At the midpoint of summer, Ukraine’s raw milk market remains in a state of relative equilibrium. Procurement prices for raw milk were largely unchanged during the first half of July, while Infagro’s dairy indices have remained at similar levels for several consecutive months, confirming that the market is broadly balanced. Beneath this apparent stability, however, lie developments that are becoming increasingly concerning: the domestic market is gradually becoming more dependent on imports, while the positive trade balance for dairy products has almost disappeared.

The key factor shaping market conditions in early July was the heatwave. A prolonged period of high temperatures reduced livestock productivity and, consequently, milk supply. This strengthened farmers’ negotiating position, although the actual increase in raw milk prices proved to be largely “diplomatic” — around UAH 0.20 per kilogram, mainly at the upper end of the price range. As usual, producers of fresh dairy products initiated the price adjustments, while companies focused on commodity dairy products had limited scope to raise procurement prices due to declining export quotations. Bymid-July, procurement prices from agricultural enterprises ranged between UAH 13.8 and 14.6 per kilogram excluding VAT, while milk purchased from household producers was mostly priced between UAH 9.0 and 11.0 per kilogram.

Importantly, the future trajectory of raw milk prices in Ukraine will depend less on domestic weather conditions than on developments in the EU market. External market conditions now largely determine the attractiveness of exports and, consequently, the balance between supply and demand in the domestic market.

Fresh Dairy Products: The Only Segment Showing Confident Growth

Lower procurement prices compared with last year have enabled producers of fresh dairy products to contain retail price increases more effectively than competing food categories such as meat, eggs, and vegetable oils. Combined with the ongoing replacement of household-produced dairy products by industrially processed products, this has supported growing consumption of fresh dairy products.

It is therefore no surprise that this category remains virtually the only one consistently expanding its exports. During the first half of the year, Ukraine exported nearly 14,500 tonnes of fresh dairy products, up 22% year-on-year. At the same time, the share of drinking milk in export shipments declined to 40%, with higher-value fermented dairy products accounting for a larger proportion.

Even here, however, the broader trend is evident: imports are growing faster than exports. During the first six months of the year, Ukraine imported around 12,000 tonnes of fresh dairy products, an increase of 38% compared with the previous year, with inexpensive drinking milk accounting for most of the growth. Over the past two months alone, approximately 2,000 tonnes of UHT milk have entered Ukraine, as Polish producers continue to offload substantial inventories by supplying the market at dumping prices.

Cheese: The Most Vulnerable Segment

The most alarming situation has developed in the cheese market. Further declines in the already low prices of unbranded European cheeses have triggered a sharp increase in official cheese imports into Ukraine. In the first half of the year alone, imports of hard and semi-hard cheeses exceeded 9,000 tonnes, up 27% year-on-year.

As a result, imports now account for more than one-third of total sales even in a category traditionally dominated by domestic producers. Imported products also represent approximately half of the market for white cheeses.

The reason is straightforward: pricing. Base prices for traditional cheeses produced by Ukrainian manufacturers consistently exceed UAH 300 per kilogram, while distributors can import comparable Polish cheeses at landed costs of UAH 200–230 per kilogram. Under such conditions, domestic cheesemakers are left with virtually only one competitive tool: promotional discounts, which often eliminate profit margins. The consequences are lower plant utilisation rates and higher unit production costs.

Notably, the seasonal summer increase in demand benefits importers and European suppliers rather than Ukrainian producers. Meanwhile, exports of semi-hard cheese declined by 15% during the first half of the year to 3,100 tonnes and are now three times smaller than imports.

Commodity Dairy Products: Export Growth Remains Elusive

Despite higher milk processing volumes, dairy processors failed to increase exports of commodity dairy products. The butter market provides the clearest example: butter exports fell by half during the first six months of the year to just 4,500 tonnes, while average export prices were also nearly twice as low.

Domestic supply remains excessive, keeping prices depressed and largely unprofitable for producers. Significantly, even the reduction of the EU duty-free quota for Ukrainian butter had virtually no impact on export volumes, demonstrating that pricing rather than tariff restrictions has been the decisive factor.

Exports of skimmed milk powder (SMP) also declined by 11% to 14,700 tonnes during the first half of the year, despite increased production. Most likely, a significant share of output is accumulating in warehouses. At the same time, more than 80% of the EU duty-free quota for SMP has already been utilised, once again confirming that the European market remains the most profitable destination for this product.

Casein exports declined even more sharply, falling by one-quarter to 2,100 tonnes due to unprofitable export prices.

The whey market also deserves particular attention. After a prolonged period of rapid price increases, sellers have, for the first time in a long while, encountered downward pressure from buyers. Although production remains profitable even at lower prices, producers have been unable to increase volumes and generate additional revenues. Whey exports actually fell by 3% during the first half of the year to 8,600 tonnes.

The Risk of Becoming a Net Importer

The first-half results paint a worrying picture. Dairy product exports declined by 17% to USD 206 million, while imports increased by the same 17% to USD 186 million. Consequently, the positive trade balance narrowed to just USD 20 million.

This means that, by the end of the year, Ukraine could, for the first time, become a net importer of dairy products in value terms. Even in pre-war 2021, when the country faced a shortage of raw milk, this did not happen.

Ukraine’s raw milk market is currently balanced, but that equilibrium is fragile.

Domestic processors are increasingly losing price competitiveness to European suppliers, particularly in the cheese and low-priced drinking milk segments, while opportunities to expand exports of commodity dairy products remain constrained by unfavourable global market conditions.

The future development of the sector will largely depend on price trends in the EU market and on how quickly Ukrainian producers can restore their price competitiveness and strengthen their positions in export markets. Otherwise, the structural shift in the trade balance towards imports risks evolving from a statistical warning into a long-term trend.