Ukrainian poultry industry needs to boost exports
The development of the ?poultry industry in Ukraine in the years to come will depend on new export destinations. Priority regions include Europe, Middle East and Asia, while the Customs Union will play a less important role.
By Vladislav Vorotnikov
Currently, Ukrainian export of poultry meat to Russia is banned and concurrently Russia is even blocking the transit of poultry meat to the other large customers of the Post Soviet Union block – Kazakhstan and Uzbekistan. Due to worsening trade relationships between Russia and Ukraine as a consequence of the conflict with separatists in eastern Ukraine, representatives of the largest exporting companies of Ukraine noted that even in the case of removal of such prohibitions they will not bet on the Russian market any longer, as the supply to the country’s market is too risky and is often limited due to unreasonable restrictions.
In 2013, Ukraine exported 150,000 tonnes of poultry – a 80% rise year-on-year with the total volume of domestic production amounting to 732,000 tonnes – a rise of 7% year-on-year, according to official statistical information. Ukraine is self-sufficient in poultry production so all future growth will result in an increase of exports. During the first seven months of 2014 Ukraine exported 86,000 tonnes of poultry, which is 10% more than during the same period last year, while the export to the Customs Union fell by 31,600 tonnes. The current boost of export opportunities is especially important for Ukrainian poultry producers, because of the number of new challenges they face over the negative trends in the domestic market.
New challenges
There are a number of events in the domestic poultry market of Ukraine, which may hurt the position of the country’s poultry producers. One of them is the drop in margin of sales of poultry and poultry products to domestic consumers, because of the fall of the exchange rate of the local currency, hryvnia. From the beginning of 2014, its exchange rate against the dollar has dropped from UAH 8 per dollar to UAH 15.5 per dollar as of November. This trend will be partially compensated by the forecasted rise in poultry prices. These are expected to rise by 27% until the end of the year due to a rise in demand, mainly due to the fact that consumers switched from more expensive pork and beef to relatively cheap poultry meat. However, these processes cannot totally mitigate the negative impact on the margin of large poultry producers until the end of the year.
At the same time a more serious challenge for Ukrainian poultry producers is the abolition of tax exemptions for the livestock industry, which the Cabinet of ministers of the country is forced to conduct at the request of the International Monetary Fund (IMF). In fact, after the adoption of such an initiative the poultry producers will loose millions of dollars of state support, which in recent years has been helping them to keep profitability at a high level. “In the case of abolition of benefits for Ukrainian farmers on the payment of the value added tax (VAT), the development of the livestock industry in the country will stop. The special tax regime was in fact the only effective form of state support for agricultural producers,” according Volodymyr Lapa, to the general director of the Ukrainian Agribusiness Club.
“The abolition of VAT exemptions will be the biggest blow for the agricultural sector since the introduction of the preferential tax regime. VAT exemptions provided all capital investment in the industry. Relatively speaking, the companies’ profits have funded operating activities while money from tax incentives have been heading to the funding of capital investments,” said Lapa. According to Lapa direct budget support of agricultural business in Ukraine is low and amounted to only US$ 100 million per year while in the European Union (EU) farmers receive annually US$ 50 billion, in Russia – US$ 9 billion, in Belarus – US$ 3.5 billion. Thus, the Ukrainian agro-industrial sector is developing largely due to tax preferences, he concluded.
New export directions
At the same time, even despite the
economical problems of the country, the armed conflict in the east and worsening of relationships with Russia, the Ukrainian poultry industry continues its strong growth. By the end of the year, it may produce 810,000 tonnes of poultry – a rise of about 10% year-on-year. This year, Ukraine received permission to export poultry products to the EU, which already resulted in first successes. For instance the Netherlands imported 8,500 tonnes of poultry during the first seven months of 2014, and became the second largest importer of Ukraine poultry after Iraq. Iraq bought 22,000 tonnes in the first seven months, which is an increase by 2.5 times year-on-year.
The Ukrainian poultry industry is only starting to unlock its potential on the foreign markets. Poultry producers in the country expect to increase the export quotas on the supply of meat to the EU while in the Middle East they hope to get permission to resume exports of poultry to Saudi Arabia. “We had talks with Saudi Arabia and expect that they will visit our production facilities for inspection. We have also started working with China and South Africa, and expect serious opportunities for our products in these countries as well. As for exports to the EU, there are some technical problems, but we are solving them. From quota exports of poultry meat to Europe of 16,000 tonnes in 2014, we contracted 12,000 tonnes,” confirmed Aleksandr Bakumenko, the head of the Union of Poultry Producers of Ukraine. He also added that the European market is very promising for Ukrainian poultry farmers as the prices of eggs there is 15-20% above average. However Bakumenko notes that the quota for the duty-free supply of Ukrainian egg products to the EU this year is low and amounts to only 300 tonnes per year.
Export quotas
At the same time, Bakumenko expects that in 2015 export quotas for deliveries of Ukrainian poultry meat to the EU will be increased seven-fold compared to the current rate, up to 80,000-100,000 tonnes. According to him this will benefit the development of the domestic poultry industry and improve the margin of the country’s main poultry producers.
However, not everyone shares the thoughts and hopes of Bakumenko. Senior analyst of Investment Company, Art Capital, Andrew Patioty thinks the probability of increasing quotas in the following year is low. “The EU is very sensitive to protecting the domestic producers with weighing the ratio of supply and demand,” says the analyst. He believes that the increase in quotas for the supply of agricultural products to the EU will not take place prior to 2016, when the economic part of the Free Trade Zone Agreement will be fully applied.
Bakumenko, however forecasts that Ukraine will increase the export of poultry meat with 20,000-25,000 tonnes, while egg exports will increase with 100-125 million eggs, by the end of the year. At the same time, the volume of egg production in Ukraine in 2014 will rise by 1.5-2% compared with 2013 – up to 19.28-19.38 billion eggs.
Source: World Poultry, Volume 30, issue 10
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