Ukrainian flour market: results of the first half of 2019/20 MY

In the first half of 2019/20 MY, the Ukrainian flour market still kept the trend of decreasing of the production volumes. For 6 months of the season, Ukraine officially produced 814.9 thsd tonnes of flour, down 3% compared with the same period last season. Taking into account the constant decline of the country's population, as well as decreasing of the financial solvency of people, there were no required conditions for increasing of the production figures. However, the market demonstrated the relative growth in foreign trade of flour.

As for the production volumes of flour by enterprises in the first half of 2019/20 MY, it should be noted that the TOP-10 of flour milling companies covered almost half of the general production of the Ukrainian commodity.

After some decline in 2018/19 MY, in the current season Ukraine resumed the growth of flour export trading. For 6 months of 2019/20 MY, Ukraine shipped 190.4 thsd tonnes of flour on the global market, up 56% compared with the same period of the season-2018/19. At the same time, the export volumes became much lower compared with the results of 2017/18 MY, when Ukraine shipped 244.8 thsd tonnes of flour on the foreign market in the first half of the season. Nevertheless, in January 2020 the growth trend in shipments still continued developing.

The average prices of top-grade flour increased. Although they did not reach the level of 2018/19 MY yet, they still exceed the indicators of the season-2017/18, which somewhat brightened the situation. The growth of prices should have continued in January, but due to "the efforts" of the State Food and Grain Corporation of Ukraine (PJSC SFGCU), the prices even decreased. It should be noted that the hryvnia revaluation rates "ruined lifes" of all Ukrainian exporters, including flour milling companies. It became more difficult to compete with other global exporters, especially with Turkey, which demonstrated the devaluation trends. Since grain crops form the main expense item of the flour-milling products, the companies-producers were in the better situation compared with the others, since in the good harvest year the prices of wheat on the domestic market are formed solely on the basis of export prices.

Also, it is worth noting the traditional logistics problems in the sphere of Ukrainian Railways (Ukrzaliznytsia).

Despite the fact that there are rather long routes for delivering of flour, only single exporters apply innovations that allow minimizing the risks of deterioration of the product on route, namely, polypropylene liner bags. But nobody ever used a completely new product that protects the product even more. I'm talking about polyethylene container liners, which allow to completely avoid any contact of the product with walls of the container. The company SAFE-CLEAN-BAG^TM already started producing such product in Ukraine.

Also, the African destination of supplies somewhat increased. Taking into account the Middle East, the reporting destination took more than half of all Ukrainian flour shipments. At the same time, the shipments to East Asia increased. The exports to the CIS countries, mainly to Moldova, remained almost stable in absolute terms. In addition, Ukraine supplied some volumes to Belarus and even less to Georgia.

In fact, it is time to realize that Ukrainian flour started safely returning to the North Korean market, which also affected the general growth of export volumes. In December 2019, Ukraine shipped 12.7 thsd tonnes of flour to the country, and in November 2019 the supplies broke a record — 20.2 thsd tonnes. North Korea received not only flour under the "flag" of the United Arab Emirates, but also all flour, which Indonesia officially imported. Ukrainian flour purchased by Singapore in July-September partially arrived to the country, and in October-December period — all volumes! And North Korea again appeared in the TOP of consumers! For 3 recent months of 2019, Ukraine did not deliver any tonne of flour on the once popular markets of Southeast Asia.

For 6 months, 10 companies shipped almost 94% of the general Ukrainian export volumes of flour. SFGCU PJSC took the first position. Despite the negative economic indicators of the flour milling sector, the Corporation shipped significant volumes of the product.

Also, every month Vinnytsia bread factory #2 stably and expensively loaded a lot of flour volumes. TH Novagro returned to the group of main exporters, as well as TH Zernari LLC increased its export figures, and gradually moved to the top of the list.

The results of the first half of the marketing year and the growth rates of shipments of Ukrainian flour suggest that Ukraine is still far from the results of 2017/18 MY, but the results of 2016/17 MY are quite realistic to reach in the current season. If there are no economic, legislative or political cataclysms, then Ukraine can surely reach the level of over 400 thsd tonnes of flour exports.

Serhiy Sakirkin, Chairman of the auditing committee at the Union "Millers of Ukraine"