After the loss of CIS market as well as failed attempts to access the EU market Ukrainian dairy products producers started to search for markets in other regions. Some of them managed to succeed in the markets, which are not traditional for Ukrainian exporters.
State referred to as «Asian Tigers» are the vivid example of how a country can undergo drastic economic transformation and appear on the list of global trade leaders within a short period of time. Efforts of these governments can now help Ukrainian dairy products producers to succeed as well.
National dairy industry overcomes challenging times: decrease of cattle stock, closure of the Russian market, cancellation of special taxation regime and the economic crisis in the country don’t contribute to the development of the industry. Nevertheless, these difficulties encourage national producers to search for new development paths as well as new foreign markets. Even though slowly, but these changes are already taking place: African and Asian, Southeast Asian countries, in particular, replaced Russia and other CIS countries as major importers of Ukrainian dairy products.
In 2016 Ukraine faced a double decrease of the cattle stock. As a consequence, the volume of dairy products production decreased by 2%, while prices went up. Though, dairy products’ prices increased only on internal markets, while export prices plunged down. Last year the export of Ukrainian dairy products decreased by 10%; this resulted in the loss of 11% of profit. It was majorly provoked by the volatility of the currency exchange rate.
Reorientation of export to Southeast Asian markets may become a solution. There are numerous reasons to opt for Asian markets:
- Population and demand increase provoked by the growth of income.
- Southeast Asian countries are among the world’s most favorable markets for the international trade. Singapore heads this list while Hong-Kong is the third.
- These markets are characterized bythe stable demand for dairy products as well as a severe shortage of national producers.
In 2016 Ukraine exported 109,2 thousand tons of dairy products. Powder milk is the most popular export product with 36,6 thousand tons exported last year. It is followed by the export of milk whey – 23,9 thousand tons, condensed milk and cream – 15,2 thousand tons, butter and butterfat – 12,1 thousand tons. 10,5 thousand tons of non-condensed milk and cream, as well as 8.1 thousand tons of cheese, were exported. The increase in export was observed only for two groups of products – condensed milk and cream, as well as butter and butterfat.
Thus, the change of export destinations is already taking place. Until recently, the major export of hard cheese was still directed to CIS markets. In 2013 these countries bought 99% of Ukrainian hard cheese, while last year their share decreased to 84%. At the same time, the export of these products to Asian countries increased from 1% in 2013 to 6% in 2016. The interesting trend is also observed in African markets. Ukrainian companies started exporting hard cheese to African countries only in 2015, and today their share in total export volume has already reached 9%.
According to the FAO economist Andriy Yarmak, Singapore may become the main importer of Ukrainian cheese. High demand, as well as increasing level of cheese consumption, are the key drivers behind this trend. The population of Singapore has a high income level and thus prices here are higher than on average in the world. The price of cheap cheese here starts around 20-25 USD per 1 kg. After accessing the Singapore’s dairy market, Ukrainian producers will be able not only to increase the volume of export and profit but gain a solid reputation among other producers in the region as well. Furthermore, the improved presence in Singapore will facilitate further expansion to Southeast Asian markets.
In 2013 the export of powder milk to CIS countries amounted to 74%, while in 2016 it decreased to 40%. Last year Asian countries purchased 40% of Ukrainian powder milk – as much as CIS countries did, while three years ago their export share was only 18%. African countries increased import of Ukrainian powder milk as well. In 2013 they imported only 7% of this product while in 2016 their export share increased to 16%.
Butter and butterfat is the most dynamic product niche that continues to grow despite general negative trends in Ukrainian dairy products export. Figures are self-explanatory: 5 years ago Ukraine exported only 0,7 thousand tons of butterfat, while in 2016 its export volume increased 17 times – up to 12,1 thousand tons. Export destinations changed as well: in 2013 there were two major importers of Ukrainian butterfat – CIS countries (97% of export) and Asia (3% of export). Last year the export pattern significantly changed. For instance, in 2016 CIS countries imported 41% of butterfat, Asia – 31%, Africa 22%, and Europe – 6%. As we can see Ukrainian producers managed to diversify their export and avoid dependence from one major importer.
Besides Singapore, Ukraine can also export its products to China. Currently, the level of dairy products consumption in China is very low, but the trend for a healthy lifestyle and quality food consumption, including dairy products, becomes more and more popular here. If to unite this trend with fast population and economy growth, the Chinese market seems to be very promising. During last 5 years, China increased dairy products import by 10 times and powder milk by 3,5 time. Even though the Chinese market is currently dominated by the EU and New Zealand companies, Ukraine is able to take around 2% share of Chinese dairy import. Nevertheless, the process of expansion to this market requires time (at least 2-3 years) and investment in the promotion of Ukrainian products. At the same time, we don’t have to worry about the volume of export. According to FAO’s assessment, Ukrainian milk factories are capable of processing 2,5 times more milk than today.
Southeast Asian countries remain very promising export destinations for Ukrainian dairy products producers. The population and income growth, as well as the demand increase, may bring substantial benefits to Ukrainian exporters. In order to successfully enter this market, our national producers have to invest in marketing as well as increase output and quality of products. Though, the main advice for them would be to hesitate less and be more confident, as Asian markets are very competitive.