In the conditions of transition to the market economy relations, Ukrainian animal husbandry, including dairy industry, found itself on the edge of surviving. This resulted in rapid decrease of milking herd, reduced volumes of milk production, ageing of material and technical base, deterioration of the infrastructure and product market etc. Since 1990, milking livestock decreased more than twice in 15 years by the present moment and as of the end of 2005 amounted to only 45% of the 1990 livestock. However, it should be noted that during the period of development of the independent state the largest losses were incurred to the beef-producing industry. This was a result of ruthless mass cattle slaughtering (including milking livestock) for meat and skin for further export and active export of live cattle to Turkey, Lebanon and other states, which led to a decrease of cattle livestock from 24.6 million beasts in 1990 to 6.7 million beasts in late 2005.
After the collapse of the system of collective farms and state-owned farms, the structure of livestock distribution between the state and the private sectors of agricultural production has also changed during the last 15 years. At the same time, low living standards in rural areas as well as shortage of primary dairy products during the period of creation and development of milk-processing industry facilitated concentration of cow population and production of main volumes of primary dairy products in private households. Since 1990, we have witnessed a drastic change in the pattern of distribution of cow population between the state and the private sectors: whereas in 1990 it was 74:26, by the end of 2005 this indicator turned completely reverse and became 24:76.
In the structure of manufacturing primary dairy products there is also a stable tendency toward the expansion of private sector, which actually reflects the tendency of distribution of cow population between agricultural enterprises and private households. Since 1990, gross milk production within the public sector (18.6 million t) by the end of 2000 decreased nearly fivefold and became 3.7 million t, and by the end of 2005 it was already 2.58 million t. Simultaneously, over the same period milk production in the private sector increased – by the end of 2005 it achieved the level of 11.2 million t, which is twice as much as in 1990 (5.9 million t). In 2005, 81% of the total volume of milk production was manufactured in private households whereas in 1990 they accounted only for 24%.
As a result, over the years of Ukraine’s independence, production of milk per capita dropped from 472.3 kg in 1990 to 293 kg in 2005.
Among other reasons, shortage of forage and higher forage prices resulted in increased manufacturing costs and decreased profitability of milk production by agricultural enterprises. Whereas in 1990 profitability of milk production was +32.2%, in 1995 it dropped to a lowest point in 125 years and was -23.2%. Only in 2005 milk production became profitable again – from minus 0.4% in 2004 to plus 12.6%, which was very much facilitated by high demand from processing companies.
A very important factor explaining low profitability of milk production during these years was prevalence of small-scale production that failed to meet international standards often not meeting even the National Standards of Ukraine. Regardless of the overall positive tendencies of development of milk-processing industry, this actually caused a crisis of milk industry as a whole that began in early 2006 after introduction of a ban on importing Ukrainian animal husbandry products to the territory of Russia. In view of this fact, one of the ways of ensuring efficient functioning of dairy cattle breeding, according to the experts, will be increased productivity of milking herd due to development of large-scale farms using best practices of keeping and feeding (loose housing).
Crisis in Ukrainian animal husbandry branch had an impact also on performance of milk-processing enterprises. Over the years of development of market economy, the principal production facilities decreased more than twice: in 1990 domestic milk processing factories processed approximately 20 million t of milk and now, according to the expert assessments – not more than 8.0-8.3 million t. As a result, consumption of milk and dairy products in Ukraine decreased from 373 kg/year per capita in 1990 to 228 kg/year in 2005.
At the same time, over the last 5 years, Ukrainian milk-processing industry got over the outcomes of the process of development of market economy relations that was characterized by a rapid decrease of production of dairy products in 1991-2000, deterioration of product markets and raw materials basis, reduction of dairy products consumption etc. At present, domestic dairy products have nearly ousted imported products from the market basket of an average Ukrainian consumer. By 2006, the dairy products market actually approached the level of saturation although consumption of dairy products today is far from recommended norms because of the existing low spending capacity of population and the growth of retail process for many consumer goods, including dairy products.
A ban on import of animal husbandry products to the territory of Russia was introduced in early 2006 and had a destructive impact on the overall market development, especially on marketing policy of enterprises whose foreign trade was concentrated only on Russian market that in the long run disrupted the production processes of domestic milk-processing enterprises after introduction of Russian embargo and made the manufacturers of export-oriented dairy products seek new ways to diversify their foreign markets. This problem raised the question as to the raw materials resources of domestic milk-processing industry, which is the sticking point also for Ukraine’s WTO accession. It is well known that 70% of milk comes to the milk-processing enterprises from private households and not from large milk farms.
Although the state is taking certain steps to strengthen domestic animal husbandry, including adoption of various programs or introduction of partial subsidies for agricultural producers, the respective market is still suffering crisis, which leads to instability of raw materials supply for the milk-processing industry. Milk prices fail to cover even sheer reproduction of livestock in individual animal husbandry sectors. There is no forecasting of prices and demand for milk. In view of unpredictability of developments on the animal husbandry market (epizootic situation, instability of prices for energy resources and combined animal fodders, problems related to selling dairy products on the foreign market, instability of trade relations with Russia and other) as well as underdeveloped milk production processes on large-scale farms, one can not talk about any significant achievements within the dairy cattle breeding sector. Besides, the issue of quality of primary dairy products became even more important for milk-processing enterprises in view of Ukraine’s WTO accession and EU integration as well as emerged problems regarding export of Ukrainian dairy products to Russia.
In order to ensure Ukraine’s food independence and safety there is a need to carry out certain measures to radically improve situation in all segments of animal husbandry and milk-processing industry. The branch requires significant governmental and financial support, including low loan rates, timely subsidies, regulated foreign trade in animal husbandry products, harmonization of domestic standards within the framework of international requirements and, finally, enhanced competitive potential of Ukrainian dairy products both on the domestic and on the foreign market. Apart from development of an efficient economic mechanism to support this branch, there is a need to create political environment stimulating development of entrepreneurship and market relations.
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