Serving one of the strongest poultry industries in the world, feed production in Ukraine is poised to trek upward.
In 2018, Ukraine harvested a record 70 million tonnes of grain. For centuries, the country has been mainly exporting grain, being a breadbasket first for the Russian Empire and then to the Soviet Union. Now, there is a chance to begin converting more grain into feed and send it to markets such as the European Union and Middle East.
Ukraine manufactured around 6 million tonnes of feed in 2018, slightly down as compared to the previous year. In general, the country has seen its domestic feed production constantly shrinking over the past five years, according to the local consulting agency AR-Group. In 2014, Ukraine manufactured 6.8 million tonnes of feed, and it was the best result in the past decade.
A combination of factors has negatively affected Ukraine’s feed industry. To some extent, production decreased because of Russia’s annexation of Crimea and the following armed conflict in the eastern regions. As a result, dozens of feed mills that were reflected in official statistical data in 2014 are no longer operational, having been either destroyed by war or located on the territories not controlled by the Kiev government.
Since 2014, there is also an ongoing crisis in the domestic market, caused by a sharp reduction in purchasing power of the population. The number of companies purchasing feed to manufacture poultry, pork, beef or milk in Ukraine dropped from 5,960 in 2015 to 5,042 in 2017, Irina Palamar, chairman of the Ukraine Livestock Association, estimated. It is primarily pork, beef and milk farms that were closed, but this trend is not likely to continue.
In 2018, Ukraine manufactured around 3.75 million tonnes of poultry feed, which accounted for 62.5% of overall production, according to consulting agency Pro-Consulting. In addition, the country produced 1.1 million tonnes of pig feed and 540,000 tonnes of cattle feed, 18.6% and 9% of the total production, respectively.
The country’s poultry feed production is rising thanks to significant state aid for this segment, Pro-Consulting said. It noted that while overall feed production in the country is shrinking due to the continuous decline in the livestock population and lack of state support for the beef and pig industries, in 2018 the Ukraine government allocated $145 million in state aid to the meat and milk producers, but almost the entire amount, just as a year before, was spent to support poultry producers.
Pig farmers are not eligible for state aid under the government programs due to an epidemic of African swine fever (ASF) in the country, Palamar said. Not a single bank can issue a soft loan to the pig farmers unless there is insurance against ASF, but not a single insurance company would ever issue that kind of insurance, Palamar added. Meanwhile, the cattle industry faces the constant threat of nodular dermatitis and has been in a prolonged economic downturn.
There is a vicious cycle in the pig and cattle segments since the weak demand makes feed production less efficient, said Nikolay Babenko, general director of the Ukraine Center for raising efficiency in livestock production. For instance, the average price of pig feed in Ukraine is $1.27 per kg, which is significantly higher as compared to the European Union, where it is around 72¢ per kg.
Also, a significant portion of feed for pigs and cattle in Ukraine is not balanced in its nutritional composition, Babenko explained. In order to cut down production costs, the companies must consider using alternative components, like DDGS or advanced products of soy processing, Babenko said. Yet, the development of this part of the feed industry does not occur because most farmers simply opt to buy the cheapest possible feed, Babenko admitted.
For the same reasons, just like many other countries in the post-Soviet era, Ukraine has certain problems with the shadow segment of the domestic feed industry. The demand for cheap feed is high, so the companies not paying taxes could thrive, said Nikolay Vernadsky, director of the analytical agency ProAgro, who during a press conference several years ago estimated that up to 40% of the country’s feed is produced in the shadow segment.
Booming poultry feed output
The picture is much different in the poultry feed production segment. In 2018, Ukraine became the sixth biggest poultry exporter in the world and the third biggest supplier of broiler meat to the E.U. The country exported 329,000 tonnes of poultry meat last year, 21% higher than the same period the previous year. Its biggest sales markets were The Netherlands, Iraq, Saudi Arabia and Slovakia, said Sergey Karpenko, general director of the Ukraine Poultry Union.
The egg industry also is thriving. In 2018, foreign sales climbed by 20% compared to the previous year to 1.78 billion units. Ukraine exports poultry products to nearly 60 countries. The main sales markets are in the E.U. and Middle East, but in recent years Ukraine has been targeting exports to Asia and Africa. In 2019, the country could start exporting eggs to the United States.
As of now, seven out of the 10 biggest feed producers in Ukraine are poultry businesses, and these companies have the potential to boost feed production even further.
For instance, the biggest poultry meat producer in Ukraine, MHP, is currently building the second stage of its Vinnitsa poultry farm, which is slated to be completed in 2020. Yuri Kosyuk, owner of MHP, said that with the designed production capacity of around 560,000 tonnes of broiler meat per year, it will be the biggest poultry farm in Europe.
To double the production performance at the Vinnitsa poultry farm, the company will need more poultry feed. In 2017, MHP manufactured 1.5 million tonnes of poultry feed, while the installed production capacities of the company are 5,500 tonnes per day, or around 2 million tonnes per year. This means the company could increase production as soon as the new poultry houses start operating.
It’s a similar story for the second biggest broiler meat manufacturer in Ukraine, Agromars. The company runs two feed mills with installed production capacity of 700,000 tonnes of poultry feed per year, although the actual production in 2017 was only around 200,000 tonnes. The company said it could gradually increase capacity utilization during the next few years.
However, UkrLandFarming has the biggest expansion plans in the feed segment. UkrLandFarming is the parent company of Avangard, which prior to 2014 was the world’s second biggest egg producer. Oleg Bakhmatuyk, owner of UkrLandFarming, said his company had been heavily hit by the armed conflict in eastern regions as it lost nearly 50% of its production assets.
The good news is that the company managed to recover after those events and is back on track to expand its operations. In 2017, the company manufactured 400,000 tonnes of feed at six Ukranian feed mills. The expansion plans that UkrLandFarming was harboring prior to the war were dramatic. The company was planning to build 13 new feed mills to boost production capacity to 2 million tonnes per year.
Igor Petrashenko, deputy general director of UkrLandFarming, said Avangard in 2018 had boosted the share of export sales to 50% and that the company was planning to further expand export operations. The company made progress by sending exports to the Middle East, the E.U. and Africa.
The next step is to get approval to export egg products to Asia, Petrashenko said. This would enable the company to increase production and to sell products at better prices. In addition, UkrLandFarming plans to invest $200 million to $800 million to build a new sea port in Ukraine to enhance its exporting capabilities.
Most analysts agree that the Ukraine poultry industry will keep expanding international operations at the current pace. This means the top companies will require more feed, and all of them have sufficient land and other resources to increase production in this segment.