Over the last few weeks, we have learned a lot about agriculture in Ukraine and how this country is critical to feeding the world with their excellent soil. They have 25% of the world’s black soils, that are very forgiving and regenerative. They have been continuing to improve their production practices exponentially increasing crop yields.
The southern portion of Ukraine sits at 45°N, about the same place as the state line between Montana and Wyoming or the northern part of lower Michigan. The northern point of Ukraine is slightly above 52ºN, which is border between Quebec and Newfoundland, Canada.
Ukraine produces a lot of grain for livestock and human consumption, which, along with the rising increase in oil prices, will have a significant effect on U.S. dairy profitability this year.
Very little has been discussed about what the dairy industry in Ukraine looks like or if they are a net importer or exporter of dairy products. According to U.S. Department of Agriculture Foreign Agricultural Service, fluid milk production has been declining for the last 30 years causing the country to now be a net importer of dairy products.
Approximately 75% of cows are owned by private households, which often only own a couple cows and walk them out to the countryside to graze each day. The other 25% of cows are owned by larger herds that produce 35% of the country’s milk.
The household herds are shrinking the most of these two groups. While they tend to have lower cost of production, they also produce less milk per cow and have lower milk quality. Household herds tend to lack modern milking and cooling equipment, balanced feed rations and veterinary care. In some towns there has recently been efforts to pool milk for cooling to improve quality. The household milk is often sold in open air markets as sour cream, soft cottage cheese and occasionally butter.
Household milk production is the primary source of fluid milk in the country and, if not marketed locally, is used as dry milk or whey that gets exported. Household milk production is very seasonal. Since 2019 Ukraine has been a net importer of dairy products. Often imported dairy products sell for less than domestic production. They have slightly different taste than the local cheese but are growing in popularity.
Many of the processing plants in Ukraine are older and inefficient compared to neighboring countries, causing increases in natural gas prices to squeeze profitability. The primary dairy products that are exported include, butter, skim milk powder, whole milk powder and lower value cheeses. Ukraine cheese exports primarily go to Kazakhstan, Moldova, Georgia, Azerbaijan and Egypt. These exports are primarily low value cheeses and native cheeses. There was approximately 62 metric tons of cheese exported to the United States for sales through ethnic Ukrainian stores.
Ukraine is expected to remain a net importer of dairy products. Imports are centered around premium and mass-market segments. Domestic demand has been growing for sophisticated dairy products including high quality cheeses, with $109.9 million in cheese imported in 2020. Other major imports included butter, infant formula and yogurt. Mass market cheeses include Edam, Gouda, Emmental and cheddar with these imports primarily coming from Poland and other Baltic countries. The highest dollar cheeses are imported from France, Netherlands and Italy.
The European Union makes up almost 97% of cheese imports to Ukraine. Cheese makers and larger producer in Ukraine have been working hard to improve domestic cheese quality but they are expected to continue to see significant growth in imported cheeses.
While the Ukraine dairy industry does not directly purchase dairy products from the U.S., it is interested in our genetics. Dairy producer associations have expressed strong desires to improve production through better genetics and nutrition. Improvements in genetics are coming from imported semen from both the U.S. and European countries. USDA Foreign Agricultural Services has been working to facilitate market access to U.S. heifers that are vaccinated against brucellosis.
While the U.S. dairy industry has not been directly interacting with Ukraine, the Russian invasion will have reaching effects on our profit outlook. Hopefully be the time you read this peace has come back to the region and markets are beginning to stabilize.
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