Ukrainian cheese producers must look beyond ‘unreliable’ Russian partner, analyst

By Ben Bouckley

- Last updated on GMT

Related tags Russia

'Cheese War': The war of words between Russia and Ukraine is escalating (Photo Copyright: Ingo Bernhardt)
'Cheese War': The war of words between Russia and Ukraine is escalating (Photo Copyright: Ingo Bernhardt)
Ukrainian cheese producers must look beyond their ‘unreliable partner’ Russia in an effort to secure new markets for cheese in regions such as the EU, according to a locally based analyst.

As we reported last Friday, Ukraine’s three largest cheese producers (have been rocked by an export ban imposed by Russia​) their largest overseas customer within the context of an export market worth $370m (€281m) to the nation.

Ostensibly this is due to product quality (claimed presence of palm oil in exported cheese that is fiercely denied). But commentators have pointed to higher political stakes, notably Russian pressure to entice Ukraine into it sphere of influence, notably its Customs Union (with Belarus and Kazakhstan) that removed customs borders from July 2011.

Taras Gagalyuk, director of AgriSurvey Agency, Ukrainian Agribusiness Club, told that he didn’t envisage a rapid resolution to the dispute: “From the standpoint of Ukrainian producers, it would be very nice if we solved the problem in a few weeks, but at the moment it doesn’t look as if the issue will be solved positively within this timeframe.

“This is the not the first so-called ‘food war’ between Ukraine and Russia and we have had to think about new sales before this point – but this is hard issue here now.”

Lucrative Russian market

“Yes, our producers should have recognised before now that Russia is an unreliable partner, so we have to look for new markets. But at the same time there is no better market for our products, in terms of proximity and market value. So it is difficult to reorient ourselves towards other markets, but we have to look for them.”

Gagalyuk explained that, last Friday, the Ukrainian Minister of Agricultural Policy and the chief of the nation’s veterinary service travelled to Russia to try and broker a solution.

He said: “They came back with the good news that everything would be OK: there would be a working group comprising Russian and Ukrainian officials, who would check factories that were banned from exporting cheese.”

“But then at the weekend our Prime Minister [Mykola Azarov] made a speech, within which he said: ‘There is no palm oil in Ukrainian cheese, it is better than Russian cheese.’ This led to a new wave of negative claims from the Russian side,”​ Gagalyuk added.

Accordingly, on Monday the chief of Russia’s consumer rights protection service, Rospotrebnadzor,Gennady Onishchenko, said he interpreted Azarov’s comments as proof that the Ukrainian minister of agricultural policy had no authority to negotiate a resolution to the so-called ‘cheese war’.

Gagalyuk said: “So far there is no working group – no-one came to Ukrainian factories to check them. We are still waiting for further news as to how the Russian party will behave.”

In 2011, the three producers with plants subject to export bans (Milk Alliance Holding’s cheese factory in Pyriatyn and its rivals with sites in Hadiachsyr and Prometei), accounted for around 74% of the Ukraine’s total cheese exports to the country, Gagalyuk said.

Discussing Milk Alliance Holding’s announcement that it halted production at its Pyriatyn site last week on account of the ban, he added:

“This raises the issue of how justified the Russian claims are. Milk Alliance Holding is a public company with shares quoted on the Warsaw Stock Exchange, and it would not be reasonable for them to use palm oil to produce cheese. They’d be clever not to do that.”

Instrument of influence

Gagalyik added: “This brings us to the political dimension of this issue. Most experts here in the Ukraine agree that is more a political issue, rather than just an issue of technology and production processes.”

Expanding on this last point, he said: “Experts here emphasise that this ban is an instrument of influence for engaging Ukraine within the Customs Union, especially since we have not received any official documents about the analysis of the cheese that was banned for export.”

Discussing other export possibilities, Gagalyuk said: “After negotiations with the EU we now have zero import duty for cheese, though hard work has to be done to enter the European market. But still this is a possibility, especially in regard to countries in the former Socialist [Eastern] bloc countries.”

He added: “If we are successful in this regard then it shouldn’t be a problem to export to other countries such as North Africa, the Middle East, even India. We also need to pay attention to our Caucasian partners, because we still have good connections with them.”

Gagalyuk supplied statistics showing that Ukrainian exports of cheese accounted for 80,000 tons in 2011, with 66,000 going to Russia, 8,000 tons to Kazakhstan, 2,000 tons to Moldova, and the rest to other countries. Total Ukrainian export sales of cheese that year were worth around US $370m.

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