VASYL VINTONYAK, director Infagro analytical agency: Ukraine can painlessly do without the mass dairy imports only when milk production in the country significantly increases

Ukrainian dairy producers are now summing up the results of their half-year activities.  Few of them can boast of excellent results.  The profits of dairy farmers who had decent earnings in previous years, this year are very modest.  This is unusual for them and they almost do not increase production.  As expected, village households continue to get rid of cows, and this significantly reduces overall milk supply.

In general, the milk supply of milk in Ukraine is steadily declining and prices for it stay at record highs.

This year, apart from the low supply, the high cost of raw milk is also maintained by high prices for dairy products on the world market.  After all, although Ukraine has significantly reduced the volume of dairy exports, it still remains a net exporter of dairy products.  We can expect that this year dairy exports will amount to about 600 thousand tons in terms of milk, which is equivalent to about 17% of all raw milk supplied for industrial processing.

When there is a shortage of raw milk,  first the output of export-oriented products is reduced.  Accordingly, exports are falling for most of these commodity items.  But due to the significantly higher prices, the revenue from external sales this year is even higher than last year.  For the first half of the year, it amounted to about 160 million dollars, which is 5% more than in 2020.

Among capacious commodity items the most significant drop is in export of butter: by 16% to 5 thousand tons, the export of skimmed milk powder (by 16% to 7.5 thousand tons), canned milk (by 6% to 13 3  thousand tons).  Even casein sales, despite record high prices since 2014, had to be reduced by almost a quarter to 2.2 thousand tons.

At the same time, exports of semi-hard cheese products (10.3 thousand tons) are stable, and external sales of real cheese have increased by 20% to 2.1 thousand tons. Due to the opening of the market of Iraq, 4 thousand tons of processed  cheese products including processed cheese (an insignificant share) were exported.

In the second half of the year, dairy exports will not change dramatically. There will definitely be no growth because of the rawmilk deficit.

This year Ukraine will still remain a net exporter of milk, but next year it will lose this status for the first time in its history.  There is a reason to expect that in 2022, exports in milk equivalent will decrease to 500 thousand tons, while imports will grow to 600, and possibly even 700 thousand tons.

This year, over 500 thousand tons of milk products in milk equivalent will be purchased from abroad.  Since last year, in terms of money, imports have already been dominated by exports as Ukraine sells mainly inexpensive milk-containing products or dry goods, but imports expensive cheeses.  For example, in the first half of the year, dairy products worth almost 150 million dollars (13% more compared to last year) were brought to Ukraine, but this is without taking into account powdered baby food, the volumes of which are very significant.

Imports of dairy products continue to grow this year, but the growth rate has slowed down.  There is also a decrease in imports figures for some products.  It was purchased 7% less of hard / semi-hard cheeses in comparison to last year volumes (9.7 thousand tons).  In the first half of the year butter purchases fell by almost two times to 3 thousand tons. But this should not considered as something very encouraging, in the second half of the year its purchases will become more active  again.

However, imports of white cheeses continue to grow (+36% to 8.3 thousand tons), purchases of processed cheese have increased by 14% to 2.7 thousand tons.

In general, the share of European cheese in Ukrainian market is now quite significant, this creates a huge competition for domestic cheese makers.  According to preliminary estimates of Infagro, this year importers have already taken more than 35% of rennet cheese market. Although imports of fresh dairy products have grown by another third, it still does not pose a big threat to Ukrainian producers.  According to Infagro estimates, in the first half of a year the share of imported fresh dairy products in total sales structure is about 3%.  But imports will continue to grow.

Ukrainian milk processors led by the Union of Dairy Enterprises of Ukraine are uniting to appeal to the government to introduce limitations on the imports of dairy products from the EU and Belarus.  It is not yet clear whether any of these attempts will succeed.  But it is worth noting that without imports Ukrainian market will become unbalanced, as processors do not have enough of raw milk to process.  In any case, commodities, primarily butter and milk powder, must be imported.

Tariff regulation on import of the EU dairy products to Ukraine, to put it mildly, is imperfect.  For butter and milk powder, there is still a 7% import duty, but for finished products, in particular for cheese, there is now generally a zero customs rate.

In general, Ukraine can painlessly refuse from mass imports of dairy products only when milk production in the country increases significantly, when there will be a large surplus of milk available, and when decent exports are restored.

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