Dairy prices skyrocket in Ukraine
In Ukraine, dairy prices surged by 30-40% in October 2024 compared to the previous year. A raw material shortage, which has been brewing over recent months, eventually erupted into a market panic, as reported by local media.
The factors that fuel the ongoing upward price rally on the Ukrainian dairy market include labour shortages and power outages. Moreover, the number of operating dairy processing plants in the country has dropped from 178 in 2021 to about 110 or 112, as estimated by the Union of Dairy Enterprises of Ukraine. This is primarily because 39 dairy processing plants were in the territory controlled by Russian troops.
Raw material shortage
The raw material shortage, however, is of major concern. On average, the capacity utilisation ratio of the plants remaining in operation is 60%. Numerous farms suspended operations and production also suffered due to blackouts, in addition to weather challenges like the summer heat.
Also, supply is hampered by quality issues with milk delivered by backyard farms. Under the existing regulations, it cannot be used to manufacture dairy products for exports or to deliver to retail chains.
Bailout package
The Union of Dairy Enterprises of Ukraine indicated that the crisis has already led to an ‘uncontrolled price rise’ in the dairy market, and the situation could deteriorate further.
If left unchecked, the crisis could mean disaster for the dairy processing sector, potentially leading to bankruptcies and a significant drop in the country’s dairy herd population, as warned by the Union of Dairy Enterprises and reported by local media.
One possible solution would be uniting backyard farmers into dairy cooperatives, as proposed by the recently appointed Ukrainian agricultural minister Vitaly Koval. Such an approach, widely used in the European Union, could help improve raw milk quality.
Subsidies to secure growth
The general director of the Ichnyansky dairy plant, Valentin Zaporoshchuk, estimated that in Ukraine, industrial farms manufacture around 3.6 million tonnes of milk, and backyard farms produce close to 4 million tonnes. EU standards do not include processing raw milk from backyard farms due to its low quality.
Zaporoshchuk indicated that the state compensates nearly 50% of the money allocated to farm modernisation in the EU. He assumed that even a 25% subsidy in Ukraine could kickstart a much-needed modernisation of raw milk production capacities.
According to Zaporozhchuk, Ukraine has the potential to produce up to 30 million tonnes of milk, a capacity that could position it as a significant player in the European market.
