In spite of the military conflict in the east and the abolition of a number of privileges and preferences to farmers by the new government due to the tough economic situation in the country, Ukrainian feed production will keep strong growth, experts and market analysts believe.
According to official statistics, Ukraine produced 6.1 million metric tons of feed in 2013-14, a figure which set a new record. At the same time, the rate of growth in output of compound feed products for the second consecutive season has been rising quite rapidly – by 11 percent year on year.
In terms of feed production, the leaders of last season were Katerinopolsky feed mill, Mironovsky MFC and Vinnytsia poultry farm. The share of each of these companies is 7 to 8 percent of the total volume of feed production in Ukraine.
Today, Ukraine has dozens of projects in the sphere of production of animal feed, which will allow it to increase production of animal feed by nearly 8 million metric tons per year by 2020. The average level of growth of the industry should be slightly lower than the level of the past two seasons, but still high, 8 to 9 percent per year, according to representatives of the country’s Ministry of Agrarian Policy and Food.
It is noted that the main driver of growth in production will be the projected growth in demand. According to the agricultural development strategy for the period 2013-20, in the next five years the volume of livestock production in the country will grow by 20 percent, while the fall in the exchange rate of the hryvnia against the Euro and the dollar that took place in the first half of 2014 will make domestic feed more competitive at the market compared to imported products.
In the next few years, there is a good chance Ukraine may no longer need to import feed from Europe, added the representatives of the Ministry. Today, according to official statistics, the country imported 2.03 million metric tons of feed from abroad, which is equivalent to approximately 24 percent of total consumption.
It should also be noted that actual Ukrainian feed consumption stands at about 11 million metric tons per year. At the same time, 20 to 40 percent of the total production and consumption, depending on various estimates, accounts for “the shadow market,” says the Ukrainian analytical center in agriculture, ProAgro.
In the poultry industry, 18 percent of feed is imported; in the pig industry, it’s about 42 percent. According to official statistical information, the share of imports steadily declined over the last 10 years as the internal market developed.
The data of the State Static Committee of the country says that Ukraine imports the majority of feed products from the European Union (EU). The largest supplier of feed products in recent years was Poland: The share of imports from that country amounted to about 64 percent of total imports in natural volume. The other large suppliers of feed to Ukraine are Germany, Belgium, the Netherlands and Hungary. The volume of imports of the top five suppliers of animal feed in Ukraine exceeds 90 percent of the total import of feed to the country.
Conflict doesn’t impact trade
Ukraine has practically not been affected by the recent Russia trade freeze as it only supplied only 1.5 to 2.5 percent of imported feed.
Ratification of the Free Trade Zone agreement with the EU, which is scheduled for mid-autumn 2014, will also give an additional impetus to the development of domestic production. Currently, the country imports about 45 percent of the total animal protein consumed from Europe and the abolition of the customs duties on those products will benefit to the local producers, even though prices jumped due to the drop of the exchange rate of hrivnya.
In general, Ukraine’s livestock industry can absorb these expenses, as they will be partly compensated by the rise in export of finished products to Europe. In 2014, Ukraine has been granted the right to supply its poultry to the EU and as the result, in the first half of the year, the Netherlands became the second largest importer of Ukraine chicken. The fall of the exchange rate of hrivnya against the dollar by nearly 50 percent since the beginning of the year brought profit to the exporters, increasing their margin and allowing them to buy feed even at the higher prices.
The increase in production will also be available due to the forecasted growth of the grain harvest. In 2013, Ukraine has collected 62 million metric tons of grain, a record harvest, but over the next few years, the country will increase this figure to 72 million metric tons, according to the forecasts of the United Nations, which will decrease the price of raw materials for feed production in the country.
Instability brings some concerns
The current crisis in Ukraine does not necessarily bring a negative impact on the country’s animal feed manufacturers. According to preliminary information, six feed mills are located in the area of the anti-terrorist operation where the fights between Ukraine troops and rebels occur — as well the assets of APK Invest, the largest pork producer in Ukraine. However, the situation with future facilities located in the Donetsk and Lugansk regions remain highly unpredictable.
According to the press service of the Ministry of Agrarian Policy and Food: “Agriculture remains one of the drivers of the Ukrainian economy and in the coming years that will reflect positively on the state of the livestock industry and the production of feed. However, the state of the industry in the regions, where currently the fighting is taking place depends on how quickly the armed forces of Ukraine will be able to restore peace there.”
“At the same time, it is necessary to recognize the fact that now the projected growth of 2 million metric tons of feed mostly laid in already announced projects, most of which has been agreed in quiet times, and now investors are waiting, trying to understand how investment attractiveness in Ukraine will look like in the coming years,” says a market participant, who requested anonymity. “There are some concerns about the abolition of benefits for farmers, as well as the lack of competence of the new Minister of Agriculture, Igor Schweich.”
It should be noted that Schweich has been criticized by many local market players due to a lack of activity in terms of attracting new investments — as well as solving of the problems of the country’s manufacturers.
According to the Russian agricultural analyst Eugene Gerden, Ukraine has a good chance to overcome the existing problems and increase its feed production in the coming years.
“The industry as a whole has great potential, but to implement it, the government has to make concrete steps to create a favorable investment climate, and a bonus for important investment projects, a reduction of corruption in agriculture and a guarantee of the security for business,” he says.