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Ukraine Food and Drink Report Q3 2009
Business Monitor International, July 2009, Pages: 91
The Ukraine Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's food and drink industry
In the Food and Drink Business Environment rankings for Q309, Ukraine ranks 10th out of 14 major CEE markets, having occupied the last position in Q408 and 12th in Q209. The improvement of Ukraine’s position is based more on the more serious worsening of absolute scores of other countries, rather than on a significant positive change in the Ukrainian operating environment. In fact, Ukraine has also been badly hit by the global economic crisis, and its believed Ukraine's economy is teetering on the brink of a double digit contraction. Although the publisher has pencilled in a decrease in real GDP of 7.2% in 2009, we caution that risks remain weighted heavily to the downside, and do not rule out the possibility of growth falling below -10%. Additionally, its currency recently plummeted below UAH10.0/1US$, with further depreciation likely, which will be negatively reflected in US dollar values of its food and drinks markets as well as the country’s attractiveness as a destination for food and drinks , and in terms of mass grocery retail (MGR) investments by foreign players.
The above factors, as well as the challenges posed to domestic players by the country’s recent accession to the World Trade Organisation (WTO), will likely result in some industry consolidation over the coming months. For example, local press recently reported that Ukrainian sugar refineries were potentially facing closure amid increasing sugar imports and a drop in the acreage devoted to sugar beet production. Similarly, private equity fund Russia Partners a subsidiary of US-based private equity group Siguler Guff & Company, recently reported that it is considering a move for Ukraine based dairy company Milkiland, one of the country's biggest dairy companies, with an estimated annual turnover around US$180mn. Bearing in mind that the company has six dairy plants across Ukraine and the fact that the country has a population in excess of 45mn, Russia Partners will no doubt look to use its managerial and financial expertise to push up turnover, if it is able to strike a deal with the dairy company. However, according to research firm Proteus Insight, adverse economic conditions have already led to a fall in dairy consumption across a number of Central and Eastern Europe (CEE) and Commonwealth of Independent States (CIS) countries, including Ukraine. In the meantime, other local dairy producers, such as Ukrproduct, are contending with falling profits, in the face of lower prices of skimmed milk powder.
In the MGR sector, recessionary pressures are likely to boost the performance of the discount and private label goods during the current year, bringing down overall food and drinks values. Additionally Ukrainebased hypermarket chain Karavan’s recent talks with Germany-based discount MGR Lidl fuelled speculation that the latter is looking to venture into the Ukrainian market. Lidl had previously bought and sold a plot of land in the country, without making its entry at the time. Its potential entry would further increase pressure on prices, challenging the strong position of current leading discount retailers, including ATB, Intermarket’s Barvinok and Fozzy’s Fora.
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