Grain and milling industry in Ukraine


“Grain resources in Ukraine are enough not only for meeting the needs of the food industry and the animal sector, but also for stepping up grain exports. At the moment, Ukraine accounts for 9-10% of global wheat exports, up to 17% of corn exports and 15-20% of barley exports. In the long run, the demand for Ukrainian grain will be pushed up by the world population increase along with incomes growth in developing countries, which are the key consumers of cheap Black Sea grain.”

Liza Malyshko
Grain Market Expert
UkrAgroConsult, Kyiv
Ukraine has powerful potential for growing and exporting cereals and oilseeds. Although Ukraine accounts just for 3-4% of global wheat and barley output, the country plays a key role in world exports. At the same time, there is still quite serious potential for further expansion of production and exports.

The period of 2010-2018 showed that large investment, which enables farmers to observe growing practices, leads to a considerable increase in grain yields. Grain resources in Ukraine are enough not only for meeting the needs of the food industry and the animal sector, but also for stepping up grain exports. The global upward trend in the population of developing countries suggests that demand for inexpensive grain, in particular for Ukrainian one, will increase.

At the moment, Ukraine accounts for 9-10% of global wheat exports, up to 17% of corn exports and 15-20% of barley exports.

Climate and environmental conditions allow cultivating all basic grain crops in Ukraine and obtain harvest which significantly exceeds the level of domestic consumption.


Over the last ten years Ukraine has significantly increased grain production. When at the beginning of 2000s the average grain production was about 33 MMT, by now the five-year average level of grain harvest has grown by 90% to 63 MMT.

Wheat, corn and barley are the main crops in Ukraine with their share in total seeded grain acreage being at more than 90%. Over the past five years the cropping pattern has changed considerably, currently showing the reduction of barley, rye and niche crops acreage in favor of corn.



Given the relatively steady planted area of grain, its harvest has increased significantly mainly due to growth of productivity over the last 5 years. Large holdings and medium-sized farming enterprises have increased implementation of modern cultivation technologies in grain production with use of high-yielding varieties of foreign and Ukrainian selection.

WHEAT
Over the last ten years, the average planted area of wheat in Ukraine was about 6.7 million ha. At the same time production ranged between 14.2 – 26.5 MMT. The average yield (productivity) of wheat depends mostly on weather. The lowest production was in 2012, the highest – in 2015.

Farmers grow wheat in all regions of Ukraine. However, the largest acreage is located in the south-eastern and central regions of the country.

Qualities of wheat change from year to year. The share of milling wheat was the lowest in harvest 2011 (40%), while the maximum level was observed in 2012 (83%). However, even in years of crop failure there is enough milling wheat to meet the domestic consumption, which is estimated at level of 4.2-4.5 MMT.

FOOD USE
A strong downward trend is seen in food use of grain. For instance, consumption of milling wheat has plummeted from 6 MMT to 4.2 MMT over the last decade.

The population decline of the last 25 years slowed down in the 2010’s, but the problems that emerged in the eastern regions and Crimea gave it a new impulse in 2014-2017. In addition, it should be taken into account that a rising number of Ukrainians work abroad – this fact also contributes to the fall in food use within the country.

We believe grain consumption for food purposes will remain relatively stable within the coming 3-5 years. It will actually not influence Ukraine’s grain export potential.

WHEAT EXPORTS
The geographical range of export destinations is quite wide, embracing over 100 countries. The top importers of Ukrainian wheat include North Africa and the Near East. However, a rise in wheat shipments to Asia and Sub-Saharan Africa has been seen since a few years ago.

In the long run, the demand for Ukrainian grain will be pushed up by the world population increase along with incomes growth in developing countries, which are the key consumers of cheap Black Sea grain.

Also, noteworthy is a change in wheat export destinations that has taken place over the last decade. At the time, exporters considerably boosted deliveries to Asian and African countries, primarily due to strengthening of their demand for medium-quality milling wheat. In addition, the development of exports to these markets, especially to Southeast Asia, was contributed to a drop in freight rates because of the global crisis.

Traditionally, Ukraine supplies wheat to the world market in the first half of season, exactly in July-December. The country sells 60 to 80% of its exportable inventories at this time.


FLOUR INDUSTRY IN UKRAINE

Total flour production estimated capacity is nearly 7.5 MMT per year in Ukraine. Currently about 45-50% of this capacity is used by the industry. Ukrainian flour milling enterprises of all sizes, including mills, consume approximately 4 MMT of wheat per season.

Flour production in Ukraine is mainly influenced by the following factors:

• domestic consumption, which is determined by:
– Population. Because of Crimea annexation and the armed conflict in Donbas millers have lost these markets. As of January 01, 2015 population of Ukraine decreased to 42.2 million people, which is 6% less than on the same date in 2014 (45.5 million).
– Purchasing power of population;
– Bakery products price behavior, which influences rationalization of bread share in the overall food pattern;
• Increased flour production cost in Ukraine, which provoked reduction of enterprises profitability.
• demand for flour in the foreign market.

Apart from wheat flour, which accounts for a 94% share, Ukraine also produces the following types of flour: rye, corn, oats, rice, buckwheat and barley flour.

Since 2005 export shipments of wheat flour from Ukraine have been growing. The need for sales growth forced many of the largest Ukrainian companies to start or increase shipments of flour to foreign markets.

In the 2017/18 season Ukrainian flour exporters set a new record and shipped abroad 430 KMT, but in 2018/19 exports decreased. Only 240 KMT of wheat flour was shipped in July-April compared to 380 KMT during the same period of last year. One of the main reasons of export decreasing is declining in flour production (-13% in 2018).

Value for money factor is the most attractive for consumers of Ukrainian wheat flour. Countries of Asia, Africa and Middle East became the largest buyers of wheat flour from Ukraine.

If we consider the largest wheat flour importing countries, it should be noted that China took the lead in purchases of Ukrainian flour. China imported 125 KMT of flour in MY 2017/18, or 29% of total Ukrainian exports.

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