Ukrainian pork industry ready to break records

 

 

After the collapse of the Soviet Union, many experts estimated that the pork industry in Ukraine would have great prospects. Perhaps there would be chances to compete on the global market with the largest foreign producers – or even to appear among its leaders. However, it turned out to be quite the opposite so far. An unprecedented level of corruption, as well as systemic problems of the whole agricultural industry of the country, did not allow Ukraine’s pork producers to increase their output rates. Moreover, it also inflicted serious damage on the existing production facilities.

 

As a result, as from late 1990 until early 2010, the total pig count in Ukraine decreased. Legislative innovations, aimed to support the nation’s pig industry, combined with strong investments, from both domestic sources as well as from abroad, can help the Ukrainian pork industry to finally get out of the protracted crisis.

 

Large pork processing plants are concentrated mainly in the east of Ukraine. Industrial pork production in Ukraine, however, is mostly concentrated around the major consumer markets – in Kiev, Donetsk, Dnepropetrovsk and Zaporozhye region. These regions account for 80% of the country’s total production – and thus together form Ukraine’s centre of pork production.

 

Being close to big cities, these areas offer the main sales markets, and pork production enterprises therefore benefit from very advantageous market conditions. At the same time, however, they face high costs of land, high raw material prices and higher costs of production.It may come as no surprise that there are strong regional differences in prices paid for carcasses. Whether or not a farm is located in a swine-dense area with many processing plants, can make a difference of as much as 20-25%.

 

 

The highest price for pork in Ukraine last year was in the Luhansk region, as well as the areas adjacent to Kyiv, Zhytomyr and Chernihiv (about 6-12% higher than the average in Ukraine).The pork production industry in 2011 showed some real signs of recovery, Goskomstat data reveal. Goskomstat is Ukraine’s Federal State Statistics Service. According to official statistics, volumes of pork in 2011 showed an 8% year-on-year increase. Especially the first five months were exceptionally good with a domestic production of over 74,000 tonnes of pork – mainly fresh, steamed and chilled pork. This was a rise of over 44% in comparison to the same timeframe in 2010 – the highest year-on-year growth rate of pork production volume that Ukraine has seen for a very long time. The growth is related to the upgrading of old farms as well as the commissioning of a large number of new pork production enterprises.

 

And that is only the beginning. The process of active industry modernisation has only just begun in 2010/11, and experts estimate that many more significant effects will be seen in 2012, which will strongly affect the key performance indicators. The best earnings for pig breeders are expected in the next three to four years.

 

Arthur Loza, director of Demis Agro, a large Ukrainian pork producer, says, “The large amounts of investment in the pork production sector have already brought about a real effect. In 2011, the pork production industry went to planned capacity in 2011, and we could see that it immediately affected the economy.”

 

 

 

The growth is a result of the active revamp of the industry; nowadays it is at a crossroads. Loza says, “The share of large-scale industrial production of commodity pork is growing, and pork production in individual households is falling, indicating the recovery of the sector. It also shows that we took the right course in developing our business.”Experts believe that the pork production industry in these conditions could become the most rapidly developing sector in Ukrainian agriculture – even outrunning poultry production.

 

 

Figures confirm Ukraine’s pig industry is developing in the right direction. It is a picture of large output growth, falling imports and increasing exports. Maria Kolesnik, head of the analytical department of consulting agency AAA, says: “In 2009, pork imports were 140,750 tonnes. In 2010 these dropped to 108,600 tonnes, and in 2011, official statistics show 89,200 tonnes.”

 

Experts stated that by the end of 2010, Ukraine reached unprecedented pork export levels. To put things into perspective – with 616 tonnes they are modest in comparison with the level of imports. But is should be said that until 2010 Ukraine virtually had no pork exports at all. Since the industry became much more attractive for investments, independent experts predict that in 2012 pork production increases could reach up to 15-20%. On a global scale, market experts state that pork producers experienced a downfall in farming by the end of 2010 and the beginning of 2011. This period of time was characterised by a dramatic downfall of consumer demand, as well as a drop in pig prices. Ukrainian producers at this time could not sell their pigs for more than 12-14 Ukrainian grivna (US$1.40-1.90).

 

Ever since, market situations have seen a considerable improvement. Losa indicated that the price for 1 kg liveweight can be as high as 17-18 grivna (US$2.30). He emphasised that a continuous pork deficit helps. “We feel it in the orders of our customers. It is a good sign. The industry has come out of the crisis and those who have invested money to create a major production base in this business, will get a good pay-off.”

 

 

 

He continued, saying: “It is consistent to assume that in such a situation our producers will want to establish new directions in selling pork and also increasing exports. We can’t reach large volumes yet as the production base is still small.”It was estimated that in 2010, professional pork production in Ukraine did not exceed 435,000 tonnes. Nevertheless, the signs point to a hopeful direction to have this adjusted. Losa says, “Prices for pigs on the Russian market are now about 22-24 grivna (US$ 2.90-3.00) for 1 kg. These are more attractive prices than on the Ukrainian market, and exports to Russia are therefore an interesting distribution channel.”Experts believe that breeders continue to expect higher prices for their products, since a substantial drop is not expected, neither in pork prices, nor in demand.

 

When the nearest markets in Europe, e.g. Russia, Belarus and Latvia, experience a shortage of pork and in these conditions we have a very advantageous situation. The pork processing companies want to step up the purchase of pork. With a significant rise in food prices, it will bring a good return for large farms. How much exactly is difficult to say – but expert estimates may say enough: this could easily be up to 10 or 20%. PP