September 1, 2011

Dairy industry may consolidate amid Ukraine's policy changes

Policy revisions in Ukraine resulting from a fall in grain exports is likely to cause the dairy industry to consolidate, Milk giant Milkiland said.

The Kiev-based group said that a revision in government support for dairy producers "resulted in a sharp rise of input costs", encouraging milk price rises which had landed processors with a "margin squeeze" too.

Milkiland, whose operators span include both processing and production, said its own raw materials bill rose by 28% in the January-to-June half, from a year before, and that it was "one of the few least-affected dairies".

Under the new system, Ukraine milk, and meat, processors pay VAT to the government rather than back to producers, who could use the money to invest in their own facilities. The government is then, in theory, set to subsidise producers on a per-animal basis.

The "tough" market conditions encouraged by the chances "will push further dairy industry consolidation", Milkiland said, adding that further tie-ups could be expected too in Russia, where milk prices are being raised by a rise in consumption at a time of limited domestic output capacity.

The comments follow widespread concern at the impact of VAT changes, and the introduction of tariffs on grain exports, which have, for barley and wheat, plunged by 70% in the first two months of 2011-12.

The USDA early this month criticised Ukraine for its "messy" handling of the changes.
 

However, Milkiland said that it planned to "capitalise on" the consolidation trend, in both Russia and Ukraine.