Dairies did not receive a seasonal safety margin

Ukraine will increase imports of dairy products, in particular butter. This is facilitated by high domestic milk prices and declining quotations in the EU.

This was told by the analyst of the dairy market "Infagro" Maxim Fasteev.

Butter imports to Ukraine in the first half of 2021 more than doubled (-54%, to 2.9 thousand tons) compared to the same period in 2020. The reason is high import prices, in contrast to 2020, when, along with the onset of the pandemic, there was a collapse in European quotations.

He noted that 95% of this is monolith oil, which comes in industrial packaging (boxes) and is intended to create additional value in Ukraine through the finished product (Ukrainian TM) - packing oil, confectionery, ice cream, floating cheeses, etc.

“This year, Europe was almost always more expensive than the Ukrainian market, but Belarus, on the contrary, was quite competitive, especially in February-April. This period accounted for the bulk of imports. In the absence of the Belarusian version, domestic market prices could well rise to the level of Poland, i.e. be 10% higher, respectively, and the cost of individual products, and the final price could also be higher. The second option is that this difference could not lie in butter, but in an increase in the purchase prices for raw milk, which did not become cheaper in the first half of the year anyway, ”the expert noted.

Fasteev noted the current paradox: Ukraine, with its traditionally volatile and spot market for raw milk and a clear seasonal trend, has had a stable average price of raw milk for the category of agricultural enterprises for 8 months in a row (and this is without long-term contracts).

“The lack of cheap options for importing butter in May-July, among other things, did not allow milk purchase prices to decrease in the summer. Raw materials processors now do not have the safety margin that traditionally accumulated in the summer, and in the new season they will be forced to first raise selling prices for the shelf, and then look at the commodity market (which, of course, will rise in price),” the analyst predicts.

The fact that Ukraine has become a deficient country in milk fats (but still surplus in proteins) is a consequence of a decrease in the supply of raw materials from households and an increase in the consumption of dairy products, he believes.

“A change in the situation requires either investments/subsidies in the production of new volumes of raw milk, or additional external supplies of fats - butter and cheese (which is what is happening now). Otherwise, the balance will be adjusted by inflation and falling consumption.

Import restriction (butter monolith) in current conditions = raw milk inflation = shelf inflation. This, of course, is beneficial for raw milk producers, but disadvantageous for processors and buyers,” explains Fasteev.

According to him, Infagro analysts for 2021 see a decrease in the supply of raw materials for processing by 5%, again, at the expense of households.

“Accordingly, in order to smooth out inflationary fluctuations, external supplies of monolith oil are needed before the end of the year. Taking into account the growth in demand for oil and domestic wholesale prices for it in Ukraine and, at the same time, the decline in quotations in the EU, we expect the acceleration of imports of goods starting from August,” he summed up.

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