Ukraine Food and Drink Report

Ukraine brings up the rear in BMI's regional Food & Drink Business Environment Ratings table for Q409. Still hamstrung by a regulatory environment that does little to inspire confidence among investors, Ukraine's dreadful near-term economic outlook has sent it plunging down our ratings table. A forecast 14.7% contraction in GDP in 2009 has unsurprisingly had a profound impact on some of the country's leading food processors as discussed in BMI's recently published Ukraine Food & Drink Report for Q409.

In August 2009, Ukraine's largest confectionery firm Roshen, usually a consistently strong performer, reported lacklustre H109 results (through to June 30). Value sales were down 17.5% year-on-year (y-o-y) to UAH2.6bn (US$330mn) while volume sales remained largely unchanged at 180,000 tonnes. Roshen was not helped by the adverse foreign exchange climate induced by the weakness of Ukraine's economy; between H108 and H109, the Ukrainian hryvnia shed almost 70% of its value against the US dollar, which probably affected Roshen's foreign currency reported value sales. Manufacturing a wide range of sugar confectionery and chocolate products across a growing number of price segments which together account for about 35% of total confectionery volumes in Ukraine, Roshen remains well placed to capitalise on BMI's forecast that through to 2013, confectionery value sales will increase by 28.3% and reach UAH10.7bn.

Although the cataclysmic present state of Ukraine's economy has negatively impacted the majority of the country's main food and drink firms, some companies have seized the opportunity to capitalise on downtrading trends. Earlier this quarter, Myronivsky Hliboproduct (MHP), a leading Ukraine-based vertically integrated meat processing firm, reported a 6% increase in poultry volume sales in H1 of its 2009 fiscal year (through to June 30 2009). Volume sales reached 116,300 tonnes with the downturn hitting its poultry unit as consumers traded down from more expensive meats. BMI believes that MHP is ideally placed to capitalise on our forecast that through to 2013, poultry consumption in Ukraine will increase by 33% and reach 771,000 tonnes.

Despite Ukraine's shoddy near-term economic outlook, it does provide companies something most countries across Central and Eastern Europe (CEE) cannot, a large market. With a population of 46mn (albeit one that is declining), only Russia has a greater consumer base. Earlier this quarter, Swiss behemoth Nestl?(C) announced plans to invest about UAH200mn (US$26mn) to increase capacity at its Ukrainian manufacturing facility managed by its food condiments subsidiary Volyn. At under US$350, Ukraine's per capita food consumption is one of the lowest in CEE and retains plenty of scope for growth.

Through to 2013, Nestl?(C) will look to capitalise on BMI's forecast that food consumption will increase by 35.1% and reach UAH120.6bn.