Flour-and-cereals industry of Ukraine (2000-2007)

The industrial grain sector includes industries dealing with the processing of grain crops (flour and cereals, the combined feed sector, and baking industry) and occupies an important place in the agribusiness life of Ukraine.

The industry plays a leading role in providing individuals and other food processing sectors with flour and groats. Consumers and raw stock resources are the most important factors, which influence the location of flour and cereals enterprises.

Ukraine possesses substantial potential for procuring food grain for flour and groats. Annual domestic needs in food grain, including for production of bread and baking, total 5.7 mn to 7 mn tons. Traditionally, a broad range of grain crops is used. Wheat naturally comes first in food consumption (80%). Rye and buckwheat are correspondingly 7% and 5% of consumption. The share of rice and corn on average is around 3%. The consumption of other grain and bean crops for the production of flour and groats is traditionally insignificant and altogether constitutes about 4%.

Production of flour

Flour is a raw stock for the most important foodstuffs in Ukraine. Therefore its production is deemed strategic in the state. Official volumes of flour production in Ukraine registered by statistical bodies over the last five years were in the range of 3 mn tons, except for the bad grain crops of 2003, which caused a drop in flour production.

* - pursuant to preliminary information of the State Statistics Committee
Source: State Statistics Committee

Local flour milling enterprises produce the following kinds of flour in accordance with the standards in force:

• four grades of wheat flour (coarse-granular flour, fancy white wheat flour, first grade flour, cut straight flour, and wholemeal flour);
• three grades of rye flour (pure white rye flour, medium rye flour, and dark rye flour); and
• rye-and-wheat (maslin) and wheat-and-rye wholemeal flour.

Also dark wheat durum flour, corn flour, oat flour, as well as small lots of rice, barley, buckwheat, and soybean flour are produced in Ukraine.

Wheat flour leads the way in production making up approximately 90% of flour production.

At present there are about 600 enterprises in Ukraine which process grain, including 200 bakery integrated works. Capacities of flour production constitute approximately 11 mn tons, that is almost three times more than necessary for domestic consumption. Official estimates show that large flour milling enterprises manufacture about 70% of the total production. A lot of private mini-mills actively operate in Ukraine. Their aggregate capacities, as estimated by independent experts, handle 30% of local market needs.

Kiev and Kiev region, as well as Donetsk, Dnepropetrovsk, Kharkov, Vinnitsa, and Odessa regions are the largest centers of flour production.

As wheat and rye flour are the basis for making bread, approximately 85% of flour consumption belongs to the bakery industry. Also flour is used in households, the pasta industry, confectionery industry, for the production of infant food, concentrated food, and public catering. Barley, corn, and soybean flour are rarely used in bread making.

Foreign trade in flour

Volumes of export and import from/to Ukraine directly depend on the local harvest of grain crops and world market conjuncture.

Export of wheat and other kinds of flour is mainly directed toward Russia, Georgia, and Moldova. As for the geography of official flour imports to Ukraine, Russia and Belarus were and remain among the main suppliers. Insignificant volumes are imported from the European Union states (Germany and France), as well as from Turkey.

The possible shortage of local raw stock, the cost of wheat on world markets and markets of Russia, Europe, and Kazakhstan, as well as legislative processes are the most significant factors influencing the price situation on the Ukrainian flour market.

Sufficient administrative pressure, which can be applied to prevent growth of prices for bread and bakery output, is another peculiarity of the Ukrainian price formation on the market of flour. Experience of 2007 is a vivid example of the above mentioned thesis. Maximal possible profitability levels in production of staple foodstuffs were introduced in majority of regions in 2007 due to significant price growth for grain crops and consequently for flour and bakery. In addition, flour mills had to substantiate price rising, declare flour cost, and submit reports to Antimonopoly Committee and State price inspection before each price lift for flour.

Production of groats

Groats belong to traditional Ukrainian products featuring stable wide consumption due to its high nutrient value.

Cereals such as buckwheat and millet are the most widespread in Ukraine. Arabian millet (sorghum) and Turkistan (Siberian) millet are included in this group. Barley, oats, wheat, corn, pea, and lentils are conditionally cereal cultures. Buckwheat, millet, and rice have the largest food importance.

Pursuant to official information, annual groats production amounts to approximately 300-400 ths. tons. The main enterprises producing cereals (groats) are concentrated in the areas where cereal crops are grown in order to secure a stable raw stock basis and to save on operational and logistic expenses. Total capacities to produce groats are on the level of more than 50.5 ths. tons

* - pursuant to preliminary information of the State Statistics Committee
Source: State Statistics Committee

Traditionally individuals mostly consume buckwheat. Its share in aggregate volume of locally produced groats makes about 30-40%. Tendency of buckwheat production decrease is observed on the market over last years due to tense domestic balance of buckwheat and availability of cheaper imported output on the market. Also essential increase of maize grits production volumes should be mentioned. This tendency is a result of this product active use in brewing as well as high demand for it on world markets.

There are approximately 400 large cereal production enterprises in Ukraine. These include specialized companies (65-70% of the market) and small private companies (30-35%).

The largest volumes of cereal production come from Kiev, Khmelnitskiy, Cherkassy, Kharkov, Lugansk, and Kirovograd regions, where traditionally large industrial plants are located. Kiev region has been a constant leader over the last decade in the pattern of cereals production.

Average consumption of groats per capita slightly exceeds 10 kg of groats annually. There are trends in the traditional kinds of cereals and groats consumption that are dropping and the growth of demand for instant cereals, muesli, and flake cereals.

Foreign trade in cereals (groats)

The export of Ukrainian cereals depends on production level, which is directly connected with the volumes of the collected crops. It constitutes approximately 15-20% of the total harvest per year. Demand for cereals is stable. A lot of exporters have long-ago established sales channels. Buckwheat made the basis of export in 2000-2004, constituting more than 50% of the total. Meanwhile, starting from 2005, export of maize groats has significantly grown. This item became a leader in export pattern of groats.

The geography of deliveries is traditionally represented by the states of the former Soviet Union (Russia, Belarus, Georgia, Moldova, and Armenia), as well as Austria. Large lots of buckwheat are exported to Germany. Main lots of maize groats are supplied to Russia and Belarus. LLC Altera, LLC Biosen, Private company Darwin, LLC Svyatograd, Farm Ranok, LLC Eximproduct, and OJSC Khmelnitskiy Bread Making Integrated Works are the leading exporters among producers.

The import of cereals to Ukraine is insignificant, therefore local groats market is less dependent on import. Instant cereals make up most of the supply. Nestle company is the largest importer.

Prices for cereals depend on the harvests. Taking into consideration that cereal crops are harvested mainly in autumn, the harvest influences the price policy of the next calendar year to a great extent. Domestic prices for cereals also have regulative influence on activity of export operations. When world prices go up, problems occur with sales of cereals on the local market. Price jumps are more common on lean years.