Ukrainian cheese market is prone to constant changes and, unfortunately, most of them cannot be called positive for Ukrainian cheese makers. There is a number of both external and internal reasons for such a pessimistic assessment of the cheese industry.
Firstly, the geopolitical crisis in relations with Russia should be mentioned among the reasons. Due to trade with this country, about 15 years ago Ukraine became one of the largest cheese exporting countries in the world. In 2005, 111 thousand tons of cheese were exported from the country, mainly to the Russian Federation. Later, Russia introduced various kinds of limitations and bans. The large-scale restrictions on imports of Ukrainian cheese led to significant fall in trade volumes. A few years ago, the Russian Federation completely closed its borders to Ukrainian cheese makers. Now, Ukraine can’t be called a cheese exporter at all, because we sell very small volumes of cheese to foreign markets.
Moreover, against the background of low world prices on cheese and high Ukrainian prices for the product, our country is already turning into a major importer of cheese. It seems that this year every fourth kilogram of cheese sold in our country will be of foreign origin.
Ukrainian cheese-makers are partly to blame themselves for the dominance of imported cheeses in the market. After the loss of the Russian market, they could not reorganize their business according to modern European models, the cost of production and marketing expenses were too high. The shortage of raw milk had a great negative impact on the cheese industry. These factors contributed to formation of high and uncompetitive prices for cheese, which led to an increase in external procurement.
But not only cheese producers themselves are to blame for their troubles. The unsuccessful reformers signed the agreement on European integration which was extremely disadvantageous for Ukraine. Now, the import duties on European cheese in Ukraine are reduced to almost zero, while Europe has given Ukraine the opportunity to supply dairy products to the EU only by scanty quotas, and cheese has not been included in these quotas at all. Governments also did not pay due attention to development programs and support for the country’s dairy industry, in particular dairyfarming. As a result, milk production in Ukraine is rapidly falling, and the raw milk purchase price has become even higher than that in neighboring European countries. It is clear that one cannot make cheap cheese from such high priced raw milk.
Considering the above mentioned circumstances, forthe coming years the prospects of Ukrainian cheese market development cannot be too encouraging. Production will have to get reduced, export growth is unlikely, but cheese import will increase even more.
However, under certain conditions, the forecast for development of Ukrainian cheese-making business may get changed to quite positive. These conditions include an urgent need to carry out the right reforms in dairy industry. To succeed, the market operators themselves, the government and dairy farmers need to make a lot of effort.
In 2018, it seemed that the bottom of the crisis had completely passed and cheese producers would increase the production of cheese primarily due to an increase in domestic sales.
Domestic cheese consumption really increased, but unfortunately this did not allow cheese makers to increase production. The indicator increased only due to a significant increase in cheese imports. In 2019, total production of cheeses along with cheese products decreased by 14% compared to the previous year, to 170 thousand tons (excluding cottage cheese products). It should be noted that such a rapid decline occurred mainly due to cheese products, produced in great quantities and aimed at export, but in the past year some of the markets were lost. However, after several years of stable production (by 5%, to 63 thousand tons) production of real cheese has slightly decreased. Production of processed cheese, also taking into account cheese products, last year was 46 thousand tons, that is, reduction has not been significant so far. Unfortunately, in the medium term we will see a further decrease in production of cheeses (fat) of all kinds.
But not all Ukrainian cheese makers gave up because of the new problems. Many of them are looking for new marketing tools secure their market position competing with imported products. The assortment of cheese produced is changing. Some found their place in the “white” cheeses niche, where the market in Ukraine is growing rapidly, some rely on production of processed cheeses, where there is less competition with imports.
In general, this crisis in the country’s cheese-making industry, like the previous ones, will be overcome and in a few years Ukraine will again get the opportunity to increase cheese production. But there are many “but” here …
In the years of previous crisis consumption of cheese significantly reduced both due to the low purchasing power of the population and due to the demographic problems – the loss of territories, general decline in the population, including that due to labor migration. However, in the past two years, the economic crisis in Ukraine has been partially overcome, Ukrainians became a bit richer and cheese consumption increased. Last year, total consumption of cheese and cheese products amounted to 154 thousand tons, + 7% compared to 2018. This is a significant progress, the only trouble is that there the increase in consumption was not due to domestic, but imported cheeses.
Market growth has occurred in almost all categories of cheese, except cheese products. In 2019 there was sold 66 thousand tons of hard / semi-hard cheeses and 44 thousand tons of processed cheeeses (including processed cheeses). It looks good indicators, but annual consumption per capita is still very small, only 3.7 kg/person (all fat cheeses and cheese products). Such consumption is many times less than in many other European countries, even Russians and Belarusians consume more cheese.
There is no reason even for a slight increase in consumption of cheese even due to imports, there is a pessimistic feeling of another deterioration in the country’s economy. Poor Ukrainians will not buy much cheese.
Ten years ago, Ukrainian cheese market was export-oriented. Big volumes of cheese were exported. But then there were comfortable conditions: large Russian market was available and there was enough raw milk. Now there is neither the first, nor the second advantage. As a result, only about 6 thousand tons of hard / semi-hard cheeses were exported last year, which, even compared to the pre-crisis 2013, is almost ten times less, to say nothing about the figures of the mid-zero years. In the coming years, export of cheese will not increase primarily because the prices of our cheese are much higher than the world prices. Europe now sells Gouda-type cheeses even at 3,500 USD/t, and Ukrainian cheese-makers want to export “Rosiyskiy” type cheese not cheaper than 4,500 USD/t …
Ukrainian cheese makers now have to overcome another crisis, which they had not encountered before. They are losing sales in their own market due to the prevalence of European cheeses. Over the past five years, cheese imports have more than quadrupled, to 21 thousand tons last year. Imported are hard, soft and processed cheeses. All the cheese imports are profitable.
There are several reasons for this growth, but the main one is lower price for European cheeses of about the same category compared to Ukrainian ones. For example, now the cost of imported European cheese (such as Tilsit) after customs clearance is only about 125 UAH/kg, while Ukrainian producers offer their “Rosiyskiy” and “Hollandskiy” type cheeses at prices usually not lower than 150 UAH/kg. The maths is simple – distributors can easily calculate their profit trading European cheeses in Ukraine. There are several reasons for this price difference, but no matter how cheese makers try to improve technology and save on resources, if Ukrainian milk is more expensive than Polish milk, cheese will not be cheaper. It should also be noted that Ukrainian market is now completely unprotected from cheese imports from Europe. For most of these cheeses, in 2020 import duty is only 1.7%.
Given current trends in the world cheese market and high cost of Ukrainian cheeses, there will be further increase in cheese imports. This shameful trend can only be stopped by significant lowering prices for domestic cheese, and this may happen only when the raw milk crisis is overcome, that is, when milk purchase prices reduce as a result of the increase in its production. Also proper reorganization of domestic cheese-making companies will make its impact.
Theoretically, thedecrease on cheese imports imports can occur as a result of either very successful, or very unsuccessful work of the government. That is, some kind of trade restrictions on imports (quotas, special duties, etc. …) can be introduced. Or if the government works very badly and hryvnia devalues very significantly, then import will become not so profitable …