After the New Year holiday the dairy market operators are back to severe reality of their everyday life. Unfortunately, not many of them can expect improvement of the market situation this year. It will be especially difficult to work during first half of the year. Milk production is declining, consumer demand is low and does not seem to renew, Russia has finally banned import of Ukrainian dairy, global markets remain weak.

The economic crisis and increased tax pressure result in reduction of cow number in the country. It means the milk supply will fall further. If welfare of Ukrainians improves and consumption of dairy products grows in a couple of years, present problems with export will not be problems any more. There will be no additional volumes for export. After all, it is impossible to renew livestock quickly, even if farmers have money.

For now the adverse conditions of global markets and especially problem of Russian embargo very negatively influence the situation in dairy branch of Ukraine.

The Kremlin has entered the customs duties for import of Ukrainian products from January 1 and forbidden the import of many types of food including dairy products. Duties may be entered forever, but embargo can be theoretically removed from August. Until this month Russia extended its food import ban for the countries joined anti-Russian sanctions.

It is good thing the others countries of Customs Union – Belarus and Kazakhstan refused the similar trading restrictions concerning Ukraine.

That was not pleasant for the Kremlin, and Russia almost banned the transit of Ukrainian products to Kazakhstan from the beginning of the year. On January 1 V. Putin has issued a decree, according to which the transit is possible only through Belarus. According to the decree two check points were assigned on the Belarus-Russia border and three – on Russia-Kazakhstan. Additionally the federal service on supervision in transport sector should provide identification (seals) on transport cargoes, including those on the basis of global navigation satellite system GLONASS.

Generally, at the beginning of the year the transit through Russia to Kazakhstan was almost completely stopped. Only this week some companies started to try deliveries according to the scheme offered by Russia, and it is not known whether it will work. Even if some companies manage to work so, transport costs will considerably grow.

Ukrainian government, reacting to Russian transit ban, sees “Silk Route” (through the Black Sea, Georgia, and Azerbaijan) as an outlet for accessing Central Asian markets. This idea is not suitable for dairy exporters as the logistics costs are doubled in comparison with transit through Russia. At the same time it may happen some companies will use “Silk Route” for export of milk powder, whey powder and butter to Kazakhstan in long term, if there are problems with export through Belarus. They hardly will use it for export of cheese, additionally to high cost of logistics there is an influence of shelf life.

Ukraine responded to Moscow’s trading restrictions with “mirror sanctions”. Import duties were entered too, and import of some Russian products was banned. But duties in Ukraine are lower and the list of banned products is shorter, than in Russia. For example, import duty for cheese is at 18% in Russia, and only 10% – in Ukraine. Russia banned import of all dairy products, and Ukraine – only fermented milk products and processed cheese. Actually the restrictions of the Cabinet of ministers of Ukraine have almost no influence on Ukrainian dairy market. There were almost no deliveries of dairy products from Russia recently.

Ban on export of dairy products from the continent to Crimea is still in force, but Ukrainian exporters already got used to it during blockade of check points in fourth quarter 2015. And Crimeans hardly like that. One of these days the last working dairy plant – Krymmoloko was almost closed. So, only Russian very expensive and not always high-quality dairy products will be offered in the shops.

Belarus did not follow the Kremlin, and Ukraine refused an introduction of special duty (39.2%) for import of a number Belarusian products (including dairy) starting from January 20. Maybe Belarus even will not completely ban import of Ukrainian cheese products.

Ukrainian authorities continue to argue that close of Russian market will not bring special loss for dairy branch. They say the European market is already open, that Moldova permitted deliveries of Ukrainian dairy products (actually they were not banned there), that there are possibilities for deliveries of dairy products to China and that free trade agreements will be signed with Turkey, Israel and Vietnam soon.

It is not known whether the expansion of free trade will bring the success, but for now those ten “lucky” plants, which received permissions for export to the EU do not know what to do. Even if there will be a wish to export the products there, the provided quota of duty-free trade is small even for one serious company. And the rate of duty will restrain import out of quota. Before it was believed if there is no quota for sales of cheese, it is permitted to deliver any volume without restrictions. Now it is said it is theoretically possible to export as much as possible, but already with huge duty (information is not proven). And as a whole, Ukrainian cheese, as well as the majority of other dairy products, not competitive in European market now.

The mentioned above is too pessimistic, maybe we are mistaken, and optimistic prospects will be opened for Ukrainian exporters soon. After all, the Ministry of Economics declared that the office for sales promotion of Ukrainian products on global markets will be founded in Ukraine, it means, everything will be fine…

Vasyl Vintonyak, Director of infagro.com.ua