Ukrainian flour market — results of 2017 (January-December)

In the present article we would somewhat withdraw from the traditional marketing calendar and review the situation on the flour market within frames of a calendar year. During several recent marketing and calendar years, Ukraine faced significant market events – record shipments on foreign markets, reduction of the domestic consumption and production volumes, etc. 2017 was no exception, which also demonstrated record export shipments and decreasing of flour production in Ukraine. At the same time, the downward trend in production was not very significant compared with the previous year. At the same time, the official figures about flour production are little different year by year, despite the fact that there is no information about flour production in some territories for reasons beyond control (occupation).

In 2017, the current downward trend of flour production in Ukraine, which started dominating in several recent years, continued developing. For 12 months of 2017, Ukraine produced nearly 1.937 mln tonnes of wheat flour, a decrease of 11.4 thsd tonnes compared with 2016, when the production totaled 1.949 mln tonnes, down 230.4 thsd tonnes compared with 2015 (2.168 mln tonnes). Of course, we can use the reporting figures for comparison only, but not as real production indicators. The major reasons of such situation cover not only a large-scale "gray" market, but also mistakes of the Ukrainian statistics. For example, the official figures on the branch of PJSC SFGCU Odessa mill routinely do not come to the general statistics results.

Also, last year Ukraine still kept the tendency of reduction of a number of enterprises, which processed grain crops. Taking into account the production of minimum flour volumes (from 1 tonne), in 2017 the number of companies-producers totaled 359. The number of companies, which officially produced more than 1 thsd tonnes of flour in the reporting year, totaled 141. The number of companies, which produced 12 thsd tonnes of flour or more, i.e. not less than 1 thsd tonnes per month, totaled 39 only.

In 2017, ten large-scale companies produced 44.3% of the general volumes of flour in Ukraine. The share of the TOP-10 increased by almost 5% compared with 2016 figures. In particular, Chmielnicki Mlyn increased its figures in 2 times compared with the results of 2016, and Vinnytsia bread factory #2 – up almost 2 times. The provided reconstruction works and increased capacities produced its results. As well as the marketing policy of companies, which transformed the capacities increase into the growth of sales in Ukraine and for exports.

Kombinat Khliboproduktiv Talne, Kulindorovsky Factory of Bakery Products and Novopokrovka Factory of Bakery Products returned to their standard processing volumes after the recent recession in 2016. But Krolevets Bakery Integrated Plant, the branch of SFGCU PJSC, reduced its volumes by almost 20%, which is little wonder, taking into account the situation in the Corporation.

Also, from year to year Agrarian Fund PJSC produces almost the seventh part of the whole Ukrainian flour, even without its own processing capacities. Many mills realized orders of this highly efficient government agency. Also, PJSC State Food and Grain Corporation of Ukraine (SFGCU) is a government agency, which produces flour, but it has own production capacities, and its staff is higher in 20 times compared with the Agrarian Fund.

Flour exports

In 2017, the export volumes of flour increased compared with the previous year, and exceeded the psychological threshold of 400 thsd tonnes. Also, the general shipments of 2017 contain records of shipments in some months. If in 2016 Ukraine managed to pass 40-thsd tonne line one time only – in December (42.4 thsd tonnes), then in 2017 there were 5 months with shipments exceeding this level, and in November Ukraine even shipped 47.53 thsd tonnes. It was for the first time in Ukraine.

In 2017, the export volumes totaled 443.1 thsd tonnes. In 2016, Ukraine exported 369.6 thsd tonnes of flour, and in 2015 – 305 thsd tonnes. If we compare the results with the exports in 2014, one can get "dizziness from success". If the reporting trend continues developing, then the forecast of a new record in the marketing year at 450 thsd tonnes will be correct. Also, Ukraine will exceed several preliminary forecasts of international experts, who expected for the exports at 550 thsd tonnes in wheat equivalent (412.5 thsd tonnes in net product).

Ukraine managed to overcome logistical problems related to the deficit of rolling stock and containers, which somewhat slowed down foreign supplies of flour. In addition, many companies managed to overcome the existing organizational challenges at their enterprises, which prevented them to increase the shipments for exports.

Price situation

The prices slightly increased compared with 2016. At the end of the year, the average prices totaled 208-210 USD/t. At the same time, there was a significant gap to the prices of 2015 and 2014. Primarily, the global trends entailed such changes. Also, Ukrainian producers reduced the profitability of export operations. The factor became determinative for a rapid growth of flour shipped volumes. Ukrainian flour does not have differences in quality compared with the major global exporters, but attracts buyers with its price.

But the situation cannot develop for a long time, because the prices for fuel and utilities also continue growing. The industry already faced a deficit of staff, which forces to raise the salaries. The deficit developed due to departure of the working-age population in foreign countries, and disinclination of young people to work at milling plants.

Due to rather high demand for wheat with 12.5%+ protein content, the prices for 2-grade wheat continued increasing. As usual, during the upward prices period, agricultural producers held down grain sales, which in turn caused a further price rising. Therefore, flour prices again increased.

Geography of Ukrainian flour exports

In 2017, Ukraine shipped flour to 55 countries. East Asia remained the leading destination, presented by one country – North Korea. Despite the constant mentioning in mass media that China is the largest importer of the product, the country does not receive any pound of Ukrainian flour. All supplied volumes move to North Korea, but in terms of political correctness (sanctions) nobody writes about it, which made China as the largest country-importer.

Countries of the Middle East and Africa moved the second and third positions in the rating. Generally, the Middle East and North African countries purchased 23.4% of the export volumes. The United Arab Emirates purchased the major volumes, Israel and Palestine imported its standard volumes. Sub-Saharan Africa received 22.53% of the supplies.

Unfortunately, the destination of Southeast Asia was not resumed, because Ukrainian millers almost left the market to Turkish producers. Ukraine shipped only nearly 13.7 thsd tonnes of flour in the reporting destination. While in 2008-2010, even Indonesia imported over 20 thsd tonnes of flour per year. Also, in that period Ukraine shipped flour to Malaysia, the Philippines, Thailand. The post-Soviet countries purchased slightly less than 10% of all shipments. The major share of flour supplies went to Moldova, as well as some volumes reached Georgia and Belarus.

In absolute figures, North Korea became the leader among consumers of Ukrainian flour, which imported more than 176.4 thsd tonnes. Several years ago, the general export volume of Ukrainian flour was much lower. Angola keeps the second position in the TOP of importers. It is one of the most important markets for Ukraine. Then the TOP-10 of countries-importers includes traditional markets for Ukraine, but with slight variation in their positions.

But the rating does not cover all victories of the Ukrainian industry. Ukraine monthly ships flour to Venezuela. In addition, in 2017 Ukraine started actively developing the markets of Africa. There were regular large-scale shipments to Angola, Libya and Somalia, but also Ukraine shipped flour to Benin, Gambia, Ghana, Côte d'Ivoire, Madagascar, Senegal, Tanzania, Togo, Uganda and some other countries of the continent.

There were no significant changes in the European destination without the CIS countries. At the same time, some experts reported that in 2016 Ukraine exported more than 1`100 tonnes of flour to Europe, but I should demonstrate the real shipped volumes in this direction: Latvia – 82.8 tonnes; Norway – 24.5 tonnes; Greece – 24 tonnes; the Netherlands – 19.9 tonnes; Bulgaria and Denmark – 4 tonnes each; Poland – 3 tonnes; Spain – 0.43 tonnes. There were 162.63 tonnes only. Perhaps, some experts calculated the shipments to Estonia and Cyprus, but the reporting supplies moved to North Korea.

In the last months of 2017, Ukraine started shipping flour to Albania, and the volumes reached 833 tonnes. Excluding the reporting volume, in 2017 the developed countries of Europe received 193 tonnes of Ukrainian flour only. In particular, the supplies to Portugal reached 96 tonnes; Lithuania – 39.3 tonnes; Greece – 25.3 tonnes; Latvia – 20.1 tonnes; Slovakia – 12 tonnes; Denmark – 4 tonnes; and Poland – 3 tonnes. It was not a breakthrough in any way.

The final month of 2017 did not demonstrate significant export volumes of flour, which even did not reach the level of 40 thsd tonnes. In December 2017, the shipments reached 38`824 tonnes only. North Korea imported somewhat small volumes of flour compared with the previous months, which actually affected the figures. In November 2017, the record export volumes totaled 47.5 thsd tonnes, including the shipments to North Korea at 24.5 thsd tonnes. At the same time, Palestine imported rather large-scale volumes – 5`320 tonnes, while usually imports nearly 1`200-3`200 tonnes.

State Food and Grain Corporation of Ukraine failed to keep the leading positions in the list of major companies-exporters. Novopokrovka Factory of Bakery Products took the first position in the TOP, while Novaagro LLC provided the main export operations from its capacities.

And Kombinat Khliboproduktiv Talne took the second position. The company faced some re-branding, and it is now called Ukrainian flour milling company. A well-known producer, Roma Commercial Manufacturing Company LLC remained in the list, as well as Agrarian Fund PJSC returned to the list of major exporters. Just ten companies shipped 375.6 thsd tonnes, or 84.8% of the general annual exports, from the general volume of 80 companies which exported flour last year.

In addition, Vinnytsia bread factory #2, Enlil LTD, Agrarian Fund PJSC, and other permanent members of the rating still remained at their traditional positions. Also, Chmielnicki Mlyn Group entered into the "club" after launching of a new mill.

The forecasted volumes of exports in 2017/18 MY are equally impressive. Despite the fact that Ukraine increased flour shipments to Africa, it is surely not enough. It is necessary to return the market of Syria, develop the sales to Iraq, Libya and Angola. The reporting countries can absorb the whole export potential of Ukrainian flour.

The forecast for flour exports from Ukraine in 2017/18 MY totals 600 thsd tonnes in wheat equivalent, on the basis of the shipment dynamics in the first months of 2017/18 MY. In the absolute weight the volume totals 450 thsd tonnes of flour. I think that Ukraine can even exceed the forecast figures.

Sergei Sakirkin, Director of production operations department at Agrarian Fund PJSC