Modern economic POTENTIAL OF UKRAINE

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Dairy industry

There are more than 400 companies related to the dairy industry of Ukraine. It is among the leading agro-business industries in the country, and the milk processing industry has the largest share, 18%, of the aggregate volume of the food and processing industry. This is compared to13% for the meat processing industry and 6.5% for confectioneries. Despite this, production capacities for Ukrainian milk processors are barely utilized. Capacity exceeds 18.5 mn tons, though the industry processed only 4.2 mn tons of raw milk in 2000-2004 and 5.2 mn tons of milk in 2005, according to official data. Capacities were loaded by only 25-35% depending on the output.

Annual milk yield during the Soviet era in Ukraine was over 20 mn tons, and the industry’s reorganization has yet to regain these heights. The disastrous reduction in livestock herds and decrease in dairy herd productivity since independence played havoc on the sector. As a result, only 12.6 mn tons of milk were collected in 2000 (see Figure 1). However, the situation started to improve in the end of 1990s. Milk production volumes in Ukraine stabilized at the level of 13.7-13.8 mn tons over recent years. The slide in milk production stopped because of yield in family farms. Meanwhile, milk yield in agricultural farms dropped many times.

According to the State Statistics Committee, only 38% of the milk produced in 2004 was industrially processed. Meanwhile, experts calculated that Ukrainian dairy industry had to utilize approximately 50% of the total production judging from production of dairy output. It is estimated that the share of industrial milk processing grew at least by 2% in 2005.

Dairy plants procured the largest volumes of milk for the production of butter, milk powder, or casein a few years ago. Now, enterprises producing cheese became the leaders by volume of milk utilized. According to preliminary estimates, about 40% of the total raw milk procured by dairy processing enterprises was turned into cheese in 2005.

The Ukrainian dairy industry is based on “three whales”, or three main directions of activities: whole milk output, cheese, and butter (plus milk powder and casein). Cheese and butter are the most raw stock consumption intensive products, though whole milk output is considered to be the most important, because it is a staple commodity. Steady rises in the production volumes of practically all major dairy products is observed in Ukraine. The production of some goods increased several times lately with the most significant increase being in cheese. In particular, the production of fat cheese alone exceeded 270 ths. tons in 2005, quadruple the 2000 figure. Industrial output of whole milk production rose approximately 2.5 times. Growth was not evident only in the butter and casein categories.

Dynamics of major dairy output production (ths. tons)

The size of the Ukrainian dairy product market has recently expanded. According to expert estimations, the sale of all dairy products (ice cream excluded) totaled about UAH 7.5 bn. Cheeses and some kinds of whole milk products are considered the most profitable over the last few years, and account for a large share in general production pattern.

The consumption of milk and dairy products has dropped noticeably since independence. Dairy products were one of the cheapest and most available foodstuffs before 1990. Meanwhile, the State Statistics Committee of Ukraine reports that dairy product consumption has grown over the last couple of years with the growth of personal income and the restoration of the national dairy industry.

Produced whole milk output is practically completely sold on the domestic market. A major part of the cheese, butter, and milk powder produced is exported.

Preliminary estimations

The import of dairy products to Ukraine is insignificant due to a number of reasons. However, certain kinds of high-quality cheeses, desserts, and yoghurts are imported to Ukraine

Despite the significant drop of milk output in Ukraine since independence, the dairy industry produces much more than Ukrainian people consume. This surplus is successfully exported. Almost one third of the total milk processed by Ukrainian enterprises is exported as cheese, butter, milk powder, and other dairy products. The export of dairy products from Ukraine has been steadily growing over the last few years. Currency earnings from these exports exceeded USD 640 mn in 2005.

Cheese, milk powder, casein, and butter are considered the most suitable for export from Ukraine in money terms.

The export of cheese leads the way in Ukrainian dairy deliveries by quantity as well. Export volumes are increasing yearly. Milk powder exports are steadily high. Export deliveries of butter are less stable, and these figures are different each year.

Dynamics of major dairy products export from Ukraine (ths. tons)

Ukrainian exporters deliver dairy products to a wide variety of states, though trade relations with Russia are the largest. The share of dairy output export to this state in money terms made approximately 64% of the general segment export in 2005. Almost all export-oriented dairy products are destined there. Note also that a significant increase in cheese exports is responsible for the high index in 2005. Roughly 95% of cheese exports are destined for Russia. The large share of Germany and Poland in Ukrainian dairy product exports is mainly explained by deliveries of casein. Algeria is currently the leader in the import of Ukrainian milk powder.

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