Poultry Situation in Ukraine

The second half of 2004 had a tremendous impact on Ukraine's consumption of poultry products, due to the electoral crisis and the Orange Revolution that transpired. In short, the Orange Revolution (or Chestnut Revolution) is the movement of Ukrainian citizens protesting election fraud in the second round of Ukraine's election on November 21, 2004. The "chestnut" part comes from the chestnut trees, which are common in Ukraine and considered a symbol of Kyiv (Kiev.) Whereas the "orange" part stems from the campaign color for the opposition, Presidential candidate Yushchenko.

Prior to election, the outgoing government made a last attempt to retain power by increasing the minimal pension payments from 132 UAH ($24.4) to 284.6 ($52.7) from August to December of 2004. This action resulted in the rise of many low-income groups such as state employees, working retirees, low-qualified workers, and many others. These groups changed their consumption habits for meat and meat products, but most significantly for poultry as they were previously limited by a lack of resources.

At the moment, domestic supplies of red meat were insufficient despite rising prices further contributing to the growth of imports and poultry consumption. The Ukraine also had to decrease its exports of beef and pork to Russia by 40 percent and increase its imports of red meat from Poland and Brazil almost double. As of March 1, 2005 the Ukrainian State Statistics Committee announced the number of cattle in all categories of livestock breeding was 7.2 million head (7.8% less than a year ago,) the number of cows decreased to 3.94 million head (7.5% below 2004,) hogs fell to 6.45 million head (6.6% below 2004,) and sheep and goats dropped to 1.87 million head (3.1% less than last year.) However, poultry populations in all categories rose to 140.48 million head (9.4% above March of 2004 figures.)

Meanwhile, forecasts predict industrial egg production to grow to 6.2 billion eggs (12% higher) and domestic poultry production to reach 260,000 tons (30% higher) in 2005. Causes for such increases stem from producers expanding their production levels and facilities in response to the increases in demand for poultry by consumers, the end to the negative effects felt by the 2003 grain crop failure, loan assistance from the World Bank's International Finance Corp., and direct budget subsidies from the Ukrainian government (GOU.)

In addition, the Ukrainian poultry industry has announced plans to begin production of ducks and turkeys, which has been under developed in the past decade due to limited demand and high production costs. This trend is expected to continue throughout 2005 as long as the GOU remains consistent with its current trade policies.

Ukraine's broiler imports are projected to see a significant increase to 271,000 tons in 2005. The latest forecasts are based on the assumption that the political situation and economic development in the livestock sector remain unchanged. This assumption entails the livestock sector will continue to see stagnant production levels, further protection of the domestic market from imports of red meat, and an unaffected poultry import regime.

However, the current poultry system has become a target of the GOU as of late. The Ukrainian Government has made statements proposing changes to the current import system supporting the possible elimination of the tax privileges associated with the Special Free Economic Zones (FEZ,) as well as the imposition of meat quotas, especially for poultry to curb soaring imports and provide extra support to domestic producers.

An FEZ is an isolated part of a country's territory, where a special customs, taxation, financial, organization, and legislative scheme of entrepreneurial activity is established. Its purpose as outlined at its adoption in 1992 is to create additional jobs; activate foreign trade; attract foreign investments; activate exchanges in the sphere of research and development, make the national economy more competitive due to its new innovative level; and to expand the exportation base or develop export substitutes, etc.

At present, the only legal exports of U.S. poultry products to the Ukraine are conducted through the FEZs, which are excluded from the standard prohibitive tariffs applied outside the zones (EUR 0.7-1.5/kg.) In addition, the Ukraine has also stated plans to reduce import quotas. If the FEZs are eliminated prior to the reduction of regular import tariffs, the possible result would be exorbitant prices for poultry and red meats, as well as an increase in smuggling activities. It is uncertain if these actions will be taken to limit imports of meat, however many believe a big reason for the crisis in Ukrainian agriculture stems from imports.

Additionally, the GOU is currently interested in accession to the World Trade Organization (WTO) and in EU membership. The above actions would probably have a negative impact on Ukraine's short term ability to accede, but political pressure remains bent on limiting imports.
Source: USDA FAS/FAO/Various Newswires/Food & Agricultural Policy Research Institute

To view the full report, including tables please click here

Source: USDA's Agricultural Marketing Service - 22nd March 2005