Ukraine seeks licensing of Belarusian dairy imports after market oversupply

Ukraine's Ministry of Agrarian Policy and Food has asked the Ministry of Economic Development to introduce licensing for imports of part of customs group 04 — milk and dairy products — in a move aimed at deliveries from Belarus. The request went out on 27 September in a letter signed by First Deputy Minister of Agrarian Policy Yuriy Bisyuk, according to Forbes.ua.

The letter states that the step was proposed "with the aim of protecting the national producer" and asks the economy ministry to examine "the possibility of applying licensing to imports of certain goods of group 04 (milk and dairy products) for the current year". Licensing makes individual consignments conditional on a permit rather than on a tariff, which gives the government a direct lever over volumes entering the country.

Processors and price inspectors pushed first

The agriculture ministry acted on complaints from the State Price Inspectorate and the Union of Dairy Enterprises, both of which had written asking for measures to restrict Belarusian dairy imports, ipress.ua reported. The Ukrainian market is described as oversaturated with Belarusian product, and the shipment data supports that reading.

• 12,530 tonnes of dairy products were shipped from Belarus to Ukraine in the first eight months of 2013, worth $27 million in total.
• That already exceeds full-year 2012 deliveries — by 4% in volume and by 10% in value — with four months of the year still to run.
• Belarus processes about 6 million tonnes of milk a year with a population of roughly 8 million; Ukraine processes about 4.5 million tonnes with 48 million people.

A raw-milk cost gap of 15 cents

The economics behind the flow are straightforward. A litre of high-quality raw milk costs the equivalent of 35 cents in Belarus against 50 cents in Ukraine. The gap is attributed to the planned model in the Belarusian dairy sector, where the state controls the industry tightly and promotes export growth by every available means.

The capacity picture reinforces the price picture. Belarus runs more milk through its plants than Ukraine does while holding a sixth of Ukraine's population, so far more product is processed than 8 million domestic consumers can absorb. Ukraine, with 48 million people and a higher raw-material cost base, is the nearest large outlet, and the publication notes that this makes it a very attractive destination for Belarusian processors.

Brands and the GOST argument

The best-selling Belarusian dairy brands in Ukraine are Savushkin Produkt, Babusyna Krynka and Mozyr Dairy Products. Ukrainian producers object not only to what they describe as large-scale illegal shipments from Belarus, but also to Belarusian advertising, which they say denigrates local output. "They constantly refer to Soviet GOSTs, implying that Ukrainian products do not comply with them," said Andriy Dykun, president of the Association of Milk Producers.

The decision sits with the economy ministry

The agriculture ministry's letter is a proposal, not a measure: the decision rests with the Ministry of Economic Development, and the requested scope covers the current year only. Producers and agrarian lobbyists strongly back the restriction, ipress.ua reported. Demand is also moving: the same outlet separately reported that the average Ukrainian now consumes 5 kg more dairy products a year. Licensing would apply to official customs flows, while the complaints about illegal deliveries point to an enforcement problem that permits alone would not close.