Development of Ukrainian market of flour and groats has its own features as it is a part of chain “from field to consumer”. On the one hand, growing feedstock prices make farmers to raise prices, on the other hand, state regulations of flour and bakery products prices restrict the rise. Rodion Rybchinskiy, the head of Millers of Ukraine union, told us about development and prospects of flour and groats market in Ukraine.
- How can you estimate the results of the first half of 2015/16 MY for Ukrainian market of flour and groats and its further prospects?
Current situation is the continuance of long lasting negative trend. I’m talking about clearly expressed decline of flour production in Ukraine. Production volumes decreased by 20% within last 10 seasons. We produced 2.9 mln tonnes of flour in early 2000 and now only 2.25-2.3 mln tonnes. It can be explained with 40% decline in bakery and confectionery products output during the same period. Exception is macaroni products which production stayed rather stable at about 102-103 thsd tonnes. Average monthly industrial four consumption totaled 123.9 thsd tonnes in 2013 and declined to 98.5 thsd tonnes in 2015.
Population decline is another fact determining the negative trend. Ukrainian population decreased by 2.5 mln and about 3-5 mln are in labour migration.
Changes in diets leading to lower bakery products consumption is another rather important feature.
Decline of groats feedstock causes lower production and consumption of groats. Now we have 50-150 thsd tonnes in deficit for all cereal crops that leads to higher farmers’ prices. Thus we see growing groats prices while consumers prefer cheap groats (barley and corn made) that are not tied to feedstock as they are by-products of processing of main grains, so do not depend on groats market development.
I want to focus attention on rye flour market. Today the deficit of rye flour for bread production reached about 100 thsd tonnes. Farmers are not interested in rye production. Rye yield is 3 ties lower than wheat yields while prices are on the same level or rye is even cheaper. So without state support rye production in Ukraine can be brought down to a minimum or zero level.
- There were a lot of talks regarding grain quality. Which problems did millers face?
Grain quality is long-standing problem resides in a fact that if there is no interest in well-targeted wheat quality increase we will have middle or low quality crop with high yield. We observe the lack of 2nd grade wheat supply.
Unfortunately, millers does not have mechanism to simulate wheat quality increase as they could not provide high premium for high-quality wheat because they sell 90% of their output volumes on the inner market and are dependent on demand price from bread producers who could not raise bread and bakery products prices due to reaction of local administrations and low consumer purchasing power.
- Ukraine increased flour exports in the first half of the season. What are the reasons? Will the trend prevail in the 2nd half of MY?
In 2015 Ukraine exported 304.5 thsd tonnes of flour against 244.9 thsd tonnes in 2014. Moreover, exports geography increased from 44 countries in 2014 to 69 countries in 2015. We would like the trend to prevail in future as exports is the only one option to get profit taking to account current price situation and competition on the domestic market.
However, there is one important moment. While exports increased by 24% the profit declined by 1% due to lowering of average export prices by 20% - from 284 USD/t in 2014 to 227 USD/t in 2015.
Decline of groats export can be explained with market particularity. There are only about 20 countries in the world who imports groats if we are talking about traditional groats for Ukraine –buckwheat, porridge etc. – which output declining year-on-year.
- Week ago at the press-conference you told that one Ukrainian company got the quota to export 5 thsd tonnes of flour to EU and 3 companies are under certification process. IN general how can you estimate prospects of Ukraine on the EU market?
We need to understand that tax-free export quota for flour is connected to wheat export quota that totals 900 thsd tonnes. We can export more but need to pay 173 EUR/t tax.
Talking about above-mentioned company, I need to clarify that the quota was granted not for Ukrainian company but for European partner who is obliged to export specified volume of Ukrainian flour within a year. Earlier it was difficult for Ukrainian companies to find such buyers in EU as they need to assure them that Ukrainian flour quality is as good as European. EU imported samples lots of Ukrainian flour without quota last year. We found a buyers and European partners decided to keep on cooperation.
Ukrainian producers are interested in EU market not only in profit term but also in point of view of reputation. EU has one of the toughest quality requirements for food products and the company supplying its products to EU can be consider as exporter of high-quality goods.
- China is one more perspective destination for Ukrainian agricultural products including flour and groats. Are Ukrainian millers going to certify for export to China?
Yes, if they have suitable conditions. Today China has tough flour import tax. Therefore, everything will depend on Chinese market development.
Increase of Ukrainian flour exports coincided with decline of freight rates. So, the product can go elsewhere. Everything depends on potential of certain market and how open it is for Ukrainian product.
- Can new Transcaspian road intensify exports of Ukrainian flour and groats to the countries it passes through?
Theoretically yes. Only if we are talking about Georgia, that previously imported significant volumes of Ukrainian flour, and Azerbaijan. Iran has its own capacities. And Kazakhstan is the key reason as logistically it is more suitable. We could not compete with Kazakhstan in the region.
Interviewed by Alina Styozhka
