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Ukraine - Livestock and Products Annual 2009

by 5m Editor
15 December 2009, at 12:00am

Meat production in the Ukraine remains in a state of crisis. Some rebound in pork production in 2009 is expected in reaction to a 2008 bumper crop of grains. WTO accession, followed by trade liberalisation, has made a positive impact on exports of pork products, according to the latest GAIN report from the USDA's Foreign Agricultural Service (FAS).

Executive Summary

After WTO accession over a year ago, Ukraine became in 2008/09 a rather big regional importer of pork. An insignificant increase in domestic production will not be able to satisfy growing demand in 2009. Real income declines caused by the world economic crisis was mitigated through GOU social cushion policies and had limited impact on growing imports in 2009. In 2010 the crisis influence is expected to be more profound due to scarce budget resources and a weakening tax base. Pork production in 2009 is expected to grow due to availability of cheap feeds and local currency devaluation.

Production of beef is expected to decline in 2008/09 and in 2010 despite an evident milk shortage on the domestic market. The price of beef will continue to be depressed by increased slaughter. Exports will be limited to the Russian market while imports will be generally offsetting exported quantities.

Production

Production of both swine and cattle was influenced by the 2008 bumper crop. The total grain crop reached a record high 53.3 million tons. The second best crop was registered in 1991 (51 million tons) during Soviet times. The bumper crop was a result of significant investments in crop production as well as extremely favorable weather conditions. This crop came after a significant surge in food prices all over the world and following export restrictions imposed by the GOU. All these led to significant carry-over grain stocks and cheep feeds.

Production of both swine and cattle was influenced by the 2008 bumper crop. The total grain crop reached a record high 53.3 million tons. The second best crop was registered in 1991 (51 million tons) during Soviet times. The bumper crop was a result of significant investments in crop production as well as extremely favorable weather conditions. This crop came after a significant surge in food prices all over the world and following export restrictions imposed by the GOU. All these led to significant carry-over grain stocks and cheep feeds.

The production of swine in Ukraine is slightly more efficient than production of beef. Only around 60 per cent of swine inventories are concentrated in household sector with remaining 40 per cent in big industrial farms. But even in the industrial sector the swine inventory is concentrated in mid-size farms.


Source: State Statistics Committee of Ukraine

Due to faster growth rate and quicker capital turnover the industry swiftly responded to the growing world price for pork and to cheep feed available in the country. Pork production in 2009 is expected to stabilize while the number of animals will grow insignificantly.


Source: State Statistics Committee of Ukraine

What growth there is will come from industrial farms. Subsistent farming is expected to be slow to respond to market changes due to low efficiency of enterprises and general orientation to family needs rather than to market demand.

The 2010 forecast is not very optimistic. The 2009 crop is expected to be slightly above average, and the world economic crisis’ delayed impact is expected to influence demand.

The price of pork in Ukraine remained relatively stable in 2008-09 in local currency (UAH) equivalents, but during the abrupt currency devaluation at the end of 2008 the domestic industry received significantly less money in US dollars. Imports of inputs in the swine industry is not significant, so Ukrainian producers became more competitive in their battle with imported product.


Source: Ukrainian Agrarian Business Club Association, FAS own estimates

State Regulations

On the internal policy side Ukraine attempted to strengthen internal sanitary requirements for meat products produced in households. The new regulation will be difficult to follow by the household sector. The new requirements contained in Paragraphs 33 and 35 of the Law On Safety and Quality of Food Products and Raw Materials would become effective on 1 January 2010. Slaughter of market animals in unregistered slaughterhouses would be banned. The beef and pork derived from household slaughter would also be banned for sale on open-air markets. Requirements would reshape the domestic meat market significantly since the majority of the meat from household slaughter is sold through open-air markets with veterinary postmortem inspection only. Since it is unclear weather these regulations would come into power as scheduled, there is a good chance that they will be postponed until 2015. Strong opposition against the new rules came from small business, regional state administrations and rural municipalities.

On the import side there were no significant import regulation changes in the reporting period, but there are some new requirements that may be enforced after 14 January 2010. These new requirements may limit trade in meat and meat products significantly. On 20 May 2009 the State Committee for Veterinary Medicine adopted Order No. 149 containing the following requirement "Import of raw animal products, feed additives, premixes, feeds for livestock and other products of animal origin into Ukraine’s territory is permitted only after the preliminary inspection of the epizootic situation; requirements are set for production facilities, processing, storage conditions and other requirements in the countries the product originates from. The inspections are to be carried out in accordance with existing legislation by specialists of the Veterinary Service. An official conclusion issued by the Veterinary Medicine Service of Ukraine must be issued." It is not clear whether Veterinary Service will be requiring individual enterprise inspections and what criteria will be used to conduct those inspections. Moreover the WTO notification of this new requirement has not been sufficiently clear.

Trade

Imports of pork and beef in 2008 /09 were influenced by two major factors: Ukraine’s WTO accession in May of 2008 and the world economic crisis (significant impact felt since October of 2008). The impact of WTO accession influenced meat imports via decreased import duties and liberalized veterinary/sanitary barriers. These two factors had a positive influence on imports. The world economic crisis led to significant currency devaluation and an economic downturn with a consequent real income drop for Ukrainians. It had a negative impacted on trade. The balance of these two factors shaped trade in 2008/09 and will continue to influence trade flows in 2010.

Trade in beef products will remain insignificant due to the considerable excessive number of beef animals. Extra meat coming from slaughtered animals depresses the market. The momentum of the industry is significant and trade in beef is not expected to grow until the number of animals in the country stabilizes.

It must be noted that changes in the trade environment happened after long years of severe trade restrictions and a long-term gradual increase in per capita income. Many people were ready to consume more meat products as the Ukrainian economy recovered after long economic downturn of the 90s. Inefficient domestic production was not able to provide the population with product to meet demand, at the same time that the import market was closed through protectionist measures of the GOU. All these formed a significant unsatisfied demand that led to an import surge after WTO accession. The magnitude of the demand was unclear due to unprecedented changes in the trade regime. The new PSD table adjusts import numbers in accordance with official statistics.

The impact of the currency devaluation and an expected 18 per cent GDP drop in 2009 is yet to influence import patterns. Its negative impact on trade in 2008/09 was overestimated. The new forecast numbers are adjusted to follow 2008 trends. Despite significant economic hardships in the end of 2008-2009 the GOU chose to maintain the same social protection level and kept salaries in the public sector unchanged. These actions were politically inspired, but had direct implications for meat imports: trade remained at a rather high level throughout the end of 2008 – early 2009. At the same time long-term effects from currency devaluation and the economy drop are expected to be more profound in 2010, thus trade forecast is not as bright as for 2008.

Further Reading

- You can view the full report by clicking here.

December 2009