Modern economic POTENTIAL OF UKRAINE

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Grain crop industry

The industrial grain sector, includes firms which deal with the processing of grain crops (flour and cereals, the combined feed sector, and baking industry), occupies an important place in the agribusiness life of Ukraine.

The industry plays a leading role in providing private and other food processing sectors with flour and groats. Consumers and raw stock resources are the most important factors which influence the location of flour and cereals enterprises.

Processing enterprises are able to fully satisfy domestic needs in processing, packaging of grain crops, as well as production of flour and grains. Their average annual productivity amounts to 7 mn tons of flour and 800 ths. tons of groats.

Ukraine possesses substantial potential for procuring food grain for flour and groats. Annual domestic needs in food grain, including for production of bread and baking, total 5.7 mn to 7 mn tons. Traditionally, a broad range of grain crops is used. Wheat comes first in food consumption (80%). Rye and buckwheat are correspondingly 7% and 5% of consumption. The share of rice on average is around 2.5%.

The consumption of other grain and bean crops for the production of flour and groats is traditionally insignificant and altogether constitutes about 4%.

Official volumes of flour production in Ukraine registered by statistical bodies over the last five years were in the range of 2,960 ths. tons, except for the bad grain crops of 2003, which caused a drop in flour production down to 2,819 ths. tons.

Local flour milling enterprises produce the following kinds of flour:

• five grades of wheat flour (coarse-granular flour, fancy white wheat flour, first grade flour, cut straight flour, and wholemeal flour);
• three grades of rye flour (rye flour with 63% extraction, medium rye flour, and dark rye flour); and
• rye-and-wheat (maslin) and wheat-and-rye wholemeal flour.

Also dark wheat durum flour, corn flour, oat flour, as well as small lots of rice, barley, buckwheat, and soybean flour are produced in Ukraine.

Wheat flour makes up approximately 90% of flour production.

Pattern of flour production over 2000-2004 ths. tons

At present there are about 700 enterprises in Ukraine which process grain, including 200 of bakery integrated works. Capacities of flour production constitute approximately 11 mn tons, that is almost three times more than is necessary for domestic consumption. Official estimates show that large flour milling enterprises manufacture about 70% of the total production. A lot of private mini-mills actively operate in Ukraine. Their aggregate capacities, as estimated by independent experts, handle 30% of local market needs.

Kiev and Kiev region, as well as Donetsk, Dnepropetrovsk, Kharkov, Vinnitsa, and Odessa regions are the largest centers of flour production.

The largest flour milling enterprises of Ukraine

As wheat and rye flour are the basis for making bread, approximately 88% of flour consumption belongs to the bakery industry. Also flour is used in households, the pasta industry, confectionery industry, for the production of infant food, concentrated food, and public catering. Barley, corn, and soybean flour are rarely used in bread making.

Consumption of bakery (per capita per year, kg)

Volumes of export and import from/to Ukraine directly depend on the local harvest of grain crops.

Export of wheat and other kinds of flour is mainly directed toward Russia, Georgia, and Moldova. As for the geography of official flour imports to Ukraine, Russia, Kazakhstan, and Belarus were among the main suppliers. Insignificant volumes are imported from the European Union states (Germany and France).

The shortage of local raw stock, the cost of wheat on world markets and markets of Russia and Kazakhstan, as well as legislative processes are the most significant factors influencing the price situation on the Ukrainian flour market.

Sufficient administrative pressure, which can be applied to prevent growth of prices for bread and bakery output, is another peculiarity of the Ukrainian price formation on the market of flour.

Production of groats

Cereals such as buckwheat and millet are the most widespread in Ukraine. Arabian millet (sorghum) and Turkestan (Siberian) millet are included in this group. Barley, oats, wheat, corn, pea, and lentils are conditionally cereal cultures. Buckwheat, millet, and rice have the largest food importance, although they occupy merely about 5.6% in the pattern of cultivation area over the last three years.

The main enterprises producing cereals (groats) are concentrated in the areas where cereal crops are grown in order to secure a stable raw stock basis. Mostly they produce buckwheat and pea groats (60% of the total production). Buckwheat accounts for approximately 46%. Total capacities to produce groats are on the level of more than 50.5 ths. tons

Pattern of cereals (groats) production in Ukraine, ths. tons

There are approximately 400 large cereal production enterprises in Ukraine.

The largest volumes of cereal production come from Kiev, Khmelnitskiy, Kharkov, Lugansk, and Kirovograd regions, where large industrial plants are located.

Kiev region has been a constant leader over the last decade in the pattern of cereals production. It is connected both with the availability of large processing enterprises and stable high demand in the region.

Rating of Ukrainian enterprises in cereal production

Consumption of cereals (groats)

Actual consumption on the Ukrainian cereals market amounts to 350-400 ths. tons per year. There are trends in the kinds of cereals and groats consumption that are dropping and the growth of demand for instant cereals, muesli, and flake cereals.

The export of Ukrainian cereals depends on production level, which is directly connected with the volumes of the collected crops. It constitutes approximately 15-20% of the total harvest per year. Demand for cereals is stable. A lot of exporters have long-ago established sales channels. Buckwheat is the basis of export, constituting more than 60% of the total.

The geography of deliveries is traditionally represented by the states of the former Soviet Union (Russia, Belarus, Georgia, Moldova, and Azerbaijan). Large lots of buckwheat are exported to Germany, Israel, and Austria. Collective company Bilotserkivkhleboproduct, OJSC Skvirskiy Bread-making Integrated Works, OJSC Khmelnitskiy Bread Making Integrated Works, and Subsidiary Mirgorodskiy Bread Making Integrated Works No.1 are the leading exporters among producers.

The import of cereals to Ukraine is insignificant. Instant cereals make up most of the supply. Nestle company is the largest importer.

Prices for cereals depend on the harvests. Taking into consideration that cereal crops are harvested mainly in autumn, the harvest influences the price policy of the next calendar year to a great extent. Domestic prices for cereals also affect export operations. When world prices go up, problems occur with sales of cereals on the local market. Price jumps are more common on lean years.

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