Food processing has an annual turnover of USD 19.496 m
(in 2011), making up 15% of total industrial output. It generates
direct employment for 13% of working population.
Food processing has been less affected by the economic
crisis than other manufacturing sectors in Ukraine even
registering, on average, positive growth of 5% during
2008 – 2011.
Export of food processing industry makes up almost a
quarter of total country exports. This is the highest level
among neighboring countries. Industry import is 10% of
total imports, which is similar to the share of food import
in total imports of the Eurozone. Significant part of the
processing industry export is production of cheese, confectionary,
vodka, and beer. As Ukraine moves towards
the free trade zone with the EU – high competitiveness of
domestic products in this context promises to open new
perspectives for food and processing industry and the
economy as a whole.
Stabilization of the country’s economic state has allowed
food and beverage companies to attract more long-term
loans on the capital market. The volume of loans to food
and beverage companies amounts to 6% of all loans of
Ukrainian banks.
This industry is the third principal choice for FDI in Ukraine
(after financial sector and metallurgical production). In
2011, FDI in Ukraine grew by 10% compared to 2010, and
amounted USD 49,362 bn. At the same time, about 4%
(USD 2,07 bn) of the total FDI in Ukraine were invested in
food, beverages and tobacco products production.
Food processing industry is active with mergers and acquisitions.
The crisis put some manufactures on the verge
of bankruptcy which provided some companies with the
opportunity to strengthen and expand their market positions.
The food processing industry is regulated by the state by
way of establishing mandatory food safety standards, determining
minimum quality specifications for food products
in technical regulations, establishing veterinary and
sanitary requirements for facilities and individuals engaged
in food production, sale (supply) and storage, as
well as setting standards for food products.
To produce, process or sell food, an operational permit for
facilities used for such activities should be obtained. The
food processing activity is subject to state examinations
with a number of state requirements and standards for different
types of food products to be adhered to. In particular,
veterinary documents are required for the food products
of animal origin; production of milk, raw milk and dairy
products are subject to attestation (i.e. the certification of
compliance with mandatory requirements established by
relevant regulations). Some categories of food products
are subject to mandatory certification (the procedure under
which conformity of food products to state standards
is proved).
All traded food products are subject to labeling. Such labels
of a food product must contain information on components
of such food product, inter alia, the presence
of genetically modified components or additives, if any.
Food additives, as well as flavoring materials, may be
used in food production only after their registration with
the central executive agency for health care.
Food safety is controlled by a number of governmental
authorities, including but not limited to the State Committee
of Ukraine for Technical Regulation and Consumer
Policy, State Veterinary and Phytosanitary Service of
Ukraine, State Plant Quarantine Service of Ukraine, Ministry
of Healthcare of Ukraine, State Sanitary and Epidemiological
Service of Ukraine, Ministry of Agricultural
Policy and Food of Ukraine, and the Ministry for Environmental
Protection of Ukraine.
The basic legislative act is the Law of Ukraine On Safety
and Quality of Food Products. Certain categories of food
products (i.e. baby food, milk and dairy products, fish and
fish products, etc.), are additionally regulated by separate
special legislative acts. Moreover, the food industry
is subject to the consumer protection legislation, pricing
regulations, etc.
The tax paid by companies is called the corporate income
tax (CIT). At present, this tax is charged at a flat rate of
21%. The most recent changes to the Ukrainian tax legislation
provide a gradual reduction in CIT rates, as follows:
19% from 1 January 2013 to 31 December 2013 and 16%
from 1 January 2014 onwards.
The confectionary sector is one of the most stable sectors
of the food industry in Ukraine; it is characterized by
steady growth and a relatively low level of sensitivity to
economic downturns.
The confectionary market in Ukraine can be conventionally
divided into three main segments: sugar confectionery
(about 25%), farinaceous confectionery (about
48%) and cocoa-containing products (27%). Almost all
products are produced with new formulations and use
of improved equipment. Confectionery manufacturing
is concentrated at 30 major corporations and about 770
small and medium-sized enterprises with about 55 thsd
employees.
The domestic market consumption capacity is 710 thsd
tons (as of 2011). Per capita consumption of confectionary
goods in Ukraine is about 15 kg per year, which is still
below European (22–25 kg per capita per year).
Confectionary manufacturing is raw material intensive, so materials account for 60–75% of production cost. The confectionery sector generally uses domestic raw materials: flour, sugar, milk and butter. Only those raw materials that are not produced in Ukraine are imported, including cocoa beans, hazelnuts, peanuts, exotic oils and mixtures such as coconut and peanut butter etc.
In 2011, the confectionary production volume was 1,064 m tons with annual turnover of USD 1.66 m
Almost half of Ukraine’s confectionary products is exported. In 2011, exports of confectionery products totaled 438.8 thsd tons. However, export is limited due to bans established by the CIS Customs Union countries via protective duties, and the European markets remain closed until a free trade agreement with the EU is signed.
Traditionally, the key export markets are Russia, Kazakhstan,
Azerbaijan, Turkmenistan, Kyrgyzstan, Moldova,
Georgia, Belarus and Latvia, while the main suppliers of
sweet products to Ukraine are Lithuania, Russia, Poland,
Italy, the Netherlands and Germany. The European Union
and the Russian Federation markets have the greatest
potential for sales increasement of our confectionary
products.
Sector experts have recently developed 100 national
standards for finished products and raw materials that are
harmonized with the requirements` standards of the European
community and the European Codex Alimentarius
Commission.
Most of the domestic demand is met by local producers. The share of imports constitutes about 10%. The volume of domestic consumption in 2011 is 710 thsd tons.
The market in Ukraine is highly concentrated. About 70% of the market is controlled by eight companies: Roshen, Konti, AVK, Biskvit-Shokolad, Zhytomyrski Lasoshchi, Poltavakondyter, Kraft Foods Ukraine and Lagoda Confectionery Factory.
The confectionary sector is one of the most intensive and
advanced sectors within the food industry. The industry is
resistant to economic downturns; confectionery products
continue to enjoy steady demand.
The export orientation of the sector has remained stable.
Since the volume of domestic consumption of confectionary products is sustainable in the medium term, and
domestic demand for confectionary products is almost
entirely met by national producers, increasing production
is possible through increasing exports. According to analysts,
EU countries are the major potential export market
for the sector.
Beverage sector is conventionally divided into three main
segments: alcoholic drinks (wine, beer, spirits); soft
drinks (juices, carbonated drinks, bottled water, energy
drinks); hot drinks (tea and coffee).
The annual volume of beverage consumption in Ukraine
approximates to USD 5,629 m (UAH 45,032 m). Most
sector’s revenue is generated by alcoholic drinks (66%-
70%), which is considerably contributed to by beer. The
production of alcoholic drinks makes up 16% of the total
production volume. 84% of the total alcohol production
belongs to malt-based beer. Vodka makes up 74% of all
alcohol production, excluding beer.
Soft drinks make up about 45% of all manufactured products.
The production of all types of soft drinks is characterized
by natural seasonality, with the peak production
in the 2nd and 3rd quarters of the year. At the same time,
hot drinks are very popular in Ukraine too, and people
drink them each day (15%-17% of the total sector sales).
About 95% of the beverages produced is consumed domestically.
Some market segments in beverage industry are still far
from being mature. In addition, Ukraine has a raw materials
base that enables local production and export of certain
types of drinks, such as wine, vodka, beer, and juices.
The domestic market is able to satisfy most primary demands in raw materials for the production of such beverages as beer, wine, vodka, bottled water, carbonated drinks etc. Principal components required to be imported from other countries are concentrated for the production of certain juices. Ukraine has no favorable conditions for growing tea and coffee.
For the last couple of years, Ukrainian beverage market was gradually reaching pre-crisis level.
In 2011, the growth was demonstrated by the mineral water market while the wine market decreased by 42%. The performance of 2011 is estimated by most operators to give rise of about 5%.
The sector is not export-oriented, with the exception of
vodka-based products.
The Ukrainian producers supply the major portion of soft
drinks consumed in Ukraine, except for some energy
drinks, exotic beverages, and high-priced drinks, such as
Evian mineral water. Conversely, the alcoholic drinks market
has been demonstrating in recent years the increased
products consumption from winemakers of other countries.
One of the factors that contribute to the alcoholic
drink imports growth is the launch of specialized stores
for sale of alcoholic beverages in big cities of Ukraine.
There still remains much place for growth in consumption of drinks per capita in Ukraine – it is significantly lower than in the European countries: the beer consumption in Ukraine is 60 liters per capita a year (78 liters in the European countries); the juice consumption is 11 liters per capita a year (it was 14 liters in 2008); the still water consumption is 40 liters per capita a year (120 liters in Poland, 300 liters in Italy).
The beverage production sector in Ukraine is mostly characterized
by the prevailing number of local producers and
moderate concentration. At the same time, depending on
the types of drinks, there are certain differences.
Such companies as Coca-Cola, Obolon, Pepsi, Rosynka
occupy leading positions in the market of beverages, at
the same time, they are engaged in the production of
juice products.
Ukraine has around 150 factories currently producing
juices, nectars, and juice-containing drinks. Three firms
– Sandora (owned by PepsiCo) (47%), Vitmark Ukraine
(25%), and Erlan (20%) – accounted for around 90% of
domestic production.
A leader in the market of bottling and sales of mineral and
bottled water is IDS Ukraine Group (produces such brands
as Myrhorodska, Morshynska, Truskavetska, Aliaska and
imports Borjomi water from Georgia) with the market share
of over 30%. The second place with the share of over 16%
of the market is held by Coca-Cola (Bonaqua).
Although around 100 companies are involved in brewing,
but only four operators dominate the county’s beer
sector accounting for around 95% of the total market in
terms of volume. The leading companies include Sun
InBev (Rohan and Yantar breweries), locally owned Obolon
brewery, SABMiller (Sarmat), and BBH Ukraine (now
Slavutych-Carlsberg).
The Ukrainian wine market is fragmented and unites numerous
wine producers (about 150 enterprises, of which
65 are primary wine producers and the rest only bottle
wine or combine both).
Nemiroff is the leading domestic spirits company, with the
leading share of the vodka market in Ukraine. Other large
producers by volume include National Alcohol Company,
Crimean Vodka Company, and Image Holding ApS.
Rising health consciousness will boost demand for
healthier soft drinks, such as fruit juices and bottled water.
Quite attractive is the soft drinks market, since its capacity
is two times larger than that of the juice market.
The segment of non-alcohol beverages is considered to
be the most stable, especially in the times of turmoil. In
contrast to the European markets which can be described
as stagnant or recessed, domestic soft drink production,
according to experts, has reasonably good long-term
forecasts. This is explained by the fact that the level of
annual soft drinks consumption in Ukraine is considerably
smaller than in Europe.
Sales of wine in Ukraine have been boosted by a switch
from stronger spirits towards weaker varieties, a trend
which has also helped boost sales of beer. Despite this
recent growth, Ukraine still offers plenty opportunities for
development in the local wine sector, which is underdeveloped
due to the lack of international investments and
the current low recognition of Ukrainian brands outside of
the domestic market.
Opportunity of signing a free trade zone agreement with
the EU in 2012 will open European markets to Ukrainian
products.
In 2011, drinking milk products market has been repeating
the 2010 figures, with visible growth in value terms. It
has been happening due to the growth of prices for raw
milk on the background of its volume shrinkage. The dairy
sector has reached the point when direct imports of many
kinds of products may be profitable; therefore, a high increase
of different imported products is being seen in the
Ukrainian market of drinking milk products. It should be
emphasized that the country still prefers plain condensed/
evaporated milk. Traditionally, consumers use sweet condensed
milk to flatten the partial seasonal inequality in
raw milk supply, and its consumption should compensate
a deficit of milk in the consumers’ consumption in winter
and early spring.
In 2010, yoghurt and sour milk drinks showed growth of
18% to reach sales of UAH 3 bn and in 2011it is expected
that situation will repeat. The sales growth was linked
to two factors. On one hand, unit price increased in response
to the cancellation of government subsidy to milk
producers. On the other hand, the demand posted the
first signs of recovery, as, starting from spring 2010, real
salaries started to grow.
During the first decade of independence, from 1990 to 2000, a cattle herd in Ukraine decreased by 58%, and the next 10 years showed reduction by 55%. The number of cows in the same period decreased by 68%. Moreover, the production of milk for the same 20 years decreased by 53%.
The past two decades saw a significant decrease
in milk production (from 24.5 m tons
per year to 11.25 m tons per year). The
changes in the sector occurred mainly due
to the reduced number of agricultural enterprises
which were main producers of milk
in 1990, while, in 2010, their share fell to
mere 20%.
Dairy products manufacturing is characterized by clear
seasonal changes. The biggest volumes are produced at
the end of the 2nd and in the 3rd quarters of the year. In
physical volumes, the production of liquid milk and cream
is dominant in the sector.
In 2011 the production of milk totaled to about
11.1 m tons, which is lower than the previous year, by
0.9% (2010: 11.2 m tons).
Dynamics of production by main types of dairy products in 2011, in comparison with the previous year, was divergent. There was an increase in the production of processed milk, flavored yoghurts, cheeses, and casein. As for other products, their production decreased.
Total exports of dairy products in 2011 amounted to about 170.4 thsd tons (2010: 160.2 thsd tons). Growth in exports was mainly due to increased sales of whey beverages, cultured milk products, dried milk, and casein. Cheese export volumes did not change significantly, while exports of non-condensed milk and cream decreased considerably.
The principal dairy product sold by Ukrainian companies at the external markets in December 2011 remained cheese (60%). A significant portion of the product exports belonged to Russia (55%), Kazakhstan (13%), Azerbaijan, Moldova (4%).
In 2011, Ukraine imported about 36.1 thsd tons of dairy
products (2010: 34.5 thsd tons). About one third of imported
dairy products belonged to cheeses. There was a
growth in supply observed in respect of non-condensed
milk and cream, dried dairy products, and milk drinks.
At the same time, there was a considerable drop in the
supply of whey beverages and butter. The largest exporting
countries are Russia, Germany, Belarus, and Poland.
The level of milk consumption per capita in Ukraine is relatively stable and, for an extended period, does not fall below 200 kg per person a year. This level is within the estimates of consumption of milk per person performed by the Food and Agriculture Organization (FAO). According to FAO, in 2010, the consumption of dairy products per person in the developed countries amounted to 235 kg, while, in the developing countries, it was only 66.9 kg.
The sector had to cope with lack of government support
and problems with VAT recovery. Year 2012 brought new
issue of cheese export restrictions to Russia.
According to experts, the market will retain a considerably
high level of consumption of traditional products.
The demand for products may be restricted only by economic
volatility, drops in the purchasing power, and price
increase. A major restrictive factor for the development
of milk and dairy products manufacturing and their distribution
markets is low quality of raw materials due to the
adverse trends in the Ukrainian animal breeding sector.
The market has a potential for further development: in
Ukraine, the dairy products consumption per capita is
very far from the reasonable standards recommended by
nutrition specialists and from consumption in European
countries.
The demand for dairy products will grow in external markets
as well. In the nearest 20 years, the world’s highest
growth in demand – on average by 30% – is expected for
milk, which opens new perspectives to the Ukrainian producers.
The Ukrainian market is starting to become consolidated.
In Ukraine, meat production reached a volume of 3 m tons
based on the results of 2011 showing an increase of 3.5%
when compared to 2010. For a period 2009 through 2011,
the average annual growth rate of meat production was
5.2%. Pork and poultry meat production was the main
driver behind the industry growth.
In recent years, meat production and processing industries
have seen several large-scale investment projects
(among them are “APK-Invest”, “Mironovskii khleboproduct”,
Group of companies “Globino”).
Companies’ own funds were the major source of investment
in the meat production and processing sectors,
which gave competitive advantages to large agricultural
holdings.
Historically, the meat processing sector of Ukraine depends on imported raw materials. However, while domestic pork and poultry meat producers have reduced their dependence on imports to the maximum, a rapid reduction of livestock still causes strong dependence of meat processors on the price of foreign raw materials.
In recent years, pig stock has seen a continuous increase
and reached its peak in 2011.
Since 2001, poultry livestock has also seen a continuous
increase, and in 2011, it reached 203.8 m heads.
In 2011, the total market of beef, pork and poultry meat (on hoof) amounted to 2,019 thsd tons. After decrease in demand in recession years, pork and poultry meat, which have traditionally been popular, dominate in the market structure:
In Ukraine, almost all producers of sausage products are located in the eastern and southern regions of the country.
Since the date of its establishment, the Ukrainian meat processing sector has been heavily dependent on raw materials imports. However, in recent years, import of meat and meat products has dropped against the growth of domestic production. The main importers are Brazil, Poland, and Germany. At the same time the main target markets for domestic meat products are the CIS markets.
In 2011, pork comprised the largest share of imports and amounted to 60%.
In Ukraine, domestic consumption of meat and meat products has increased in recent years: in 2011, per capita meat consumption amounted to 43.9 kg against 42.8 kg the previous year. Further growth of meat consumption is forecast in Ukraine, and it is expected to reach almost 49 kg per capita in 2015:
The level of concentration in Ukrainian meat processing
sector is high enough. The ТОP 20 companies’ share is
almost 10% of cattle livestock, almost 27.5% of pig livestock,
and 57.6% of poultry livestock.
The largest meat producers include: cattle – Illich-Ahro
Donbas DchP, Raiz-Maksymko and Zernoproduct MHP;
pork production – APK-Invest, Ahropromyslova Kompaniia,
Kalita Agriculture Complex and Danosha. Myronivska
Ptakhofabryka, Agromaks Complex and Druzhby Narodiv
Nova have carved themselves a niche among the undisputed
leaders of the poultry meat market. The most popular
trade marks are Hlobyno, Druzhby Narodiv, Yatran, Yuvileinyi,
Ferro and Polis.
According to experts, the increase of the range of imported
sausage products is possible in the Ukrainian market
of meat products. Domestic producers will remain dependent
on imported raw materials; however, the volume
of the main types of meat will decrease.
No drastic changes in beef and pork prices are forecast.
For the period until 2015, only prices for poultry meat
might increase significantly.
The total domestic demand for meat products will grow
gradually; however, there will be no significant changes
in the meat consumption structure: poultry meat will remain
popular in the consumer market. Pork production
will continue to increase; however, the growth rates will
decrease along with the domestic market saturation. Domestic
producers almost fully meet the local demand.
Neither any further extension of the poultry meat market
nor new large-scale players entering the market is forecast.
Domestic and foreign market operators continue to pursue
a vertical integration policy and are focused on production
costs optimization.
