Ukraine and the Netherlands in the Global Dairy Landscape. Challenges & Opportunities
Ukraininan sector shows resilience & stabilizing production and benefiting from liberalized trade with EU. The future depends on modernization, European integration, and international cooperation. It is time to bring advanced technologies.
The Dairy Industry in Ukraine: An Introduction
The dairy industry in Ukraine, a vital component of the nation's agricultural sector, has faced significant challenges and transformations, particularly in recent years. Historically, the industry has been characterized by a dichotomy between large industrialized dairy farms and smaller family-operated units. However, the landscape has dramatically shifted due to the ongoing war with russia, which has profoundly impacted production, logistics, and market dynamics.
Pre-full-scale-war Structure and Production
Before the full-scale invasion by russia, Ukraine's dairy industry was already experiencing a decline in cattle numbers. In January 2022, the total number of dairy cows had decreased by 6.6% from the previous year, with 1.56 million head of cattle reported. Large industrial farms housed approximately 422,100 cows, while family farms accounted for 1.14 million cows. Despite these challenges, technological advancements were gradually improving productivity and efficiency within the sector.
Impact of the War
The war has exacerbated existing issues and introduced new ones. The invasion led to significant disruptions in logistics and a drop in demand, causing many dairy processors to temporarily halt operations. The conflict has also resulted in the loss of livestock and damage to infrastructure, particularly in regions heavily affected by hostilities.
Adaptation and Resilience
Despite these adversities, the Ukrainian dairy industry has shown remarkable resilience. By mid-2023, larger industrial farms managed to stabilize milk production and sales for further processing. However, the industry continues to grapple with a shortage of raw materials and personnel, compounded by the mobilization of workers for the war effort. The liberalization of trade with European Union has provided some relief, enabling Ukrainian dairy products to find new markets and sustain operations.
Current Challenges for Ukrainian Dairy Industry
Addressing Labor and Raw Material Shortages
The Ukrainian dairy industry faces significant challenges due to ongoing labor shortages and the limited supply of raw materials. The mobilization of workers for the war effort and the displacement of populations have created substantial labor gaps. To mitigate this, the industry must focus on training and development programs to attract and retain skilled labor. Additionally, increasing the productivity of dairy cows and ensuring a steady supply of high-quality raw milk will be critical for sustaining production levels.
Rising Retail Prices
As of early August, retail prices for various dairy products have increased in Ukraine, including milk, kefir, yogurt, butter, and cheese, according to the Milk Producers Association. Due to heat wave the production went down. In July, milk processing plants experienced a shortage of raw milk, exacerbating the situation.
Spoilage and Increased Production Costs
Long-term shutdowns of refrigeration equipment have led to significant spoilage of dairy products, preventing them from being sold. The use of diesel generators has also increased production costs. Analysts noted that as of August 5, pasteurized drinking milk cost an average of UAH 47.55/kg, which is 1% more expensive than in June of this year and 18% more than the same period last year. Similar trends are observed for other dairy products:
- Kefir (2.5% fat): UAH 55.52/kg (0.4% more than July, 14% more than last year)
- Sour Cream (15% fat): UAH 132.92/kg (0.4% less than July, 15% more than last year)
- Drinking Yogurt: UAH 94.29/kg (2% more than July, 16% more than last year)
- Yogurt in Glasses: UAH 131.34/kg (0.5% more than July, 13% more than last year)
- Fermented Milk Cheese (9% fat): UAH 243.03/kg (4.6% more than July, 19% more than last year)
- Butter (72.5%-73% fat): UAH 440.08/kg (4% more than July, 21% more than last year)
- Cheese Ukrainsky (50% fat): UAH 470.58/kg (5% more than last month, 13% more than last year)
- Cheese Gouda (45% fat): UAH 438.80/kg (5% less than the previous month, 14% more than last year)
Energy Challenges
The energy crisis in Ukraine has further compounded the difficulties faced by the dairy industry. Frequent power outages and the high cost of diesel generators have significantly increased production costs. Cost of energy increased by 30% while generators is being used. The reliance on alternative energy sources has also led to inefficiencies and disruptions in the supply chain. Ensuring a stable energy supply and investing in more reliable and cost-effective energy solutions will be crucial for the industry's sustainability.
Post-War Recovery and Economic Stabilization
The Ukrainian dairy industry is poised for a significant recovery phase once the hostilities subside. The war has inflicted extensive damage on infrastructure including the energy generation and transportation, livestock, and production facilities, leading to a substantial decrease in dairy cattle numbers and milk production. Estimates suggest that the agricultural sector, including dairy, has already lost around $70 billion due to the war. This numbers were calculated by Kyiv School of Economics in their last report Agricultural War Damages, Losses, and Needs Review. However, with the cessation of hostilities and a focused recovery plan, the industry can gradually rebuild. The stabilization of domestic consumption of dairy products has already contributed to slowing down the decrease in animal inventory.
Technological Advancements and Modernization
The adoption of advanced technologies and modernization of dairy farms will be crucial for increasing productivity and efficiency. Ukrainian dairy farms have shown resilience by integrating more closely with European markets and adopting EU standards. This trend is expected to continue, with more investments in automated milking systems, improved breeding techniques, and better feed management practices. The implementation of European legislative acts, particularly in food safety and veterinary policy, will drive further modernization. Efforts to fortify energy generation and power grids have also made the industry more resilient to power outages. There are a number of Dutch farmers in Ukraine who continue to develop their dairy farms successfully adjusting to the challenging circumstances.
Stay in touch with the Dutch farmers in Ukraine:
Dutch dairy farmer in Ukraine will host National Farm Day in August
Despite War, Dutch Farmer Kees Huizinga Stays in Ukraine to Help Country
European Market Integration
The liberalization of trade with Europe has been a significant boost for Ukrainian dairy exports. Ukrainian and European dairy producers agreed to cooperate and work more closely on this matter. These prospects are covered in Memorandum of Cooperation between Ukrainian and European dairy producers. More than 50 Ukrainian dairy processing plants have obtained EU export licenses, allowing them to access new markets. The European Council's decision to adopt negotiations on Ukraine's accession to the EU is a positive development, providing a framework for deeper market integration. However, Ukraine will need to implement around 3,000 European regulatory and legal acts, which will require substantial effort and investment. The deepening cooperation with Poland, as evidenced by recent agreements and memoranda, is a step towards enhancing trade and investment, as well as knowledge and technology exchange.
Export Potential and Global Market Opportunities
Ukraine's dairy industry has strong export potential, particularly in foreign markets experiencing a shortage of dairy products. The World Bank has highlighted Ukraine's potential to increase milk production and processing for export to Africa and Asia, regions that were significant markets before the war.
On the graph you may see the export data from Ukraine of dairy products during 2021-2023 years. Figures show that dairy industry was shocked, but with international support it started its recovering despite all of the challenges.
Ukraine can fill the gap and strengthen its position in global dairy markets. The increase in exports of dairy products, including to the European Union, is facilitated by the adaptation of regulations to EU standards. At the moment 53% of UA dairy export goes to EU countries (GrowInUkraine - Export of Ukrainain agrifood products 2022)
Importance of International Support
International support will be critical for the long-term recovery and growth of Ukraine's dairy industry. The World Bank has approved assistance for the agricultural sector, including $500 million for 2023-2024, with funds allocated to grants and compensation for long-term loans. Additionally, strategic partnerships with international organizations and neighboring countries will help navigate logistical challenges and provide financial aid, technical assistance, and market access. Dairy sector remains a priority for the Dutch Government in Ukraine, a project Dairy Ukraine focused on energy efficient solutions and sustainable production practices has been executed in 2022-2023) and Webinar: Lepto H monitoring of milk samples for human health. Dutch Experience for Ukraine .
Conclusion
In summary, the long-term projections for Ukraine's dairy industry are cautiously optimistic. While the industry faces significant challenges due to the ongoing conflict, the potential for recovery and growth is substantial. With focused efforts on modernization, European integration, export expansion, and international support, Ukraine's dairy industry can rebuild and thrive in the post-war period. The resilience shown by dairy producers in adapting to wartime conditions and improving efficiency bodes well for the future.