Report Highlights:

The political and economic crisis resulted in abrupt currency devaluation and red meat demand drop. Once sizable, pork imports decreased significantly. Ukrainian swine producers were forced to export. The major export market in 2015 – Russia – introduced a Ukrainian pork import ban on January 1st 2016. This will sustain domestic consumption, but remarkably reduce exports in 2016. A substitution to lower-priced poultry products will continue. Pork import demand will continue only in the lowest market segments for further processing.

Executive Summary: Political and economic crisis remained the major factor impacting production, supply and distribution of red meat in Ukraine. Sharp currency devaluations in 2014-15 undermined consumption and facilitated cheaper white meat substitution. However, economic turmoil resulted in some production cost drops due to input price decreases. In turn, this resulted in higher competitiveness of Ukrainian beef and pork on the international market.

Domestic consumption of red meat is expected to stabilize in 2016. This forecast assumes minimal influence of external political and economic factors.

Trade is expected to remain extremely turbulent as the major traditional export market of Russia was completely closed on January 1st, 2016. A surge of exports of red meat to Russia took place in 2015 despite political and economic tensions. Russia consumed 77 percent of all beef and 96 percent of all pork exports. No new export markets were developed for these products. Traditional markets in the Former Soviet Union (FSU) countries are small and suffer from their own currency devaluations and demand drops.

Trade in beef is likely to suffer the least as exports of live animals to Middle east and Central Asia countries resumed 3 years ago after elimination of export duties. This will eliminate excess beef supply leading to an increase in animal exports. Pork is likely to return to the domestic market, sustaining local consumption. However non-Russia exports are likely to continue as pork prices decrease.

Important FAS Comments on the Numbers Used: The PSD tables were updated to reflect correction in the official year-end statistics and corrected data for Crimea. Crimea animal numbers and meat production were included into the PSD. Official statistics do not record trade in red meat with territories that are not controlled by the Ukrainian government and that might be receiving some product from Russia. Official statistics also do not include production numbers from the uncontrolled territories, although production there dropped significantly.

Production

Pork production remains depressed by plummeting domestic demand. Pig procurement price calculated in USD remained well under the 2014 price. 2016 started with even lower prices without the traditional new year price peak. The situation in 2016 is expected to stabilize, but a minor production drop is expected. Consumers are re-orienting to more affordable poultry products, and the trend is supporting poultry production growth at the expense of red meat producers.

Industrial growers that depended on foreign investments experienced difficulties servicing their hard currency denominated loans.

Ukrainian beef production remains to be a function of milk production and prices. Low milk prices often lead to cattle number drops. However, access to foreign markets for live animals for slaughter cushions price drops.

According to UN's Food and Agriculture Organization data, profitability of milk production in 2015 dropped by 31 percent in comparison to 2014, and by 36 percent in comparison to 2013. These drops ignited major animal number decreases over these years. Although the situation somewhat stabilized in 2016, some animal number drop is still expected due to falling milk prices and relatively stable beef price. Although no major currency shocks are expected, slow currency devaluation is expected to continue eroding real sales values.

By mid-February, when this report was drafted, the Interbank exchange rate approached 27 UAH/USD. Attractiveness of the domestic red meat market will likely remain undermined in the remaining months of 2016, pushing Ukrainian beef and pork supplies outside of the country.

Live pig imports remain low in 2015 and are not expected to recover in 2016. Small and medium sized agricultural producers that specialized in pigs fattening stopped production due to low pork prices. Procuring foreign currency for imports remains complicated due to administrative barriers of Ukrainian financial regulators.

Consumption

Consumption of red meat products will remain subject to disposable income changes and currency exchange rate. Although no major devaluation is expected, slow devaluation noted in early months of 2016 will have negative impact.

Trade

Exports

The major development impacting trade in red meat products is closure of the Russian market starting January 1st 2016.

The vast majority of Ukrainian red meat exports were going to Russia despite significant political tensions between the two countries. Restrictive import policies toward the rest of the world increased Russian domestic prices for red meats, making it very attractive for Ukrainian producers. The surge in Ukraine's exports to Russia in 2015 was not expected as Ukrainian dairy, vegetables, fruits, some grains and oilseeds had been banned by the Russian Government in August 2014. Red meat exports were not expected to survive for long. However, in early 2015 Russian top leaders made statements that Ukrainian product market access will be conditioned to Ukraine's full implementation of the Deep and Comprehensive Free Trade Agreement with the EU. Ukraine granted access to EU products on January 1st 2016 and Russia closed the border.

It is not clear how Ukraine's red meat export market will look in 2016, since Russia dominated market share of beef and pork exports.

Ukraine is likely to increase exports of live animals to compensate for loss of the Russian beef market. Sizable export markets for live animals were developed in Central Asia, Middle East and Maghreb countries. According to the Ukrainian Fiscal Service, applied export duties for live animals decreased to 10 percent in 2015. However, the GOU is proposing to decrease import duties even further – to 3 percent (with the exception of heifers and cows over 300 kg). This will facilitate exports significantly, supporting livestock farmers, but decreasing in-country slaughter. The current PSD table is based on the existing 10-percent export duty. Nevertheless, closure of the Russian beef market will lead to live animal export increases even with the 10 percent duty applied. As Ukrainian exports have dramatically increased in recent years, port infrastructure bottlenecks and logistical problems are likely to occur.

Imports

Imports of red meat into Ukraine will remain close to all-time lows despite elimination of a 10 percent import duty surcharge that was introduce in 2015 to eliminate enormous balance of payment deficits. Under international and WTO pressure that import duty application was discontinued on January 1st 2015.

No import demand is expected through the end of 2016 due to low disposable incomes and the expected higher domestic supplies as red meat exports will drop due to closure of the Russian market .

Imports of pork in 2016 will remain insignificant with the vast majority of imports in the lowest market segment – cheap cuts and offal for further processing.

Imports of beef will also remain insignificant, although US suppliers were successful in gaining a market share in the premium market segment. The imported quantity is not big and is not likely to exceed 100-150 MT, although per unit price is very high. U.S. chilled cuts delivered by air are demanded by steak restaurants in major urban centers where only minor deterioration in the top market segment was noted.

Animal Numbers, Cattle

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Cattle Beg. Stks

4,534

4,534

4,408

3,996

3550

3,902

Dairy Cows Beg. Stocks

2,509

2,501

2,432

2,322

2200

2,231

Beef Cows Beg. Stocks

33

33

28

28

23

24

Production (Calf Crop)

2,460

2,377

2,350

2,300

2050

2,230

Total Imports

1

1

1

1

0

0

Total Supply

6,995

6,912

6,759

6,297

5600

6,132

Total Exports

27

27

20

45

55

55

Cow Slaughter

0

0

0

0

0

0

Calf Slaughter

0

0

0

0

0

0

Other Slaughter

2,515

2,843

2,496

2,310

2104

2,187

Total Slaughter

2,515

2,843

2,496

2,310

2104

2,187

Loss

45

46

43

40

41

40

Ending Inventories

4,408

3,996

4,200

3,902

3400

3,850

Total Distribution

6,995

6,912

6,759

6,297

5600

6,132

Animal Numbers, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Beginning Stocks

7922

7922

7777

7492

7300

7245

Sow Beginning Stocks

502

502

490

480

480

460

Production (Pig Crop)

9650

9527

9400

9200

9000

8900

Total Imports

22

22

20

22

30

24

Total Supply

17594

17471

17197

16714

16330

16169

Total Exports

1

1

1

1

0

0

Sow Slaughter

0

0

0

0

0

0

Other Slaughter

9167

9175

9000

8718

8530

8519

Total Slaughter

9167

9175

9000

8718

8530

8519

Loss

649

803

646

750

700

650

Ending Inventories

7777

7492

7550

7245

7100

7000

Total Distribution

17594

17471

17197

16714

16330

16169

Meat, Beef and Veal

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

2899

2843

2585

2310

2104

2187

Beginning Stocks

15

15

15

15

15

15

Production

428

429

380

410

310

370

Total Imports

3

3

1

2

1

1

Total Supply

446

447

396

427

326

386

Total Exports

30

30

45

45

12

15

Human Dom. Consumption

401

402

336

367

299

356

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

401

402

336

367

299

356

Ending Stocks

15

15

15

15

15

15

Total Distribution

446

447

396

427

326

386

Meat, Swine

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Ukraine

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

9154

9175

8789

8718

8530

8519

Beginning Stocks

22

22

22

22

22

22

Production

780

766

750

730

730

710

Total Imports

41

41

4

5

5

5

Total Supply

843

829

776

757

757

737

Total Exports

13

13

35

36

8

10

Human Dom. Consumption

808

794

719

699

727

705

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

808

794

719

699

727

705

Ending Stocks

22

22

22

22

22

22

Total Distribution

843

829

776

757

757

737