Modern economic POTENTIAL OF UKRAINE

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Meat packing industry

Throughout the entire history of contemporary independent Ukraine, the share of livestock and poultry production has dropped in relation to gross agricultural product. In 1990, as part of the USSR, the sector had a 29.0% share in gross agricultural produce in Ukraine, and dropped to 21.3% by the mid-1990s. In 2004, the indicator contributed only 16.2% to the gross product of Ukraine’s agriculture. According to statistics, the profitability of livestock and poultry raising has gone notably since independence. For beef it lowered from 20.6% in 1990 to -19.8% in 1995 and to -33.8% in 2004. Correspondingly, the pork indicator dropped from 20.7% in 1990 to -16.7% in 1995 and -14.4% in 2004. Mutton figures went from 2.3% in 1990 down to -31.9% in 1995 and to -44.3% in 2004, and the poultry indicator decreased from 17.0% in 1990 to -18.4% in 1995 and 3.8% in 2004.

In the 1990s, Ukraine received a farm structure and livestock population completely different from developed countries – that is, the majority of livestock and poultry were being raised on personal, family farms, and not on commercial farms. In 1990, 85.6% of cattle stock was concentrated on large agricultural enterprises and 14.7% by personal farms, but by 2004 the structure had dramatically changed: enterprises now contain 38.7% of the whole, and population farms hold 61.3%. The situation with pig stock is similar: agricultural enterprises – 72.4% in 1990 and 32.5% in 2004, personal farms – 27.6% and 67.5% later on. Poultry stock showed the same: agricultural enterprises – 54.0% in 1990 and 33.1% in 2004, whereas personal farms – 46.0% and 66.90%. Among enterprises which can be included in the group of large agricultural commodity producers, around 47.5% owned from 100 to 1,000 cattle heads, and 37.6% – from 100 to 1,000 pigs as of January 1, 2005.

By the mid 1990s, meat production was slashed 2.1 times down to UAH 14.469 bn as compared to the indicator of 1990. After minor growth caused by the greater slaughter of cattle in 2001-2002, the production downturn continued. In 2004, production volumes made only UAH 10.739 bn, which was 2.8 times down versus 1990 and only a 0.2% rise from the lowest production volume, which was fixed in 2000. The physical volume of meat production in carcass weight kept falling at similar tempos: 1990 – 4,357.8 ths. tons, 1995 – 2,293.7 ths. tons, and 2004 – 1,595.4 ths. tons. In 2004, production pattern by types of meat included beef with 38.5%, pork – 35%, and poultry meat – 23.5%.

Regrettably, current local production of beef and pork mostly goes to the retail market, but is still unable to saturate it with meat at acceptable prices for retail consumers. This is related to high production costs and a general shortage on the market, which have caused a continued price growth in the last years. The only exception is chicken meat, the production of which ensures fast cash turnover because of the shorter production cycle. However, even domestic industrial chicken production, which has been recently on an upturn, is now only meeting demand on the retail market.

The next in line for investments is pig breeding, since pork also has a relatively shorter production cycle, is the main raw material for the meat packing industry and is a traditional meal for Ukrainians. Some companies have already launched and put on stream alternative technologies of pig raising that correspond to conditions in Ukraine.

In 2005, Ukraine had 390 companies involved in cattle stock and poultry meat packing, which is 40 enterprises less than in 2004. Meanwhile, the number of meat packing works producing more than 1,000 tons stood unchanged: 86 enterprises in 2004-2005. Large enterprises preserved a large share in production – 89% in 2004 and 90% in 2005. Therefore, the number of small meat packing companies dropped, which is a typical trend in meat packing industries of former socialist states, in particular in Eastern Europe. Due to a forecast stiffening in vet control and sanitary standards, one can suggest that the number of small companies will keep falling further. The largest industrial meat producers in 2005 were CJSC Agromars Complex, CJSC Druzhba Narodov-Nova, Orelska Poultry Plant, SE Peremoga-Nova, and LLC Ruby Rose Agricol Co.

Sausage is the most-produced ready meat product in Ukraine by volume. Around 280 companies were involved in this business in 2005, which is 35 companies less than in 2004. At the same time, the number of large companies producing over 1,000 tons of sausage per annum remains stable: 51 enterprises contributed 85.2% to gross production in 2005 (50 enterprises with gross 84.8% in 2004). In 2005, sausage production went down slightly– by 8.4% to 284.95 ths. tons due to increases in prices for meat raw stock.

Also, the year 2005 included production of 141,535 tons of prepared meat foods, which is now considered a very lucrative business in Ukraine. According to official statistics, production of these food items dropped by 35% in 2004. However, one should keep in mind that the production volume of meat prepared foods in 2004 included notable volumes of meat which underwent the least amount of treatment required in order to be further sold as ready-to-cook products in Russia and Ukraine. In 2004, Ukraine’s largest poultry meat producer launched production of prepared meat foods, and one of the largest meat packing works and producer of meat prepared foods was purchased by a western European company. The largest producers of meat prepared foods in 2005 were LLC Agrotorg-3, JV LLC Vozrozhdeniye (Renaissance), LLC Fenix, CJSC Junkers Production Company, and CJSC Artemovsk Meat Packing Works.

Naturally, falling meat production also slashed per capita meat consumption in the country. While in 1990 the figure was 84 kg per Ukrainian, in 2001 the indicator plummeted to 31.2 kg. It was only in the recent years that it started rising because of higher cattle slaughter (for reasons already mentioned) having come to 33.6 kg of meat in 2004. At the same time, personal purchasing power moved up, compared to early 1990s, which naturally fostered higher consumption of meat and of products that used to be expensive food items. This is shown in the dynamics of per capita meat consumption: year 1990 – 68.2 kg, 1995 – 38.9 kg, 2000 – 32.8 kg, and 2004 – 38.5 kg.

Simultaneously with growing personal incomes and higher demand for meat, the packing industry, which decayed during the 1990s, has been intensively boosting production volumes. The development of the meat packing industry mirrors the income of the population and the changes in cattle stock and poultry meat sales through distribution channels. In 1990, the sales structure by large agricultural enterprises looks as follows: packing houses – 94.8%, personal (incl. at the market) – 5.1%, other channels (as lease payment, directly to trade and public catering firms, public institutions, etc) – 0.1%. By the mid 1990s, the portion of sales by the packing industry halved, where sales to the general population boosted 8 times. In 2004, the same groupings were 29.32% – to packing enterprises, 25.2% – to retail consumers (incl. through the market), and 45.6% – through other channels.

According to official data, Ukraine’s level of meat self-sufficiency is high (ratio of production to domestic consumption): in 1995 – 108.3%, in 2000 – 102.7%, and in 2004 – 86.7%. However, this indicator does not correctly reflect the situation of how Ukrainian demand in this sector is satisfied. In particular, the Ukrainian industry of meat ready-to-cook products shows a shortage of cheap, safe local raw meat for packing. At the same time, the import of high-quality low-cost safe meat to Ukraine is hampered by high import customs duties aimed at protecting domestic livestock fattening industries from complete bankruptcy. On the other hand, Ukrainian poultry breeders having benefited from veterinary prohibitions of poultry meat import from some countries to Ukraine and growing prices for competitive meat types (in particular, beef/pork), and raised prices for their product. Imported raw meat still gets to Ukraine in various ways that bypass customs, which complicates the situation on the meat market as meat import records are absent in this case. The schemes involving meat import as a tolling raw stock have become very popular recently. Thus, official data on imports are often much lower than real meat import to Ukraine. This naturally lowers internal product consumption, and, as a result, increases the official figure of Ukraine’s self-sufficiency in meat.

According to official data, meat export from Ukraine in 2002-2004 fluctuated at 110-184 ths. tons, which made only 7-11% of production within the country. The key reason why Ukraine lacks large export volumes is the serious production decline over the last few years, as well as high import customs duties or meat set by major importing countries. As a result, Russia remains the only market for Ukrainian meat sales, and the only kind of Ukrainian meat shipped to the RF is frozen beef. This commodity is supplied in semi-carcasses and as boneless meat. However, due to Russia’s bulk imports of boneless meat from other producers and record-high growth of meat prices in Ukraine in 2004-2005, the export of Ukrainian-made boneless beef has started to fall. Ukraine has been recently exporting boneless pork, which is, however, the export of ready-to-cook products made from tolling raw stock. Export of ready-to-cook meat is minor because of the demand for this product on the Ukrainian market, as well as the possible restriction of its sales to Russia, where it faces keen competition with similar Russian products in large cities and the low paying capacity of most people in the regions.

Meat import to Ukraine is limited by high import customs duties, which make the product imported legally uncompetitive by price on Ukraine’s local market. Nonetheless, according to official data, meat import in 2002-2004 ranged within 85-366 ths. tons. Ukraine mostly imports poultry meat, which is the cheapest meat among all kinds produced in the world today – and it is an important characteristic when selling to the Ukrainian market. Poultry meat is in demand by the packing industry as the cheapest raw stock, as well as by the retail segment. At the same time, one should not hope that because of Russia’s steps to set quotas on meat import, Ukraine could use some supplies to bypass quotas. In 2004, the pattern of meat import looked as follows: poultry meat – 82.6%, pork – 13.7%, meat by-products – 1.8%, beef – 1.0%, as well as lard and fat – 0.9%. The largest suppliers in 2004 were the USA (37.7%), Brazil (19.6%), the United Kingdom (10.3%), Belgium (6.8%), and Germany (5.7%).

Ukraine has everything needed to facilitate the production of high-quality meat products, in particular, of meat and ready-to-cook meat products. These conditions include suitable climate, previous experience of bulk meat production, revival of the meat packing industry and related increase of demand for the raw stock, growing purchasing power of the population and as a result higher demand for meat and its products on the retail market, aggressive development of chains of retail trade enterprises, which improves the channels of product distribution, as well as the availability of skilled staff and relatively cheap labor.

The stumbling blocks to fast production recovery are a weak raw stock basis because of the recent record reduction of the livestock population, irrational structure of stock distribution by types of farms, lack of strict controls over raw meat within the country, high current interest rate on crediting on the Ukrainian financial market, which accompanies the need for a significant upgrade of material and technical facilities and the introduction of state-of-the-art production technologies.

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