5 September 2007

8 minute read

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.

Data included in this report is not official USDA Data. Official USDA data is available at http://www.fas.usda.gov/psd

Section I. Narrative

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

Ukraine's beef industry continues to be in crisis with no sign of recovery. The number of animals is on the decline and the quality of those remaining animals are not good, especially if used to develop the industry. Few beef export shipments outlined in the PSD table is a result of animal slaughter, but rather a real production increase from the previous year. Beef production continues to be concentrated mostly in household farms. Beef production remains a derivative of the dairy industry and is highly dependent on milk prices. Beef animals constitute an insignificant portion of the Ukrainian livestock herd. The herd size is not expected to increase. The recent limitation imposed on Ukrainian cheese and dairy products by Russia has further deepened the crisis. Some relaxation of these trade restrictions occurred during 2007, but the amount was insignificant. Russian veterinary authorities removed most of the barriers on Ukrainian meat (carcasses and quarters) to Russia, but continue to impose the barriers on dairy products. In summary, any incentive to keep animals is somewhat diminished, and conversely the incentive to slaughter animals is somewhat increased.

Industrial production of beef remains very inefficient. Ukrainian dairy farms lack good genetics; they are poorly managed and use more inputs than necessary. Numerous investment projects in the Ukrainian dairy sector have lacked preparation and have been overly expensive. Businesses are not yet ready to invest in the Ukrainian beef industry and continue to target the poultry and swine sectors because of higher and faster rates of return. Lower beef prices in comparison to pork have also driven investments elsewhere.

Similar to the swine industry, there are government state support programs that are designed to increase production? However their effectiveness has also been quite limited. Farmers continue to complain about delayed payments and partial coverage of the amounts owed. Some farmers claim that they have not received any support at all.

Ukrainian households will continue to be the major producers of pork and beef in 2008. In mid-2007, households accounted for 64% (same as in 2006) of all cattle and 61% (1% drop from 2006) of all swine in Ukraine. Backyard production practices remain very primitive with very little attention paid to animal genetics, feeding rations and animal health issues. Contrary to the industrial sector, subsistence beef and pork production is expected to be stable and not subject to market fluctuations. Industrial production of beef will continue to decline while industrial production of pork will increase.

Cattle, cow and swine inventories for 2006 were changed in the PSD table to reflect official changes in the Ukrainian State Statistics Committee year-end statistics. Production (pig crop and calf crop) levels have been changed to match the new GOU revisions. As required, beef import figures (including the HS 1602 category) for the PSD were converted into CWE.

Consumption

Continued economic growth in Ukraine and an increase in consumers’ disposable income are the major factors driving the increase in meat consumption. Also, significant changes are taking place in meat consumption. Nowadays, Ukrainians consume predominantly poultry and traditional pork. Consumption of beef has been on the decline for years. High quality beef is simply not available on the market. Ukrainian consumers may choose between expensive veal (male dairy calves slaughtered at 1-1.5 years of age) and cheap beef from cows after 5 years of lactation. Prices have also had a signifiant effect on consumption patterns. In 2007, Ukrainian consumers faced sharp price increases for all red meats and moderate price increases for poultry meat.

The continuing shift in consumers’ preferences is directly correlated to high red meat prices (caused by plummenting domestic supplies). Technical barriers to trade and prohibatively high import duties have prevented Ukraine from purchasing signifiant amounts of products on the international markets. In the late 1990’s, Ukrainian per capita consumption of pork was two and a half times greater than in the United States, with poultry as a rather insignificant share of the daily diet. It is clear that in 2008 Ukrainian producers will be unable to supply the same level of red meat as in 2006 or 2007, due to lengthy domestic industry production cycles (especially in the beef industry). Thus, the forecast for the remainder of 2008 is for reduced consumption of red meats and increased consumption for poultry meat.

Large-scale imports of high-quality beef and pork are unlikely in Ukraine in the near to medium term because of traditional consumption preferences. The majority of Ukrainians are not ready to pay a premium price for beef from beef cattle. Consumers also have a preference for fresh meat (animals slaughtered the day before sale) that they purchase in open-air markets and chilled beef that is sold in supermarkets. No frozen meat is available for sale in retail chains.

Trade

Ukraine remains a relatively closed market for US meat products. Despite signed bilateral beef and pork protocols, almost no trade has taken place. Import tariffs for red meat and products remain prohibitively high. Imports are only brought in by the few remaining enterprises based in the Free Economic Zones (FEZs). Following the elimination of tax privileges associated with the FEZs in 2005, imports of red meats stopped. Some companies situated in the former FEZs managed, through court decisions, to have their privileges reinstated. These companies argued that they followed the legal framework outlined by the previous government and that legally they should still have the right to operate in the zone(s). The companies that are still operating in the FEZs are responsible for over 90% of pork imports in 2006 and will likely remain large importers in 2008. Trade in beef and pork remains a sensitive political issue and the volume of imports is directly correlated to court decisions or political deals with businesses situated in FEZs.

The Russian ban on all Ukrainian products of animal origin imposed in January 2006 had a significant negative affect on the Ukrainian beef and pork markets. The ban included all dairy, red meat and poultry products exported to Russia or transshipped through the Ukrainian territory. At present the ban remains in place, although after a number of inspections were conducted by the Russian Veterinary Service, some Ukrainian enterprises were allowed to once again export their products to Russia. Now exports of Ukrainian beef have been restored and remain limited mainly due to production constrains. Exports of dairy products have not yet been restored.

Imported frozen pork (mostly meat trimmings) is used by meat processors to produce sausages, bolognas, canned meat and smoked meat products. Due to consumption preferences, imports of frozen products are not expected to dominate the retail market. The level of pork imports remained relatively stable over the past 3 years despite numerous attempts by the Ministry of Agrarian Policy of Ukraine to stop trade. Technical barriers to trade remain the most widely used tool to restrict imports.

In the past, the Ukrainian veterinary authority insisted that beef and pork be imported only in carcasses, halves and quarters in order to avoid mixed shipments of high and low quality products. Another important justification for importing carcasses and halves was to mimic Russia, which also imposed a similar import requirement. At present this requirement is not strictly enforced as re-exports of beef to Russia is not possible.

Ukraine’s WTO accession will lead to a significant reduction in tariffs opening the Ukrainian market (outside of FEZs) to imported product. The GOU is eager to finish all the WTO negotiations by the end of 2007 to ensure accession in early 2008. Despite general political consent on WTO accession, a number of problems are being addressed in Ukraine’s legislation. If the Ukrainian market is liberalized because of WTO accession, then all the import numbers will have to be reviewed.

Since October 2004, exports of all kinds of red meats remain subject to export licensing; although the significant reduction in Ukrainian meat exports made this trade-regulating tool redundant.

Further Reading

- You can view the full report, including tables, by clicking here.

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