Report Highlights

In 2008, Ukraine will continue to import pork and export domestically produced beef to Russia, although the volume of beef exports will be substantially lower than was recorded 5 years ago. Export volumes will remain highly dependant on the political situation in both Ukraine and Russia. Ukrainian production of pork will continue to grow, while beef production will continue to shrink due to the highly inefficient industry. Ukrainian consumers will continue to consume more poultry at the expense of beef and pork. Ukraine's expected accession to the World Trade Organization could significantly alter the market situation, although technical barriers to trade are expected to continue to limit red meat imports.

Executive Summary

Backyard production of beef and pork dominates in Ukraine. In 2007, production of both pork and beef is expected to be significantly lower than forecasted. The lower forecast is a result of general inefficiencies in Ukrainain red meat production plus the 2007 summer draught and the increase in gas prices. All these factors resulted in a larger decrease in beef production and significantly slowed the growth of pork production. However, the trend for increased investments into the pork sector is expected to continue in 2008, unlike the beef industry. The growth of industrial pork production in Ukraine is higher than official numbers suggest. Backyard farms negatively contributed to the aggregated industry number. Imports of beef and pork remain extremely sensitive issues for the government of Ukraine. Meat imports continue to be restricted by prohibitively high import tariffs and imports entering through the Free Economic Zones (FEZs) are subject to technical barriers to trade. Only a few supplying countries have managed to negotiate import certificates with the Ukrainian State Veterinary Committee, of which the United States is one.

Production

Despite unfavorable weather conditions and growing input prices in 2007, production of pork grew in both industrial and backyard farms. The industrial sector is expected to continue to grow in 2008, driven by a substantial amount of investment. Backyard production in 2008 will be highly dependent on the market price for pork. The long-term trend for household production is expected to be negative despite recording some production increases over the years. Household farms cannot compete with modern industrial farms using imported (mostly from England and Denmark) nucleuses and benefiting from the economy of scale. In 2008, overall industry production is forecasted to remain steady or show a slight upward trend. During 2007, foreign and Ukrainian investors continued to pursue projects in Ukraine. Hog operations were not as profitable as poultry, but were clearly more profitable than beef production. First, Ukraine’s domestic price for pork remains well above the price of beef. Second, since the growing cycle is much shorter for pork relative to beef, investors are more willing to invest in pork production facilities to take advantage of the much faster return on investment.

The 2007 summer drought in Ukraine led to a significant increase in barley prices which in turn drove up the cost of production. Concomitantly, the government of Ukraine implemented a grain export quota that gave Ukrainian swine breeders some competitive advantage over their western counterparts. As of October 2007, the price difference between 1 ton of Ukrainian barley and the world price reached $25-$30. Availability of cheaper electricity and gas (compared to US and Western Europe), and cheaper labor costs in rural Ukraine gave the Ukrainian industry an additional competitive advantage. The government's state support programs that are designed to increase domestic swine production have had a limited impact on the industry. Only few industrial companies can meet the government's requirements for receiving support. Government payments are often delayed toward the end of the financial year, so producers generally only receive partial coverage.

Further Reading

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List of Articles in this series

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October 2007