2021: Mixed fortunes for Ukraine’s poultry producers

While the loss of Ukraine’s second largest poultry producer may provide opportunities for smaller producers, poultry companies are facing ever slimmer margins.

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Ukraine will remain a major exporting country and regaining access to the European market for the country’s HPAI-free areas, should help to alleviate some of the industry’s difficulties.
Ukraine will remain a major exporting country and regaining access to the European market for the country’s HPAI-free areas, should help to alleviate some of the industry’s difficulties.
Patrick Foto | BigStockPhoto.com

Ukraine is likely to see  chicken meat production and chicken exports decline this year, reversing a five-year trend which saw both rise.

Like producers around the world, the Ukrainian industry entered 2021 under the impact of COVID-19. The virus, however, has affected the Ukrainian economy far less than it has many Western economies. Instead, outbreaks of Highly Pathogenic Avian Influenza (HPAI), weak prices, rising input costs and the loss of its second-largest poultry producer have been changing the Ukrainian market.

This year’s expected poorer performance can be traced to difficulties that began to hit the industry at the start of 2020.

MHP, the country’s largest broiler producer completed a major expansion in 2019, and its output rose significantly the first six months of the year. However, as 2020 started an outbreak of HPA curtailed access to export markets. 2020 ended the same way with further outbreaks of HPAI.

MHP reports that its volumes for 2020 were stable in comparison with the year before, with operations returning to full capacity from the end of the first quarter. The company continued exporting to its major markets, but not to the European Union (EU), which has been Ukraine’s main export destination.

With the country’s largest producer running at capacity but with reduced access to export markets, the first half of 2020 saw a significant decline in chicken prices, resulting in some producers putting product into cold storage. While prices increased between October and December, it was not enough to offset the increase in feed prices from the start of September, reports the U.S. Department of Agriculture Foreign Agriculture Service.

Export prices are also reported to have risen slightly by year end, but only by a modest amount and not enough to help squeezed producer margins. Consumption of chicken meat on the home market is thought to have risen only marginally last year.

The country’s second-largest producer, Agromars, appears to have not survied the Ukrainian industry’s changed operating conditions. Reportedly burdened by heavy debt, the company began decreasing production last year before stopping altogether in December. Many of its farms went up for sale this March.

Exports

Ukraine’s exports reached a record high last year, but restrictions due to the country’s HPAI outbreaks saw the Middle East overtake the EU as the country’s main export market.

The new outbreaks and restrictions toward the end of the year, and a lack of regional recognition by the EU, caused exports to that market to stop.  

However, there has been some recognition of regionalization by other importing markets. This allowed the country to significantly increase exports to Kuwait, the United Arab Emirates and Saudi Arabia. Demand for Ukranian product also grew strongly in Central Asian countries that were formerly members of the Soviet Union.

Given the increase in demand from these markets, the HPAI outbreaks have had a limited impact on total exports.

Outlook

According to the State Statistics Service of Ukraine, over the 12 months to February the number of poultry on farms declined 9%. This was mainly due to cutbacks in commercial enterprises, where the flock declined 14%.

However, Ukraine is expected to remain a significant exporter of chicken meat and, in March this year, it agreed with the EU that exports could resume from parts of the country unaffected by HPAI.

Feed prices are expected to remain high. While smaller producers have cut production leading to some increase in prices, this is not expected to be enough to offset higher input costs and disruptions in the market are expected to lead to increased imports for some products.

The demise of Agromars, which held 7% of the market, may offer some opportunities for other producers in the country, but with demand for chicken stable at home and difficulties in export markets remaining, Agromars’ assets may not be that attractive.

Of perhaps further difficulty for the local industry, in March the government listed poultry as a “good of social importance." According to Reuters, the government has entered into agreements with a number of food producers’ associations to keep domestic prices stable for popular food items to stave off inflation. Food prices rose by more than 7% over the first two months of this year, with eggs being amongst those foods recording the sharpest price increases. Given poultry’s classification, margins are likely to remain tight for the months ahead.

falling-profits-line-on-grid

 Weak prices and higher input costs have squeezed margins. (kjpargeter | BigStockPhoto.com)

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