The short answer is that main inflationary risks, in their traditional sense, lay down in foreseeing of UAH vs US dollar exchange dynamics.

Generally, I would say that the state of the dairy market in Ukraine, including trends in raw milk price, can be characterized by many factors categorized as follows:

1. Projected factors, such as volume of milk production or volume of consumption of dairy products in the country.

2. The factors which are difficult to forecast (at least currently). Among the key factors of this category are dynamics of the world prices for dairy commodities which exports operators focus on, and the exchange rate which determines the success of external sales compared to the price in the domestic market.

3. Unpredictable factors, say, political decisions (for example, trade restrictions or embargoes) and natural disasters (for example, veterinary emergencies).

The first and the third points are clear, but the second one requires the most correct expert forecasts. Unfortunately, we cannot provide the forecast of the exchange rate, so, we use expert financial forecasts made by financial experts. But the tasks of tracking global dairy trends, the dynamics of Ukrainian dairy export prices and correlation by the type of commodity are in the range of Infagro tasks.

We wanted to provide our customers, as well as all those interested, with simply presented information on how dairy exports activity makes impact on raw milk prices. Indices showing the trend in some irrespective format – points, seem fit the task best.

The Infagro raw milk index is a weighted average price (excluding VAT) of kilogram of milk produced in farms and private households in accordance with volumes of milk gained in these categories of producers and directed to processing. 100 points correspond to January 1, 2011.

Dairy exports remains the market engine. In official data on dairy exports the data on the share of cheese product is not taken into account, although it constitutes 20-30% of total exports in milk equivalent! Hard cheeses, which had been the main export goods in 2012-2013, are now represented with a small share. The main dairy export positions are now the SMP and cheese product (i.e., milk protein). Dairy fats remain in the domestic market and replace imports which had been active until 2014 (butter and anhydrous milk fat). So, we decided to show the exchange market of dairy products (milk, butter, cheese), not with domestic prices, but with dairy export ones in UAH equivalent.

The Infagro index of dairy commodities is calculated as the weighted average export price for actual export sales volume of the three main products: SMP, butter and cheese (cheese products are taken into account in terms of volume, along with cheeses, but they are not taken into account in price calculation). Export prices are usually fixed in dollars, but we exchange them into UAH to show the market correctly. 100 points corresponds to January 1, 2011.

Analysis of the indices since 2011 demonstrates strong correlation confirming their dependence on each other.