According to the Minister of Agrarian Policy and Food Mykola Solsky, Ukraine is considering the possibility of banning the import of Polish agricultural products. Many domestic experts consider this step fair. Focus found out whether restricting dairy imports would lead to shortages and how this would affect prices.
Ukrainian authorities are considering options to ban the import of agricultural products from Poland in response to the border blockade. This is stated in the Forbes article with reference to the words of the Minister of Agrarian Policy and Food Nikolai Solsky.
First of all, they may limit or ban the import of Polish dairy products and fruits into Ukraine. This is one of the rather large items of Polish export to Ukraine. “We are for constructiveness, but, of course, we will be ready to react,” Minister of Agrarian Policy and Food Nikolai Solsky told the publication. He noted that it is too early to discuss details. The Ukrainian authorities are still thinking about what kind of restrictive measures will be implemented. It is likely that banning fruit and dairy products will only be the first step.
“This is a delicate topic, there is nothing to comment on yet... We will conduct active negotiations with the Polish side and, based on their effectiveness, we will make a decision,” Solsky added.
Imports are growing, exports are falling: what is happening in the dairy market
“Several years before the full-scale invasion, butter imports into Ukraine grew only in certain periods. However, traditionally Ukraine itself has been a major exporter of oil. After the full-scale invasion, the position of butter in the foreign trade of domestic milk strengthened, in particular in 2022,” said Anna Lavrenyuk, Director General of the Association of Milk Producers.
She also explained the reasons for this tightening. According to Lavrenyuk, in 2022, a significant forced outflow of Ukrainians from the country and a reduction in domestic consumption of fresh dairy products (that is, drinking milk, kefir, sour cream, yogurt), as well as significant logistics problems with the supply of dairy products to retail chains, forced factories to increase production volumes exchange-traded dairy products with a long shelf life: butter and milk powder.
“Thanks to the favorable conditions on the foreign market (starting from the second half of 2022, the demand for oil has been growing in the world), our manufacturers were able to successfully export all oil stocks. Actually, thanks to this, the industry survived the most shocking year of 2022,” explained Anna Lavrenyuk.
The total volume of foreign trade in dairy products in January 2024 ($36.9 million) decreased by 13.2% compared to the level of December 2023
Note that in 2023, the share of butter in the total import of dairy products to Ukraine was only 6.3% (in terms of raw milk). And although there were significant losses in the number of cows and production capacity due to the war, dairy farms at the end of 2023 were able to supply the same amount of raw milk to processing plants as in pre-war 2021.
“Therefore, we can say that limiting the import of butter from Poland will not lead to a shortage of butter on the shelves of Ukrainian stores,” the expert believes.
Indeed, we are not talking about a deficit yet. However, now the share of exports of dairy products is declining, while imports of dairy products, in particular butter, are growing. This is evidenced by the figures provided by the Expert Analytical Service of the Union of Dairy Enterprises of Ukraine. In particular, we are talking about the fact that the total volumes of foreign trade in dairy products in January 2024 ($36.9 million) decreased by 13.2% against the level of December 2023 ($42.5 million) and practically corresponded to the indicator in November 2023 ($37 .4 million). The export volumes of dairy products in January 2024 ($12.6 million) decreased by 6.8% against the level of December 2023 ($13.5 million). In addition, they were 3.6% less than the November 2023 indicator.
“Dairy product export volumes in January 2024 were the lowest since March 2022, the first full month of the full-scale Russian invasion of Ukraine. This was a consequence of the influence of a number of factors, the key among which is the loss of price competitiveness of domestic dairy products due to a significant increase in the price of milk raw materials in the last months of 2023, as well as due to the blocking of exports of agri-food products, including dairy, from Ukraine. As a result, for the fourth month in a row (October 2023 - January 2024), the cost of imports of dairy products to Ukraine is almost twice the cost of their exports from Ukraine,” the study says.
In the first month of 2024, importers imported 55% more oils compared to January 2023
According to analysts, a significant decrease in export figures in January 2024 versus January 2023 was recorded for such an item as “butter” (3.4 times). But the volume of imports of dairy products in January 2024 ($24.3 million) increased compared to the level of January 2023 by more than one and a half times (by 55%). And here, a significant increase in import volumes was recorded for the position “butter” (13.6 times) and “cheeses of all types” (1.5 times). That is, in the first month of 2024, importers imported 55% more oil compared to January 2023.
“Thus, as a result of the existing shortage of raw milk and the rapid rise in prices for it in the last months of 2023, Ukraine significantly reduced the volume of export activity in January 2024,” reports the Union of Dairy Enterprises of Ukraine.
Are restrictions needed, or how should Ukraine respond to the blockade of the Polish border
? According to the director of the AVM, the statement of Minister Solsky about a possible ban or restriction on the import of dairy products from Poland to Ukraine is logical and fair. After all, the protests of Polish farmers are becoming more and more uncontrollable and impudent, and the absence of any legal response from the Polish police or authorities to a gross violation of international law is forcing our politicians to take a tougher position.
At the same time, economic discussion club expert Oleg Pendzin rejects the possibility of Ukraine banning the Polish product, but warns of a serious problem with raw milk, which Ukraine actively purchases from Poland.
“There will be no ban. We will not fight with the Poles. At the moment, this is nothing more than a precautionary measure. This is a hint of mirror reactions. The Poles also did not ban Ukrainian oil. They just block the borders. We really have a serious situation with rising prices for raw milk. And this affects the price of Ukrainian agricultural products. The biggest problem is that we import from Poland, and we import raw milk and hard cheeses from Poland,” the economist explained.
The statement by Minister Solsky about a possible ban or restriction on the import of dairy products from Poland to Ukraine is logical and fair, experts say
He also highlighted the problem of decreasing volumes of raw milk production in Ukraine.
“A fairly large volume of raw milk is produced on household farms. People today have sharply reduced their overall production of raw materials due to labor shortage. We understand that the mobilization took place harshly in the villages, and the total number of people who actually work in the agricultural business has decreased. As a result, we have a decrease in supply. This, by the way, also applies to pork meat, because a very large share of pork was produced in households. This provokes an increase in prices for dairy products. Most likely, we will have an increase in prices for dairy products until the animals are transferred to open housing. And this will be, depending on the weather, somewhere in April. Until April, we will have an increase in prices for dairy products,” the specialist told Focus.
What's next: what prices to expect for dairy products in Ukraine
According to Pendzin, the rise in milk prices is now not happening at such a rapid pace as at the beginning of 2024. But the process still continues.
“And this will continue. A stop in price growth is expected in April. And now we have growth. It may have decreased a little because there were holidays in January - before the holidays, demand increases, in particular, for animal fats. As a result, price growth was higher in January. But this does not mean that prices stopped and began to roll back. The dynamics just decreased a little,” Pendzin added.
Due to the blocking of the border, enterprises cannot export oil, which means they will try to sell it in Ukraine
However, now, if we take into account the data of the Union of Dairy Enterprises of Ukraine, retail chains are unlikely to inflate the cost of butter. After all, due to the blocking of the border, enterprises cannot export it, which means they will try to sell it inside Ukraine. That is, you shouldn’t count on a sharp rise in prices for dairy products at the end of February and in March, although price increases will occur, in particular, as Oleg Pendzin noted above, due to a certain shortage of raw milk, which is now too difficult to import from suppliers from Poland.
Meanwhile, according to the Union of Dairy Enterprises, the price index for dairy products Global Dairy Trade (GDT) has slowed down, but is growing: at the auction on February 20 it added 0.5%. In particular, skimmed milk powder rose in price by 1.3% to $2,788/ton, and butter by 0.1% to $6,526/ton.
As for the price of raw milk, it has been growing since mid-2023. As reported by the Union of Dairy Enterprises of Ukraine, in the second half of last year, prices for raw milk increased significantly - both in hryvnia terms and in euro terms. In December they exceeded the level of 15 UAH/kg, while back in July they averaged 11.6 UAH/kg, that is, there was an increase of 30%. Thus, the December price level for raw milk in Ukraine in terms of euros and taking into account the average European supply bases (€41.4/100 kg) is the highest in at least the last ten years.
