Ukraine Agribusiness Report Q4 2011

BMI View: As we predicted, Ukraine's grain export quotas were lifted on July 1 2011, though they have been replaced with a duty regime that so far appears to be restricting export activity. The outlook for the 2011/12 season is somewhat ambivalent, with reports of a bumper harvest being hindered by heavy rains rendering much of it suitable only for feed. The likely impact of the change in the Ukrainian export regime on global grains prices is therefore tough to call. But with heavy damage to Western European and US crops in 2011, we believe Ukrainian grain exports are likely to prove attractive to traders, duties notwithstanding.
Key forecasts
?? We are forecasting wheat production in 2011/12 of 19.8mn tonnes, up 17.8% on 2010/11's disastrous harvest.
?? A bumper corn crop is expected thanks to the same rains that may have affected wheat quality. We are forecasting production in 2011/12 of 16.2mn tonnes, up 36.2% y-o-y.
?? In 2010/11, we are continuing to forecast a y-o-y decline in milk production of 5.8% to 10.5mn tonnes.
?? The declining supply of milk will raise cheese input prices. In 2010/11, we are forecasting cheese production of 205,000 tonnes, down 6.7% y-o-y.
?? Out to 2014/15, we see poultry production as the most modern and dynamic sector of Ukraine's livestock industry, leading the way with growth of 40.7% to reach 963,240 tonnes.
?? New figures show poultry consumption in 2010 came in at 904.920 tonnes. In 2011, we expect poultry consumption to rise 1.8% y-o-y to 920,960 tonnes.
Industry developments
On July 1, the government finally removed grain export quotas, to the delight of many farmers. However, with the government still cautious about ensuring domestic supply, the quota regime has been replaced with export duties. Duties, which are expected to expire on December 31, will apply as follows: 9% on wheat, 12% on corn and 14% on barley. In addition, a zero rate of VAT on grain exports also expired.
The outlook for the 2011/12 season is somewhat ambivalent, with reports of a bumper harvest combining with reports of heavy rains rendering much of it suitable only for feed. A report in the Wall Street Journal on August 4 suggested as much as 60% of Ukraine's wheat exports were unsuitable for human consumption.
Fredrick Aherne, the British CEO of dairy processor Milkiland, recently said he believed cooperatives were the only way for household producers, which provide 50% of the company's milk, to stay in business. Thus far, dairy cooperatives are yet to take off in any significant way in Ukraine. For example, of the 11mn litres of milk that Milkiland buys every week, just 84,000 litres come from cooperatives. Nevertheless, we expect increasing pressure on household producers will ensure that the number of them working inside cooperatives grows over the years to come.

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Executive Summary 5
SWOT Analysis 7
Ukraine Agricultural SWOT 7
Ukraine Political SWOT 8
Ukraine Economic SWOT 8
Ukraine Business Environment SWOT 9
Supply Demand Analysis 10
Ukraine Grain Outlook 10
Table: Ukraine Wheat Production, Consumption & Trade 11
Table: Ukraine Corn Production, Consumption & Trade 11
Table: Ukraine Barley Production, Consumption & Trade 11
Table: Ukraine Wheat Production, Consumption & Trade 15
Table: Ukraine Corn Production, Consumption & Trade 15
Table: Ukraine Barley Production, Consumption & Trade 15
Ukraine Dairy Outlook 17
Table: Ukraine Milk Production & Consumption 18
Table: Ukraine Production, Consumption & Trade 18
Table: Ukraine Cheese Production, Consumption & Trade 19
Table: Ukraine Milk Production & Consumption 22
Table: Ukraine Butter Production, Consumption & Trade 22
Table: Ukraine Cheese Production, Consumption & Trade 22
Ukraine Livestock Outlook 24
Table: Ukraine Poultry Production, Consumption & Trade 25
Table: Ukraine Pork Production, Consumption & Trade 25
Table: Ukraine Beef & Veal Production, Consumption & Trade 25
Table: Ukraine Poultry Production, Consumption & Trade 28
Table: Ukraine Pork Production, Consumption & Trade 28
Table: Ukraine Beef & Veal Production, Consumption & Trade 28
Commodity Price Analysis 30
Monthly Grains Update 30
Corn 30
Rice 31
Soybean 32
Wheat 33
Monthly Softs Update 34
Cocoa 34
Coffee 35
Palm Oil 36
Sugar 37
Industry Forecast Scenario 38
Ukraine's Consumer Outlook 38
Food 38
Food Consumption 41
Table: Food Consumption Indicators -- Historical Data & Forecasts 42
Confectionery 43
Table: Confectionery Value/Volume Sales -- Historical Data & Forecasts 44
Trade 45
Table: Ukraine Food, Drink & Tobacco Trade Indicators (US$mn) -- Historical Data & Forecasts 46
Mass Grocery Retail 47
Table: Mass Grocery Retail Value Sales By Format -- Historical Data & Forecasts 49
Table: Grocery Retail Sales By Format (%) -- Historical Data & Forecasts 49
Macroeconomic Forecast 50
Global, Domestic Concerns Drag Down Growth 50
Industry Trend Analysis 54
Outlook Improving For Ukrproduct But Consumer Recovery Set To Lose Steam 54
BMI Forecast Modelling 61
How We Generate Our Industry Forecasts 61
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