Ukraine: Livestock and Products 2008

USDA Foreign Agricultural Service GAIN Report subtitled Calm Market before the Storm: Insufficient Production and Insignificant Imports by Alexander Tarassevych, Agricultural Specialist. A link to the full report is provided. A significant product deficit led to extremely high domestic prices for beef and pork, and consumption shifted to less expensive poultry products.

1 September 2008

6 minute read

Report Highlights

Declining domestic production led to a significant deficit of beef and pork on the market in 2008. Following Ukraine’s accession to the World Trade Organization (WTO) red meat imports increased significantly, but only enough to satisfy a small portion of domestic consumption. A significant product deficit led to extremely high domestic prices for red meat and consumption shifted to less expensive poultry products. In 2008, Ukraine’s red meat market opened up to exports from the U.S.

Executive Summary

Domestic production of beef and pork in Ukraine is declining and is expected to continue this trend in the near future. Concentrated predominately in households, production is very inefficient. Not even the combined effects of abundant, cheap fodder, state support programs and technical barriers to imports were able to turn the situation around in 2008.

The number of both pigs continued to decline in 2008, thus any stabilization or temporary increase in meat production is expected to be short-lived. High red meat prices that resulted in the Ukrainian market made a good incentive for investments in the sector, however a relatively small number of projects in the swine-breeding sector are under way and there are no major ones in the beef sector.

State policies in 2007-08 ranged from severe import restrictions to state import of meats including pork and later beef products. Ukraine’s accession to the WTO has somewhat liberalized the market of red meats, but a fully transparent and predictable market environment is not yet here. Thus could develop in 2009. Complete closure of the Free Economic Zones (FEZs), previously serving as duty-free import loopholes took place in late 2007. FEZs are not expected to be a trade-affecting factor in the rest of 2008 or at any time in the future.

Imports of red meat are expected to grow in both 2008 and 2009. After a long break, U.S. suppliers resumed pork exports to Ukraine in late 2008. All supplies were purchased by the State Reserve of Ukraine, the state-appointed official trader. The commercial import market in 2008 will remain far below its potential volume, restricted by technical barriers to trade. Commercial imports are expected to resume in 2009.

Production

Beef and pork production rely heavily on inefficient households (i.e. subsistent farming) with little or no use of modern production methods. Ukrainian households will continue to be the major producers of pork and beef in 2009. Due to significant import barriers, production of beef and pork in Ukraine remains largely isolated from world market competition. The major side-effect of this protectionist policy is low competitiveness of both enterprises. The only free-market signal received by producers is the price of feeds, but even that cost factor was limited due to grains export quotas that remained in place until June 2008. Producers of red meat have insignificant political lobbying power compared to poultry producers. At the same time, they benefit from the same GOU decisions such as limitation of feed grains exports (See UP8005 GAIN Report for more information on grain export quotas).

The cumulative effect of turbulent GOU domestic policies on red meat production is negative. The policies were very uneven both on the production side and on the trade side. In many cases the GOU was not able to secure a smooth subsidy flow (particularly in January-February 2008), making business planning difficult. Producers of beef and pork also continue to face relatively high loan rates despite GOU programs, such as partial compensating of loan rates.

In an attempt to cushion consumers from rising prices for major food products, the government imposed a 15 per cent trade margin ceiling on retail chains. The law #2292 adopted in May 2008, established the maximum margin for beef, pork and sausage products (with the exception of smoked sausages). Retail chains reacted by passing the price control back up to processors and producers, limiting production incentives even further.

Swine

Households are the largest producers of swine. Their production accounts for a 60 per cent share (4.1 million animals) versus agricultural industrial farms with 40 per cent (2.7 million animals).

Industrial production is in turn represented by commercial farms of three types. The first type, farms with legacy hog swine operations, inherited a certain number of animals from former collective farms. The second type is specialized in swine-breeding and hog operations of average size (500-3000 animals) and accounts for approximately 30 per cent of market share. The big specialized farms with 40,000-80,000 animals account for approximately 25 per cent of market share. The efficiency of pork production varies significantly depending on farm type.

The majority of hogs produced by private households are sold with minimal or no profit. Good genetics or balanced diet can hardly be applied on farms of this type. The same is true for legacy hog operations inherited from the old collective farms. These farms are not exclusively hog farms but farms with diverse production allowing for some profits on selected products. These farms are going out of the swine business and slowly decrease the number of animals over time. In many cases, they supply piglets for private households, or keep the enterprise in place to avoid unemployment in the village, thus pursuing social rather than business goals. In most cases, household production is considered to be a subsistent farming activity providing families with their own meat products.

Average and big specialized farms definitely operate as profit-oriented business entities. Those that apply modern technology are quite successful. Progressive production methods are slowly adopted in pork production with little use of energy for heating and lighting the animal shelter.

The PSD table brought pork production forecast for 2007 into accordance with official statistics, relatively close to the forecast level. The forecast for 2008 is revised downward to reflect industry’s response to more expensive feeds. Significant feed price increases took place in the first half of 2008 despite feed grain export quotas. In 2009, production is expected to be significantly lower as a consequence of the 2008 drop and in response to import growth. Upward production pressure is expected from the 2008 feed grains bumper crop, but it probably will not outweigh the negative production factors.