Ukrainian millers in a time of the pandemic

Source

APK-Inform

1284

Sergei Sakirkin,

Chairman of the inspection committee of the Union "Millers of Ukraine"

Flour production in Ukraine continues to decline. According to the official data, the country produced 1.526 mln tonnes of flour in 2019/20 MY, the lowest volume on record. To my mind, the official statistics does not show the real picture.

The experts say that the population of Ukraine is 38 mln people. Hundreds of thousands of Ukrainians came back home from working abroad after the neighbor countries went on quarantine. Moreover, there was a panic buying in March-April amid coronavirus outbreak. However, the official data does not show this surge in demand. At the same time, the demand declined significantly in May and June and the statistics reveals the decrease of flour production to the record low 100 and 104 thsd tonnes correspondingly.

If we try to calculate the flour use for bread production taking to account the official data and the fact that the bread consists of flour at 70%, we will see a rather strange thing. Bread production needs 600-700 thsd tonnes of flour. Moreover, we will find that Ukrainians consume average 30 kg of bread, bread products and pasta per year if the population is 42 mln people, and bread and pasta production is lower than 1 mln tonnes per year.

Taking to account these calculations, we can conclude that either people massively bake bread at home using the rest 1 mln tonnes of flour or the population of Ukraine is declining while the production is withdrawing into the shadows that is more likely.

Pasta is popular in Ukraine, 96.5% of people consume it. The official statistics could not show the real production volumes as pasta is mainly produced by small enterprises. The volume of “gray” market is very large, and the real output of pasta is much higher. No one could believe that the consumption of pasta both domestically produced and imported is 2.64 kg per year per person. Import data is accurate, by the way.

To compare, Germany produces about 6 mln tonnes of wheat and rye flour and its population is about 83 mln people. Poland produces nearly 2.5 mln tonnes of wheat flour and 250 thsd tonnes of rye flour and its population is 38.6 mln people. Thus, the consumption is about 70-72 kg per year per capita. To my mind, the per capita consumption of flour in Ukraine is lower than in Germany and Poland. This means that, if Ukrainian population is 42 mln people, the production volume exceeds 3 mln tonnes.

Is the production matches the official statistics (about 1.5 mln tonnes), the population is 21 mln tonnes. If the population is 38 mln people as analysts say, the consumption needs not less than 2.74 mln tonnes of flour and plus 300 thsd tonnes for export. Thus, the overall volume should not be less than 3 mln tonnes.

Conclusions:

  • Large import – No
  • Severe decline of population – No
  • Immediate change of consumer habit due to surge of human wellbeing – definitely No!
  • Growing “gray” market – YES!

There always was the “gray” market of flour as well as bread, pasta and confectionery. These industries are connected by the same feedstock and could not exist separately. Moreover, they are the cheapest food products. We consider the production of flour separately: according to the statistics, in May 2020, the reports were provided by 280 producers, among which only 193 showed at least 200 kg of flour produced. At the same time, at least 25 small mills function and produce flour only around Kiev. And all of them mainly produce undocumented flour. Some of them work for cash only. There are recently built mills in regions with capacity of 60-90 tonnes of grain per day that have not been put into operation yet. However, they have already functioned for years, produced and sold flour. They do not pay taxes and do not control the quality.

 

Many mills produce undocumented flour, however, the larger the mill is - the less undocumented flour it produces. Moreover, they have certified laboratories, quality control, good name. The same can't be said for majority of small mills all over the country.

No

Company name

Flour production, tonnes

2019/20

2018/19

2017/18

1

Vinnytsia bread factory #2

162 045

139 961

161 472

2

STOLYCHNYJ MLYN LLC

103 880

97 488

109 550

3

Dnipromlyn LLC

98 636

105 804

111 592

4

Khmelnytsk-mlyn LLC

73 213

71 192

71 383

5

Roma CMC

71 302

80 603

80 799

6

Novopokrovskiy GPP LLC

58 073

49 484

117 059

7

Krolevetskiy GPP subsidiary

48 433

54 166

37 292

8

Enlil LTD

45 731

40 588

30 115

9

Zernary Trade House

41 582

35 149

****

10

Rivne Boroshno PJSK

31 062

31 281

29 373

 

Total in Ukraine

1,576

     1,671  

1,879

 

Produced by TOP-10

733 957

737 844

829 463

 

% of the general production volume

46,6%

44,2%

44,1%

Large mills usually do not deal with “gray” production. Thus, TOP-10 mills produce almost a half of the volumes stated in the statistics. 30 Ukrainian mills produce 70% of total flour volume. These companies will work and sell flour in all conditions even the most difficult. Such companies are the mainstay of the industry.

In this situation, one could hope for the increase of flour export. Besides, because of panic, seen in many countries, the demand on flour actually elevated. Some classic countries-exporters either stopped or sharply restricted the deliveries of the goods. But we have not a chance to use it and the status quo has been restored.

The general dynamics of flour export in 2019/20 MY was positive against previous season and estimated at 334.6 thsd tonnes compared 303 thsd tonnes. However, for the last 4 months the deliveries are much lower than last year. The absence of the export deliveries by State Food and Grain Corporation of Ukraine has significantly affected these figures, as well as the absence of deliveries by other large exporters.

Moreover, when the State Food and Grain Corporation of Ukraine (SFGCU) has stopped the unprofitable deliveries, nobody from the industry took its place – nobody wanted to sell without profit… In June the corporation returned for the international market of flour and sold maybe not the usual 10 thsd tonnes but still 2 948 tonnes of the product. The prices of SFGCU also supported the prices of other processors.

Unfortunately, in this situation, the drop in prices is not solely exporters’ fault. Is we look at the customs data, everything is not that bad. But, firstly, a lot of product is export in small packs and the prices is of course higher. Many deliver the product on more expensive bases, such as FCA, which is not higher than 40% of the total monthly volume, but this basis displays the average price.   

Thus the average prices in July totaled $244.6/t. Excluding the SFGCU deliveries and those who sold the product at $240 and lower the average price would total $251/t. Not much higher. And much lower than month ago.

The deliveries to East Asia have dropped slightly and I hope temporary. On a year-on-year basis the share of this destination remain unchanged. The deliveries to Middles East declined, as well to the African countries. Also we did not return to the markets of Soviet republics, however in this case there was some increase of demand from Turkmenistan because of coronavirus panic. But the panic calmed down and everything got back on track.

Moldova stayed the stable purchaser and Belarus in some way. Some deliveries were conducted to Georgia which can be even not counted.

The list of countries consumers mostly has not changed. However, their shares faced some changes. For example, Mozambique drove back Somali. In total in 2019/20 MY the flour had been exported to 44 countries. But we did not export to Cote d'Ivoire, Myanmar, Suriname, Uganda, Ethiopia, UAE and many other countries, which earlier imported Ukrainian flour, - in total there are 25 such countries, “lost” for our export. It is especially alarming that much less was shipped to Israel, Palestine and Moldova in June than usual. And these are the countries with more or less constant monthly imports of Ukrainian flour. To Moldova - 2 times less, to Palestine - 3 times.

Month after month the same enterprises export 90% of the total Ukrainian wheat flour. And mostly all of them are the largest producers of the product. acts as an exporter, but this does not change the essence.

These and similar mills are the core of the industry. They face all the taxes, the problems of the industry and the economic situation of the country. And such enterprises must be supported. Do not help them, but also do not interfere! Whereas small, semi legal enterprises bring nothing to the country and produce low quality goods without any hint of the food security.

The current pandemic has shown that everything is possible in this world and we should not think that we are insured against any disasters. And thus there is a legitimate question concerning the food security of the country: who will be able to provide the people with the cheap essential products in case of epidemic, war, climatic and/or extreme weather?! This includes first of all wheat and rye flour, as these are the inexpensive products that at the same time allow a person to survive in any, the most difficult conditions. Even in its pure form, under the most unimaginable circumstances, flour can be food complete with water - this is the most apocalyptic scenario. Mostly, of course, in the form of bread. The nutritional and taste properties of bread are not worth discussing - everything has long been known, as are the food preferences of the Ukrainian population. And in the form of soft wheat pasta.

Despite the general dislike for state-owned companies, the food safety operator should be just that. Currently, you can choose from three companies: SFGCU, State Reserve Agency of Ukraine and the Agrarian Fund PJSC. Only the last of the three has no capacity of its own. At the same time, only this joint-stock company was originally intended to stabilize the flour market, was not noticed in large thefts, like the State Reserve, and never worked at a loss, like the SFGCU.

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