if it close own borders for them…

There is a wish the Kremlin at least would not demand Kazakhstan and Belarus to follow the lead Russia. Ukraine improved trade relations with these countries recently, and loss of these markets would be very painful for Ukrainian operators.

Even if Russia does not enter food sanctions for Ukraine, the authorities of Russian Federation can find enough reasons for the next bans on import. For example, they can claim on not absolutely successful reform of Ukrainian state monitoring system of food quality. Now even for Ukrainians it is not clear how it will work.

The government approved the Order of means use for support of animal branch (decree # 884 of October 28, 2015). The document orders the rules of partial compensation for: bought cows and heifers, interest rates, farm equipment, building and modernization of farms etc.

The Order is in existence, but it does not change the essence of the matter. The same as before the Ministry of agrarian policy have to distribute money between regional departments, where it will be decided to whom give them. It is not a big secret who receives the compensations… Moreover, hardly the enterprises, which try to develop, will receive real money, there is no money in the treasury.

 Generally, farmers should not especially count on state financial support. Only growing market (promoting high milk prices) can help to overcome the crisis.

Vasyl Vintonyak, Director of infagro.com.ua

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