Throughout the entire history of contemporary independent Ukraine, the share of livestock and poultry production has dropped in relation to gross agricultural product. In 1990, as part of the USSR, the sector had a 32.0% share in gross agricultural produce in Ukraine, and diminished by mid 1990s. It occupied merely 21% of gross Ukrainian agricultural produce in 2006 (in comparative prices of 2005, UAH mn).
Reduction of cattle and poultry production stake took place in the conditions of plummeting production of other animal husbandry products and more moderate decline in plant growing sector. According to official statistics, the level of poultry and cattle breeding profitability has greatly reduced over the independence years. For beef it went down from 20.6% reported in 1990 to -42% in 2000 and to -38% in 2006. Pork figures were 20.7% in 1990 – down to -44% in 2000 and -9% in 2006. In fact, only in 2004-2005 thanks to prices rising for beef and pork, one could evidence lesser losses in production of beef – from -34% in 2004 to -25%, and even profitability of pork production rising from -14% to 15%. In the segment of poultry production, profitability figures dropped from 17.0% in 1990 to -33% in 2000. Starting 2003, profitability level started growing – due to increased investments in this field, which helped modernize enterprises, and also thanks to increased demand and prices for these products. In 2005, because of upturn of domestic prices, profitability level in poultry meat production reached 25%. Regrettably, further increase of fodder prices resulted in the figure falling to 12%.
Reduction of profitability in agricultural farms resulted in twisting of this business and simultaneously reduction in cattle herd livestock in Ukraine. Intensive growth of cattle export in the middle of 1990s also did its bit into curtailment of livestock. It reduced 4 times from 1990 to 2007 down to 5,683.2 ths. heads in 2007, while pig amount decreased 2.5 times down to 7,851.6 ths. heads, and poultry – 1.4 times down to 181,964 mn heads.
Large agricultural farms faced economic problems of 1990s which forced them to get rid of loss-making business, including cattle breeding. At the same time, individuals increased herd of cattle and poultry struggling for their existence. Thus, the pattern of herd by types of farms in Ukraine formed in 1990s is completely different than that in developed states, meaning that most cattle and poultry were raised in individual farms.
If in 1990, 86% of cattle stock was concentrated on large agricultural enterprises and 14% in personal farms, then by 2007 the structure had dramatically changed: enterprises now contain 34% of the whole, and population farms hold 66%. The situation with pig stock is similar: agricultural enterprises – 72% in 1990 and 39% in 2007, personal farms – 28% and 61% later on. Poultry stock showed the same: agricultural enterprises – 56% in 1990 and 45% in 2007, whereas personal farms – 44% and 55%.
Demand for large wholesale lots of raw stock of proper quality with low cost and high safety for use increases on the market owing to recent growth of meat output production and expansion of sales on the retail market. It implies getting of raw stock from a large commodity producer. The pattern of herd in Ukraine as well as pattern of meat production remained the same with small producer (individual farmers) prevailing. It is necessary to stress that among enterprises, which can be included into the group of large agricultural commodity producers, around 46% owned from 100 to 1,000 cattle heads, and 47% – from 100 to 1,000 pigs (as of January 1, 2007).
As it was mentioned before, production of meat in Ukraine has abruptly dropped over the past 15 years because of decrease of cattle breeding and poultry business profitability, curtailment of livestock, establishing of irrational herd pattern, and transferring to small commodity production with higher expenses of fodder per unit of weight in unit of time. By the mid 1990s, meat production was slashed 2.1 times down to UAH 14.469 bn as compared to the indicator of 1990. After minor growth caused by the greater slaughter of cattle in 2001-2002, the production downturn continued. In 2006, production volumes made only UAH 19.9 bn, which was 2.3 times down versus 1990 and an 18% rise from the lowest production volume, which was fixed in 2000. The physical volume of meat production in carcass weight kept falling at similar tempos: 1990 – 4,358 ths. tons, 1995 – 2,294 ths. tons, and 2006 – 1,723 ths. tons.
By-type structure of meat production has recently changed in Ukraine. 46% of meat volumes in 1990 fell for beef (or 1,986 ths. tons), which was followed by pork with 36% or 1,576 tons, and poultry meet ranked the third – 16% or 708 ths. tons. Later on production of beef went sharply down. The rise was only seen in the two slaughter years. Unfortunately, livestock population is steadily going down and most likely will keep this trend in the next 2-3 years. At the same time, appearance of new owners in poultry farming business contributed to the fact that for the first time in 2006 this meat type became production leader in Ukraine with 34%. The shares of beef and pork were correspondingly 33% and 31%.
Meanwhile, dynamic increase of investments to Ukrainian food processing industry and in meat packing in particular, promoted restoration of ready-made meat products manufacturing. Such growth is reinforced by growth of revenues of urban population, which are major consumers of processed meat products and meat itself. Restoration of normal operations of meat packing industry enterprises and relatively low purchasing capacity of population gave rise to increase of demand for safe cheap raw meat of proper quality in industrial scale volumes on Ukrainian market.
Regrettably, current local production of beef and pork mostly goes to the retail market, but is still unable to saturate it with meat at acceptable prices for retail consumers. This is related to high production costs and a general shortage on the market, which have caused a continued price growth in the last years. The only exception is chicken meat, the production of which ensures fast cash turnover because of the shorter production cycle. It resulted in significant foreign investments to poultry industry and correspondingly reduction of local chicken meat cost down to the price level of foreign producers, as well as augmentation of its production volumes. However, even domestic industrial chicken production, which has been recently on an upturn, is now only meeting demand on the retail market.
Pursuant to analysts forecast, the next in line for investments is pig breeding, since pork also has a relatively short production cycle, is the main raw material for the meat packing industry, and is a traditional meal for Ukrainians. At present Ukrainian companies intensively study opportunities to organize vertically integrated structures to produce and sell pork as those present in poultry sector. Some companies have already launched and put on stream alternative technologies of pig raising that correspond to conditions in Ukraine. We should mention that increase of pig livestock in farms has been traced since 2005: 2005 – 2,602.4 ths. pigs and 2006 – 3,254.2 ths. pigs. Unfortunately, curtailment of purchasing prices in 2007 along with increase of prices for fodder provoked reduction of pig livestock in farms down to 3,037.4 ths. heads. It should also be noted that state subsidies for over-weight cattle for slaughter positively influenced the situation as well.
Ukraine had approximately 550 companies involved in cattle stock and poultry meat packing over the last few years. The figure is curtailing though. Meanwhile, the number of meat packing works producing more than 1,000 tons stood practically unchanged as well as their share in production. Therefore, the number of small meat packing companies varies, which is a typical trend in meat packing industries of former socialist states, in particular in Eastern Europe. Due to a forecast stiffening in vet control and sanitary standards, one can suggest that the number of small companies will keep falling further. Embargo on import of Ukrainian origin cattle breeding produce imposed by Russia since January 20, 2006 became an additional factor in curtailment of slaughter-house number.
Sausage is the most-produced ready-made meat product in Ukraine by volume. In 2007, sausage production augmented– by 9% to 316.9 ths. tons due to increases in prices for meat raw stock.
Production of meat semi-finished goods is deemed quite promising in Ukraine. The largest Ukrainian poultry producer launched manufacturing of chicken semi-finished goods in 2005, and one of the largest meat packing plant producing semi-finished meat goods was purchased by a Western European company. In 2006-2007, many meat packing works, which mostly oriented their business at meat exports to Russia, were forced to either shut down, or switch to supplies to domestic market. Meanwhile, those who decided to start refrigerated meat supplies to the local market faced lack of sales experience and had to either develop business from the start, or buy enterprises with already established structure of commodity sales within the country. For these reasons, some companies decided to go into production of prepared food, the market for which is just starting to expand in Ukraine showing rather high profitability. In 2007, production of prepared food reached 175 ths. tons, which was 18% or 26.8 ths. tons more than in 2006.
Naturally, falling meat production also slashed per capita meat production in the country. While in 1990 the figure was 84 kg per Ukrainian, in 2001 the indicator plummeted to 31.2 kg. It was only in the recent years that it started rising because of higher cattle slaughter (for reasons already mentioned) and growth of poultry and pork production having come to 36.8 kg of meat in 2006. At the same time, personal purchasing power moved up, compared to early 1990s, which obviously fostered higher consumption of meat and of products that used to be the most expensive food items.
Simultaneously with growing personal incomes and higher demand for meat, the packing industry, which was well-developed in Soviet times and decayed during the 1990s, has been intensively boosting production volumes. The development of the meat packing industry mirrors the changes in cattle stock and poultry meat sales through distribution channels.
In 1990, the sales structure by large agricultural enterprises looked as follows: packing houses – 94.8%, personal (incl. at the market) – 5.1%, other channels (as lease payment, directly to trade and public catering firms, public institutions, etc) – 0.1%. By the mid 1990s, the portion of sales by the packing industry halved, where sales to the general population boosted 8 times. In 2006, the same groupings were 35.2% – to packing enterprises, 12.1% – to retail consumers (incl. through the market), and 52.7% – through other channels.
According to official data, Ukraine’s level of meat self-sufficiency is high (ratio of production to domestic consumption): in 1995 – 108.3%, in 2000 – 102.7%, in 2004 – 86.7%, and in 2006 – 87.3%. However, this indicator does not correctly reflect the situation of how Ukrainian demand in this sector is satisfied. In particular, the Ukrainian industry of meat ready-to-cook products shows a shortage of cheap, safe, and high quality local raw meat for packing. At the same time, the import of high-quality low-cost safe meat to Ukraine is hampered by high import customs duties aimed at protecting domestic livestock fattening industries from complete bankruptcy. Meanwhile, new reduced customs duties for many articles entered into force since January 1, 2008, though even then officially imported meat would not be competitive in price with Ukrainian analogues.
On the other hand, Ukrainian poultry breeders having benefited from veterinary prohibitions of poultry meat import from some countries to Ukraine and growing prices for competitive meat types (in particular, beef/pork), retained high prices for their product in 2004-2007. This action has immediately facilitated import of poultry. Imported raw meat still gets to Ukraine in various ways that bypass customs, which complicates the situation on the meat market as meat import records are absent in this case.
The schemes involving meat import as a tolling raw stock have become very popular recently. In 2007 this type of imports became so sizable that starting April 1 until September 1 special regulation of the Cabinet of Ministers of Ukraine banned using of meat as a tolling raw stock in tolling operations. And the next regulation, which regarded these operations, extended the ban since November 1, 2007 till April 1, 2008. Thus, official data on imports are often much lower than real meat import to Ukraine. This naturally lowers internal product consumption index, and, as a result, increases the official figure of Ukraine’s self-sufficiency in meat.
According to official data, meat export from Ukraine in 2002-2004 fluctuated at 82-184 ths. tons, which made only 5-11% of production within the country. Export went down to merely 29 ths. tons in 2006 because of Russian embargo on Ukrainian cattle breeding articles’ import. In 2007 Russia allowed imports of 13 Ukrainian meat packing plants, which led to certain increase in Ukraine’s meat export – but only to 40 ths. tons. Although Russian ban fostered a drop in Ukrainian exports, the key reason why Ukraine lacks large export volumes is the serious production decline over the last few years, as well as high prices for Ukrainian meat as compared to meat prices set by major exporters of the product. As a result, Russia remains the only market for Ukrainian meat sales, and the only kind of Ukrainian meat shipped to the RF is frozen beef. This commodity is supplied in semi-carcasses and as boneless meat.
However, due to Russia’s bulk imports of boneless meat from other producers and record-high growth of meat prices in Ukraine in 2004-2006, the export of Ukrainian-made boneless beef has started to fall. And in 2007 – due to increased prices, the Ukrainian product has not been supplied to the Russian market at all. Ukraine has been recently exporting boneless pork, which is, however, the export of ready-to-cook products made from tolling raw stock.
Export of ready-to-cook meat is minor because of the demand for this product on the Ukrainian market, as well as the possible restriction of its sales to Russia, where it faces keen competition with similar Russian products in large cities and the low paying capacity of most people in the regions. Moreover, in 2007 export of this article dropped 2.8 times because of banned supplies of this product to Russia and ceased tolling operations with meat.
Meat import to Ukraine is limited by high import customs duties, which make the product imported legally uncompetitive by price on Ukraine’s local market. Nonetheless, according to official data, meat import in 2002-2007 ranged within 85-366 ths. tons. Ukraine mostly imports poultry meat, which is the cheapest meat among all kinds produced in the world today – and it is an important characteristic when selling to the Ukrainian market. Poultry meat is in demand by the packing industry as the cheapest raw stock, as well as by the retail segment. In 2007, the pattern of meat import looked as follows: poultry meat – 63%, pork – 30%, and beef – 4%.
Ukraine has everything needed to facilitate the production of high-quality meat products, in particular, of meat and prepared meat products. These conditions include suitable climate, previous experience of bulk meat production, revival of the meat packing industry and related increase of demand for the raw stock, growing purchasing power of the population and as a result higher demand for meat and its products on the retail market, aggressive development of chains of retail trade enterprises, which improves the channels of product distribution, as well as the availability of skilled staff and relatively cheap labor.
The stumbling blocks to fast production recovery are a weak raw stock basis because of the recent record reduction of the livestock population, irrational structure of stock distribution by types of farms, lack of strict controls over raw meat within the country, high current interest rate on crediting on the Ukrainian financial market, which accompanies the need for a significant upgrade of material and technical facilities and the introduction of state-of-the-art production technologies.
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