Required Report - public distribution

**Date:** 10/20/2005

**GAIN Report Number:** UP5018

UP5018

**Ukraine**

**Dairy and Products**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)W. Garth Thorburn II

U.S. Embassy Kiev, Ukraine

**Prepared by:**

Oleksandr Tarassevych, Ag. Specialist

**Report Highlights:**

Production of dairy products in Ukraine will continue to increase in
2006 despite problems throughout the domestic industry with raw milk
supplies, milk quality and value added tax export reimbursements.
Production of cheese and whole milk products will increase, while
production and exports of butter and non-fat dried milk will depend on
world market prices and prices in neighboring Russia. Exports of U.S.
dairy products to Ukraine are unlikely. Ukrainian nonfat and whole milk
powder competes with U.S. products on the world market. Ukraine's import
tariffs remain high and are an obstacle to legal trade in dairy
products.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Kiev \[UP1\]

\[UP\]

Table of Contents

[**Executive Summary 3**](#executive-summary)

[Production 3](#production)

[Consumption 4](#consumption)

[Trade 4](#trade)

[Cheese 4](#cheese)

[Butter 5](#butter)

[WDM 6](#wdm)

[Policy 7](#policy)

[Statistical Tables 9](#statistical-tables)

[Cattle Inventory and selected indicators for 8 months of 2004 and 2005
9](#cattle-inventory-and-selected-indicators-for-8-months-of-2004-and-2005)

[Fluid Milk PSD Table 9](#fluid-milk-psd-table)

[Fluid Milk Retail Price Table 10](#fluid-milk-retail-price-table)

[Cheese PSD Table 10](#cheese-psd-table)

[Cheese Export Trade Matrix 11](#cheese-export-trade-matrix)

[Cheese Import Trade Matrix 11](#cheese-import-trade-matrix)

[Cheese Retail Price Table 12](#cheese-retail-price-table)

[Butter PSD Table 12](#butter-psd-table)

[Butter Export Trade Matrix 13](#butter-export-trade-matrix)

[Butter Import Trade Matrix 13](#butter-import-trade-matrix)

[Butter Retail Price Table 14](#butter-retail-price-table)

[Nonfat Dry Milk PSD Table 14](#nonfat-dry-milk-psd-table)

[Nonfat Dry Milk Export Trade Matrix
15](#nonfat-dry-milk-export-trade-matrix)

[Nonfat Dry Milk Import Trade Matrix
15](#nonfat-dry-milk-import-trade-matrix)

[Nonfat Dry Milk Wholesale Price Table
16](#nonfat-dry-milk-wholesale-price-table)

[Dry Whole Milk Powder PSD Table 16](#dry-whole-milk-powder-psd-table)

[Dry Whole Milk Powder Export Matrix
17](#dry-whole-milk-powder-export-matrix)

[Dry Whole Milk Powder Import Matrix
17](#dry-whole-milk-powder-import-matrix)

[Whole Dry Milk Wholesale Price Table
18](#whole-dry-milk-wholesale-price-table)

# Executive Summary

Production of cheese and whole milk products is expected to grow
significantly in 2006, while production of butter, non-fat dried milk
(NFDM) and whole dried milk (WDM) for export is expected to grow
moderately. Production of export oriented dairy products will remain
highly dependant on world market prices and market regulations in
neighboring Russia. In 2006, Ukraine is expected to increase its export
market share for cheese and butter in Russia, but will remain a sporadic
supplier to other international markets. Efficiency of Ukrainian dairy
farms is expected to increase further in 2006. Production of fluid milk
is on the rise, while the absolute number of dairy animals will continue
to decline.

The low quality of Ukrainian products will continue to hamper Ukraine's
ability to supply international markets, although Ukrainian products
will continue to be welcomed by Russian and Former Soviet Union (FSU)
consumers. Only exports of dried milk will remain diversified. Ukraine's
expansion to other markets is highly unlikely due to the existing
structure of Ukrainian raw milk suppliers and the failure of government
programs aimed at increasing fluid milk quality. Imports of dairy
products into Ukraine are not expected to be significant either.

# Production

Milk production in Ukraine stabilized in mid-2005. Agricultural
producers responded to rapid raw milk price increases by increasing
fluid milk supplies. Notably, despite stable or only marginal increases
in gross milk yields, the number of animals held by both industrial
farms and households continued to decrease. Efficiency increases are
clearly evident in the industrial sector where cow inventories decreased
by 12.2% as of July of 2005 compared with July 2004, however suppliers
still managed to increase total raw milk yields by 1.9%.

The majority of dairy processors and the Ukrainian Dairy Union
criticized official statistics for overestimating the country's milk
yields, but could not present a reasonable argument to back up their
claims. It is not clear whether intensive growth of Ukraine's dairy
processing sector led to the impression that statistical information is
not accurate, or if there are some problems with data collection and
aggregation. PS&D tables below are based on official statistical
indicators and corrected according to official numbers.

There is a sharp contrast between production of dairy products
(precipitous increase) and production of raw milk (stable). So far
Ukraine's dairy industry has been able to cover supply shortages by
increasing industrial processing of milk. In 2006 it will be more
difficult to procure increased amounts of milk to satisfy growing demand
of whole dairy products and cheese producers. An overestimation of the
fluid milk industrial use indicator is possible in the PS&D tables due
to production of fake butter, WDM and NFDM and double counting in some
industrial processes. The State Statistics Committee of Ukraine does not
report on industrial use of milk, thus FAS/Kiev estimates are used.

In 2006 raw fluid milk will continue to be procured from both industrial
farms and household plots (33% and 67%, respectively). Fluid milk
procured from households will remain the second choice for Ukrainian
dairy processors because of low quality. In Ukraine, cows on household
plots are milked with bare hands and the sanitary conditions of the
aggregated milk supply is very difficult to control. According to a
report by the Ukrainian Dairy Union an average large Ukrainian dairy
producer procured milk from as many as 20,000 suppliers. Many producers
pay a premium price for milk from industrial farms in an attempt to
reduce the dependence on household supplies. In some cases 3 and more
dairy plants compete for milk supplies from a given industrial farm. In
2005, only 20% of all milk produced in Ukraine is produced by industrial
dairy farms. The situation is not expected to change in 2006. Low milk
quality makes production of high quality cheese impossible and creates
problems for producers of whole milk products.

In 2006, it's expected that the price of milk will remain high limiting
production of Ukrainian cheese and butter. Facing milk shortages and
high fluid milk prices, producers will pay more attention to high value
added and the innovative dairy product segment. The growth rate in
production of bio-yogurts, soft cheese deserts, glazed soft cheese, milk
and juice mixes is twice as high as the growth rate for traditional
dairy products.

Mergers and strategic alliances will continue to reshape Ukraine's dairy
processing sector. Larger facilities allow dairy companies to procure
fluid milk from a bigger area, cut marketing and transportation costs,
and add operational stability through regional market control.

# Consumption

Domestic consumption of dairy products in 2006 is expected to grow in
response to consumers' income growth. It is likely that the domestic
market for cheese, whole milk and butter products will mature in 2006
and the sudden and sporadic fluctuations will stop. Ukrainian consumers
will continue to migrate towards dairy products produced in industrial
operations and away from traditional curd cheese and sour milk products
(reflected in PS&D as part of fluid use domestic consumption). Demand
for innovative products (yogurts, soft cheese, milk and juice mixes) is
expected to increase significantly. Profitability of this market segment
will remain the highest and the majority of Ukraine's producers of whole
dairy products will compete in this area. The growing demand for
domestic whole dairy products also drives up domestic demand for NFDM
and WDM during the winter. Traditionally produced for export, now these
two products find consumers within Ukraine.

The variety of traditional and new dairy products offered by Ukrainian
producers makes it very difficult to import products. Some imports of
cheese or specialty whole dairy products are possible but only for the
gourmet and fine foods market segment.

# Trade

In 2006 Ukraine will remain one of the largest suppliers of dried milk
and dairy products in Eastern Europe. Import demand will remain
insignificant. The majority of this demand is for consumer oriented
dairy products, high value added and premium segments. There will be no
demand for bulk dairy products. Relatively high (prohibitive for some
products) import tariffs will limit existing import demand even more.
Profitable legal imports of yogurts, cheese, butter and ice cream are
hardly possible, although a variety of these products can be found in
Ukrainian supermarkets.

In 2006, low quality products and raw milk shortages will limit the
export capability of the Ukrainian dairy industry. As export markets in
Russia and other FSU countries mature, fewer consumers will purchase
Ukrainian cheese and butter despite their lower prices. In 2006 Ukraine
will remain a net exporter of dairy products with major markets in
Russia and other FSU countries. The macroeconomic situation in Ukraine
is stable and is not expected to influence Ukraine's export shipments.

## Cheese

Production and export of cheese will continue to be the fastest growing
sector of the Ukrainian dairy industry in 2006. Dairy processors will
continue to view cheese production as a major money generating activity.
Concomitantly, industry-wide problems with quantity and quality of raw
milk will become a significant obstacle to production and export
increases.

Ukrainian cheese makers will continue to expand production and attract
additional investments in operational capital and equipment. In 2005,
the concentration of cheese production increased significantly.
Currently, the 9 largest companies are responsible for 51% of total
cheese production with each capturing a market share that range between
3% and 9%. According to Ukrainian Dairy Union data, 5 companies
undertook major acquisitions in 2004-05 buying less efficient
counterparts in order to increase production and market share.

In 2006, Ukrainian dairy producers will continue to increase cheese
production in an attempt to satisfy growing export demand in Russia.
Eastern European Markets for Ukrainian cheese (mostly in Czech Republic
and Poland) were closed down shortly after EU enlargement and it is
unlikely that Ukrainian product will return to those markets in the
foreseeable future. (Please refer to the policy section of this report
for more details.) Within country demand for hard cheese was satisfied a
long time ago. Some domestic consumption increases are possible due to
low-income consumers and income growth for retirees. It is likely that
in 2006 Ukrainian consumers will pay more attention to cheese quality,
so growth in the upper market segment is expected.

The cheese industry will remain export oriented with many
export-oriented companies and brands. Consequently, the industry will
remain vulnerable to Russian market price fluctuations. Russia will
continue to be the largest consumer of Ukrainian cheese, responsible for
over 95% of Ukrainian export sales (and over 45% of Russian imports).
Affordable mid-quality Ukrainian cheeses which are indistinguishable
form locally produced brands will continue to be popular among not so
wealthy Russian consumers. In March 2005, an attempt to increase import
duties for lower priced cheese was called for by some major Russian
cheese producers. If introduced, the duties will not impact Ukrainian
cheese exports which currently enter Russia under an existing Free Trade
Agreement (FTA). Conversely, the imposition of a tariff would allow
Ukrainian cheese makers to increase market share in Russia even more in
order to fill niche markets left by other (mostly Eastern European)
suppliers.

Production and exports of dried whey are growing rapidly along with
increased cheese production. Reasonably priced product is used as a NFDM
substitute in production of many dairy products. Production of this
commodity is expected to increase greatly in the second half of 2005 and
in 2006.

## Butter

Ukrainian butter production is driven mostly by butter demand in
neighboring Russia and the world price for NFDM. These two factors are
the reasons for the stable production in 2005 and sluggish exports. The
same factors will shape Ukraine's production and exports in 2006. Given
current prices in foreign markets, production is expected to remain at
current levels or grow marginally, while exports to neighboring Russia
are expected to be slightly higher than in 2005.

Significant PS&D production and trade estimate revisions were made for
2005. The reasons for the revision was the low world price for NFDM and
the reluctance of Russian importers to procure low quality Ukrainian
butter at a price that is 10-12% higher than in 2004. Facing high raw
milk prices, Ukrainian producers had to maintain relatively high offer
prices throughout the winter of 2004-2005. Seasonal price fluctuations
for butter that were evident in previous years were less evident in
2005, which led to a significant drop in exports during late summer
months. Many Ukrainian producers switched to high value added
commodities (mostly whole milk products and cheese).

Another significant draw back for Ukrainian exports and for the domestic
market was relatively low butter quality. Many producers (especially
smaller ones) intensively used tropical oils (mostly palm oil) and
deodorized fish fat as a substitute for milk fat in butter. Unlabeled
butter produced with tropical oil ingredients is sold mostly through
open-air outlets in small towns. The extend of the problem is difficult
to estimate or to reflect in the PS&D table, but some Russian buyers
complained that they could not find a single shipment of good quality
butter on the Ukrainian market for some time. Some butter manufacturers
blame consumers, who prefer cheaper products to higher quality products,
thus driving producers to make fake (substitutable) butter. Other butter
plants followed their dishonest competitors in order to stay in
business: profitability of real butter sold at market prices is close to
zero. Even the Ukrainian State Reserve Fund procured only low quality
product, which was later sold on the domestic market for further
processing at a huge discount.

One should notice, that despite relatively stable PS&D production and
export indicators for 2006, the butter market in Ukraine is subject to
significant volatility. 2006 estimates are based on current butter and
NFDM prices. Butter production in Ukraine is quite flexible. Many
companies possess significant, and not fully utilized facilities,
therefore production can be substantially increased or decreased at any
moment.

Russia will continue to be the main buyer of Ukrainian product in 2006.
Ukrainian butter remains competitive in the low price segment of the
Russian market and is exported under a free trade agreement, which makes
it immune to changes in the Russian import regime.

Growing raw fluid milk prices and insignificant demand for Ukrainian
NFDM and butter in some export markets resulted in a slight production
and export decrease for NFDM compared with previous year estimates.
Increased wholesale prices for export-size allotments reduced interest
in Ukrainian NFDM from traditional buyers (Far East and Northern
Africa). The simultaneous appreciation of the Ukrainian currency from
5.05 UAH per US 1 dollar to 5.03 UAH made exports in 2005 even less
profitable. In 2006, production of NFDM will continue to depend on world
market prices and butter prices in neighboring Russia. Producers will
base their production decisions for NFDM and butter, cheese or whole
milk products on which product, or combination of products, will result
in the highest revenue**.** Obviously, high returns for cheese and whole
milk dairy products will continue, while production of NFDM will remain
dependant on availability of raw fluid milk.

Since last year's estimation was based on strong world market demand for
Ukrainian NFDM, the PS&D estimates for 2005 were decreased to reflect
the market situation. Ukraine's State Statistics Committee stopped
gathering information on NFDM, so FAS Kiev estimates are used. Ukrainian
NFDM will continue to be sold as animal feed to EU countries and Japan,
while Russia, Asia and African countries will purchase the same product
for human consumption. Import of NFDM (if any) into Ukraine will be
minuscule in 2006. Occasional shipments of high value added products
(such as whey protein) are possible to satisfy demand of the local
processing industry. It is highly unlikely that U.S. exports of NFDM to
Ukraine will resumed in 2006.

## WDM

Production of whole dried milk increased in 2005 and that trend is
expected to continue in 2006 despite high prices and diminishing demand.
Production and export increases in 2005 and 2006 are possible only if
prices for NFDM and butter stay at current low levels. The domestic
market for WDM is growing, driven by significant seasonality in milk
production and growth in the milk processing industry. In many cases WDM
is the only way to maintain stable production of whole milk products
during winter months.

Ukraine's State Statistics Committee stopped reporting WDM production
numbers, so adjustments to PS&D numbers are based on FAS Kiev's
estimates and industry information. Similar to other dairy products,
production of WDM in Ukraine will depend on availability of fluid milk
and prices of other dairy products. The significant level of idle
facilities allow producers to increase production of WDM should prices
increase.

## 

# Policy

The law changing the Customs Tariff Schedule was adopted by the
Ukrainian Parliament in July 2005 and was implemented on August 16,
2005. Tariff rates for milk and dairy products were left unchanged and
remain at prohibitive levels ranging from 0.1 EUR per 1 kilogram of
fluid milk to 1.5 EUR per kilogram of butter.

Beginning January 1, 2006, Ukrainian dairy enterprises will not be able
to procure milk from unidentified animals. The Ministry of Agrarian
Policy is attempting to speed up a nation wide animal registration
campaign. The goal is to increase safety through increased tracebility
of animals. The process was started last year and targeted meat and
dairy products. The registration process was especially slow in
households, from which 67% of raw milk is procured in Ukraine. Private
households are not expected to fully comply with this regulation by the
end 2005, so the ban is likely to be ignored by both milk producers and
dairy companies.

During 2005, the Ministry of Agricultural Policies of Ukraine tried to
establish minimum prices for milk. The policy was designed to secure
incomes for milk producers at the expense of processors and consumers.
Proposed methods were inflexible, lacked regional, spatial and
industrial farm/household differentiation, and failed to secure minimum
profitability margins for dairy plants. Attempts to regulate milk prices
are expected to continue in 2006, but will be ineffective.

In early 2005 Ukraine introduced compulsory attestation for milk
producing enterprises and dairy processing companies. In order to
received the attestation the companies are required to submit a set of
documents that prove their ability to produce milk and milk products in
accordance with existing norms and standards. The attestation is free
and valid for a 5 year period. Production and processing of milk and
dairy products by unattested companies is prohibited. As a result of
these procedures Ukraine is going to compile a single "State Register"
for milk and dairy product producers that should work towards assisting
Ukrainian dairy products in gaining access to European markets in the
future. However, registration of the millions of private households,
which account for over 67% of all milk sales, is highly dubious. These
gapes in the system will undermine the idea of an attestation.

Timely reimbursement of the value added tax (VAT) to exporters of
cheese, butter and other dairy products remains a problem. Some
exporting companies reported a slow down in exports during spring 2005.
This was a direct result of reimbursement delays that led to cash flow
problems. This problem is expected to persist in 2006. Export of dairy
products may slow down temporarily or even stop in some instances.

In early 2004, an attempt to introduce more strict veterinary and
sanitary requirements for raw milk production failed. According to
information from the Ukrainian Dairy Union no Ukrainian dairy processors
apply the new standards to procure milk, since the quantity of milk in
compliance with the new standards is insignificant. In 2006 the quality
of procured milk is not expected to change, since the majority of it
will continue to be supplied from private households.

# Statistical Tables

## Cattle Inventory and Selected Indicators (for 8 Months of 2004 and 2005)

  ------------------ ------------- ------------- ------------- ------------
  Category           Measure       8 months of   8 months of   2005/2004
                                   2004          2005          Ratio, %

  Number of cows     1000 heads    4231.3        3932.2        92.9

  \- big industrial  1000 heads    1034.5        906.4         87.6
  farms                                                        

  \- households      1000 heads    3196.8        3025.8        94.7

  Gross milk yield   1000 tons     9647.6        9659.3        100.1

  Milk yield per cow kilograms     1884          2196          116.6
  (year's average                                              
  cow number is                                                
  used)                                                        
  ------------------ ------------- ------------- ------------- ------------

Source: State Statistics Committee of Ukraine

## Fluid Milk PSD Table

  ------------------------ ---------- ---------- ---------- ------------ ---------- ----------
  Country                  Ukraine                                                  

  Commodity                Dairy,                           (1000                   
                           Milk,                            HEAD)(1000              
                           Fluid                            MT)                     

                           2004       Revised    2005       Estimate     2006       Forecast

                           USDA       Post       USDA       Post         USDA       Post
                           Official   Estimate   Official   Estimate     Official   Estimate
                           \[Old\]    \[New\]    \[Old\]    \[New\]      \[Old\]    \[New\]

  **Market Year Begin**               01.2004               01.2005                 01.2006

  Cows In Milk             4330       43130      4000       3950         0          3910

  Cows Milk Production     13280      13787      13240      13800        0          13800

  Other Milk Production    270        319        280        320          0          320

  TOTAL Production         13550      14106      13520      14120        0          14120

  Intra EC Imports         0          0          0          0            0          0

  Total Imports            0          2          0          2            0          2

  TOTAL Imports            0          2          0          2            0          2

  TOTAL SUPPLY             13550      14108      13520      14122        0          14122

  Intra EC Exports         0          2          0          2            0          2

  Total Exports            0          0          0          0            0          0

  TOTAL Exports            0          2          0          2            0          2

  Fluid Use Dom. Consum.   3400       5112       3350       4320         0          4170

  Factory Use Consum.      8600       7444       8670       8300         0          8500

  Feed Use Dom. Consum.    1550       1550       1500       1500         0          1450

  TOTAL Dom. Consumption   13550      14106      13520      14120        0          14120

  TOTAL DISTRIBUTION       13550      14108      13520      14122        0          14122

  Calendar Yr. Imp. from   0          0          0          0            0          0
  U.S.                                                                              

  Calendar Yr. Exp. to     0          0          0          0            0          0
  U.S.                                                                              
  ------------------------ ---------- ---------- ---------- ------------ ---------- ----------

## Fluid Milk Retail Price Table

  ----------------- --------- ----------------------- --------------------
  Country           Ukraine                           

  Commodity         Dairy,                            
                    Milk,                             
                    Fluid                             

  Prices in         UAH       per uom                 1 kilogram

  Year              2004      2005                    \% Change

  Jan               1,87      2,33                    25%

  Feb               1,9       2,41                    27%

  Mar               1,91      2,42                    27%

  Apr               1,89      2,38                    26%

  May               1,86      2,31                    24%

  Jun               1,83      2,29                    25%

  Jul               1,83      2,28                    25%

  Aug               1,84      2,31                    26%

  Sep               1,88                              

  Oct               1,97                              

  Nov               2,08                              

  Dec               2,25                              

  Exchange Rate     5,05      Local Currency/US \$    
  ----------------- --------- ----------------------- --------------------

Source: State Statistics Committee of Ukraine

## Cheese PSD Table

  -------------------------- ---------- ---------- ---------- ---------- ---------- ----------
  Country                    Ukraine                                                

  Commodity                  Dairy,                                      (1000 MT)  
                             Cheese                                                 

                             2004       Revised    2005       Estimate   2006       Forecast

                             USDA       Post       USDA       Post       USDA       Post
                             Official   Estimate   Official   Estimate   Official   Estimate
                             \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year Begin**                 01.2004               01.2005               01.2006

  Beginning Stocks           2          2          2          2          2          2

  Production                 200        224        200        270        0          290

  Intra EC Imports           0          0          0          0          0          0

  Total Imports              2          3          2          2          0          2

  TOTAL Imports              2          3          2          2          0          2

  TOTAL SUPPLY               204        229        204        274        2          294

  Intra EC Exports           0          0          0          0          0          0

  Total Exports              85         94         85         110        0          130

  TOTAL Exports              85         94         85         110        0          130

  Human Dom. Consumption     117        133        117        162        0          164

  Other Use, Losses          0          0          0          0          0          0

  Total Dom. Consumption     117        133        117        162        0          164

  TOTAL Use                  202        227        202        272        0          294

  Ending Stocks              2          2          2          2          0          0

  TOTAL DISTRIBUTION         204        229        204        274        0          294

  Calendar Yr. Imp. from     0          0          0          0          0          0
  U.S.                                                                              

  Calendar Yr. Exp. to U.S.  0          0          0          0          0          0
  -------------------------- ---------- ---------- ---------- ---------- ---------- ----------

## Cheese Export Trade Matrix

  ----------------------- --------------- -------------------- -----------
  Country                 Ukraine                              

  Commodity               Dairy, Cheese                        

  Time Period                             Units:               1 MT

  Exports for:            2003                                 2004

  U.S.                    0               U.S.                 3

  Others                                  Others               

  Russia                  58764           Russia               90167

  Bulgaria                550             Bulgaria             1492

  Czech Republic          1004            Czech Republic       120

  Hungary                 280             Romania              280

  Moldova                 430             Moldova              643

  Azerbaijan              164             Azerbaijan           61

  Kazakhstan              139             Kazakhstan           787

  Total for Others        61331                                93550

  Others not Listed       2                                    23

  Grand Total             61333                                93576
  ----------------------- --------------- -------------------- -----------

Source: State Statistics Committee of Ukraine

## Cheese Import Trade Matrix

  ----------------------- --------------- ---------------------- ---------
  Country                 Ukraine                                

  Commodity               Dairy, Cheese                          

  Time Period                             Units:                 1 MT

  Imports for:            2003                                   2004

  U.S.                    0               U.S.                   0

  Others                                  Others                 

  Denmark                 139             Denmark                210

  France                  39              France                 11

  Germany                 35              Germany                33

  Poland                  357             Poland                 150

  Russia                  1528            Russia                 2457

                                          Armenia                100

  Total for Others        2098                                   2961

  Others not Listed       9                                      18

  Grand Total             2107                                   2979
  ----------------------- --------------- ---------------------- ---------

Source: State Statistics Committee of Ukraine

## Cheese Retail Price Table

  ------------------- ----------------- ------------------- -------------
  Country             Ukraine                               

  Commodity           Dairy, Cheese                         

  Prices in           UAH               per uom             1 kilogram

                                                            

  Year                2004              2005                \% Change

  Jan                 17,23             21,39               24%

  Feb                 17,43             21,99               26%

  Mar                 17,53             22,63               29%

  Apr                 17,58             22,96               31%

  May                 17,53             23,06               32%

  Jun                 17,52             22,94               31%

  Jul                 17,45             22,8                31%

  Aug                 17,47             22,76               30%

  Sep                 17,65                                 

  Oct                 18,22                                 

  Nov                 19,14                                 

  Dec                 20,37                                 

  Exchange Rate       5,05              Local Currency/US   
                                        \$                  
  ------------------- ----------------- ------------------- -------------

Source: State Statistics Committee of Ukraine

## Butter PSD Table

  ------------------------ ---------- ---------- ---------- ---------- ---------- ----------
  Country                  Ukraine                                                

  Commodity                Dairy,                                      (1000 MT)  
                           Butter                                                 

                           2004       Revised    2005       Estimate   2006       Forecast

                           USDA       Post       USDA       Post       USDA       Post
                           Official   Estimate   Official   Estimate   Official   Estimate
                           \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year Begin**               01.2004               01.2005               01.2006

  Beginning Stocks         12         12         5          5          5          5

  Production               170        138        190        140        0          145

  Intra EC Imports         0          0          0          0          0          0

  Total Imports            0          0          0          0          0          0

  TOTAL Imports            0          0          0          0          0          0

  TOTAL SUPPLY             182        150        195        145        5          150

  Intra EC Exports         0          0          0          0          0          0

  Total Exports            35         42         45         30         0          35

  TOTAL Exports            35         42         45         30         0          35

  Domestic Consumption     142        103        145        110        0          115

  TOTAL Use                177        145        190        140        0          150

  Ending Stocks            5          5          5          5          0          0

  TOTAL DISTRIBUTION       182        150        195        145        0          150

  Calendar Yr. Imp. from   0          0          0          0          0          0
  U.S.                                                                            

  Calendar Yr. Exp. to     0          0          0          0          0          0
  U.S.                                                                            
  ------------------------ ---------- ---------- ---------- ---------- ---------- ----------

## Butter Export Trade Matrix

  ------------------------ ----------------- ------------------- ---------
  Country                  Ukraine                               

  Commodity                Dairy, Butter                         

  Time Period                                Units:              1 MT

  Exports for:             2003                                  2004

  U.S.                     0                 U.S.                1

  Others                                     Others              

  Azerbaijan               854               Azerbaijan          1862

  Armenia                  552               Armenia             1900

  Georgia                  80                Georgia             570

  Kazakhstan               855               Kazakhstan          1574

  Moldova                  616               Moldova             1120

  Russia                   14681             Russia              33178

  Tajikistan               43                Turkmenistan        988

  Turkmenistan             50                                     

  Total for Others         17731                                 41192

  Others not Listed        0                                     1117

  Grand Total              17732                                 42309
  ------------------------ ----------------- ------------------- ---------

*Source: State Statistics Committee of Ukraine*

## Butter Import Trade Matrix

  -------------------------- ------------ ------------------------ --------
  Country                    Ukraine                               

  Commodity                  Dairy,                                
                             Butter                                

  Time Period                             Units:                   1 MT

  Imports for:               2002                                  2003

  U.S.                       0            U.S.                     0

  Others                                  Others                   

  Austria                    36           Belgium                  20

  Belgium                    205          Germany                  4

  Germany                    4                                      

  United Kingdom             2                                      

  Total for Others           247                                   24

  Others not Listed          4                                     0

  Grand Total                251                                   24
  -------------------------- ------------ ------------------------ --------

Source: State Statistics Committee of Ukraine

## Butter Retail Price Table

  ----------------------- ----------------- ------------- -----------------
  Country                 Ukraine                         

  Commodity               Dairy, Cheese                   

  Prices in               UAH               per uom       1 kilogram

  Year                    2004              2005          \% Change

  Jan                     13,52             14,79         9%

  Feb                     13,52             14,94         11%

  Mar                     13,52             15,19         12%

  Apr                     13,35             15,21         14%

  May                     13,14             15,04         14%

  Jun                     12,9              14,86         15%

  Jul                     12,65             14,71         16%

  Aug                     12,71             14,84         17%

  Sep                     12,96                           

  Oct                     13,31                           

  Nov                     13,87                           

  Dec                     14,53                           

  Exchange Rate           5,05              Local         
                                            Currency/US   
                                            \$            
  ----------------------- ----------------- ------------- -----------------

Source: State Statistics Committee of Ukraine

## Nonfat Dry Milk PSD Table

  ----------------------- ---------- ---------- ---------- ---------- ---------- ----------
  Country                 Ukraine                                                

  Commodity               Dairy,                                      (1000 MT)  
                          Milk,                                                  
                          Nonfat Dry                                             

                          2004       Revised    2005       Estimate   2006       Forecast

                          USDA       Post       USDA       Post       USDA       Post
                          Official   Estimate   Official   Estimate   Official   Estimate
                          \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year Begin**              01.2004               01.2005               01.2006

  Beginning Stocks        2          2          2          2          2          2

  Production              87         78         90         80         0          82

  Intra EC Imports        0          0          0          0          0          0

  Total Imports           1          0          1          0          0          0

  TOTAL Imports           1          0          1          0          0          0

  TOTAL SUPPLY            90         80         93         82         2          84

  Intra EC Exports        0          0          0          0          0          0

  Total Exports           65         63         67         65         0          67

  TOTAL Exports           65         63         67         65         0          67

  Human Dom. Consumption  23         15         24         15         0          15

  Other Use, Losses       0          0          0          0          0          0

  Total Dom. Consumption  23         15         24         15         0          15

  TOTAL Use               88         78         91         80         0          82

  Ending Stocks           2          2          2          2          0          2

  TOTAL DISTRIBUTION      90         80         93         82         0          84

  Calendar Yr. Imp. from  1          1          1          1          0          0
  U.S.                                                                           

  Calendar Yr. Exp. to    0          0          0          0          0          0
  U.S.                                                                           
  ----------------------- ---------- ---------- ---------- ---------- ---------- ----------

## Nonfat Dry Milk Export Trade Matrix

  -------------------------- ----------- ---------------------- -----------
  Country                    Ukraine                            

  Commodity                  Dairy,                             
                             Milk,                              
                             Nonfat Dry                         

  Time Period                            Units:                 1MT

  Exports for:               2002                               2003

  U.S.                       40          U.S.                   0

  Others                                 Others                 

  Bangladesh                 5003        Bangladesh             2866

  Bulgaria                   3868        Bulgaria               2639

  Algeria                    4646        Algeria                10620

  China                      3163        China                  7278

  Japan                      10440       Japan                  8352

  Denmark                    1400        Denmark                1400

  Nigeria                    1432        France                 1648

  Poland                     5080        Kazakhstan             1335

  Syria                      1035        Egypt                  1944

  Russian Federation         721         Russian Federation     13632

  Total for Others           36788                              51714

  Others not Listed          13743                              11500

  Grand Total                50571                              63214
  -------------------------- ----------- ---------------------- -----------

*Source: State Statistics Committee of Ukraine*

## Nonfat Dry Milk Import Trade Matrix

  --------------------- --------------- ---------------------- ----------
  Country               Ukraine                                

  Commodity             Dairy, Milk,                           
                        Nonfat Dry                             

  Time Period                           Units:                 1 MT

  Imports for:          2003                                   2004

  U.S.                  40              U.S.                   555

  Others                                Others                 

  Austria               11              Austria                8

  Germany               2                                       

  Total for Others      13                                     8

  Others not Listed     0                                      0

  Grand Total           568                                    8
  --------------------- --------------- ---------------------- ----------

Source: State Statistics Committee of Ukraine

## Nonfat Dry Milk Wholesale Price Table

  -------------------- ----------------- ------------------ --------------
  Country              Ukraine                              

  Commodity            Dairy, Dry Whole                     
                       Milk Powder                          

  Prices in            UAH               per uom            1 MT

                                                            

  Year                 2003              2004               \% Change

  Jan                  9900              12100              22%

  Feb                  9000              11500              28%

  Mar                  9350              11600              24%

  Apr                  9350              11000              18%

  May                  9000              10300              14%

  Jun                  9000              10900              21%

  Jul                  9100              11400              25%

  Aug                  9500              11200              18%

  Sep                  9700                                 

  Oct                  10000                                

  Nov                  11900                                

  Dec                  12100                                

  Exchange Rate        5,05              Local Currency/US  
                                         \$                 
  -------------------- ----------------- ------------------ --------------

*Source: FAS/Kiev monitoring*

## Dry Whole Milk Powder PSD Table

  ------------------------- ---------- ---------- ---------- ---------- ---------- ----------
  Country                   Ukraine                                                

  Commodity                 Dairy, Dry                                  (1000 MT)  
                            Whole Milk                                             
                            Powder                                                 

                            2004       Revised    2005       Estimate   2006       Forecast

                            USDA       Post       USDA       Post       USDA       Post
                            Official   Estimate   Official   Estimate   Official   Estimate
                            \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  Beginning Stocks          0          0          0          0          0          0

  Production                26         28         26         29         0          30

  Intra EC Imports          0          0          0          0          0          0

  Total Imports             0          0          0          0          0          0

  TOTAL Imports             0          0          0          0          0          0

  TOTAL SUPPLY              26         28         26         29         0          30

  Intra EC Exports          0          0          0          0          0          0

  Total Exports             13         18         13         19         0          20

  TOTAL Exports             13         18         13         19         0          20

  Human Dom. Consumption    13         10         13         10         0          10

  Other Use, Losses         0          0          0          0          0          0

  Total Dom. Consumption    13         10         13         10         0          10

  TOTAL Use                 26         28         26         29         0          30

  Ending Stocks             0          0          0          0          0          0

  TOTAL DISTRIBUTION        26         28         26         29         0          30

  Calendar Yr. Imp. from    0          0          0          0          0          0
  U.S.                                                                             

  Calendar Yr. Exp. to U.S. 0          0          0          0          0          0

  Beginning Stocks          0          0          0          0          0          0
  ------------------------- ---------- ---------- ---------- ---------- ---------- ----------

## Dry Whole Milk Powder Export Matrix

+----------------------+--------+-------------------------+-----------+
| Country              | U      |                         |           |
|                      | kraine |                         |           |
+----------------------+--------+-------------------------+-----------+
| Commodity            | Dairy, |                         |           |
|                      | Dry    |                         |           |
|                      | Whole  |                         |           |
|                      | Milk   |                         |           |
|                      | Powder |                         |           |
+----------------------+--------+-------------------------+-----------+
| Time Period          |        | Units:                  | 1 MT      |
+----------------------+--------+-------------------------+-----------+
| Exports for:         | 2003   |                         | 2004      |
+----------------------+--------+-------------------------+-----------+
| U.S.                 | 0      | U.S.                    | 0         |
+----------------------+--------+-------------------------+-----------+
| Others               |        | Others                  |           |
+----------------------+--------+-------------------------+-----------+
| Armenia              | 680    | > Algeria               | 6781      |
+----------------------+--------+-------------------------+-----------+
| Azerbaijan           | 445    | > Russia                | 5281      |
+----------------------+--------+-------------------------+-----------+
| Bulgaria             | 128    | > Turkey                | 799       |
+----------------------+--------+-------------------------+-----------+
| Poland               | 592    | > Azerbaijan            | 641       |
+----------------------+--------+-------------------------+-----------+
| Russia               | 4382   | > Armenia               | 632       |
+----------------------+--------+-------------------------+-----------+
| Georgia              | 183    | > Saudi Arabia          | 428       |
+----------------------+--------+-------------------------+-----------+
| Syria                | 177    | > Georgia               | 397       |
+----------------------+--------+-------------------------+-----------+
| Turkmenistan         | 210    | > Egypt                 | 375       |
+----------------------+--------+-------------------------+-----------+
| Uzbekistan           | 100    | > Poland                | 300       |
+----------------------+--------+-------------------------+-----------+
| China                | 154    | > Bulgaria              | 220       |
+----------------------+--------+-------------------------+-----------+
| Total for Others     | 7051   |                         | 15854     |
+----------------------+--------+-------------------------+-----------+
| Others not Listed    | 478    |                         | 2064      |
+----------------------+--------+-------------------------+-----------+
| Grand Total          | 7529   |                         | 17918     |
+----------------------+--------+-------------------------+-----------+

Source: State statistics Committee of Ukraine

## Dry Whole Milk Powder Import Matrix

  --------------------------- ------------ ---------------- --------------
  Country                     Ukraine                       

  Commodity                   Dairy, Dry                    
                              Whole Milk                    
                              Powder                        

  Time Period                              Units:           1 MT

  Imports for:                2003                          2004

  U.S.                        0            U.S.             0

  Others                                   Others           

  Belgium                     680          Switzerland      4

                                           Germany          1

  Total for Others            680                           5

  Others not Listed           0                             0

  Grand Total                 680                           5
  --------------------------- ------------ ---------------- --------------

*Source: State statistics Committee of Ukraine*

## Whole Dry Milk Wholesale Price Table

  -------------------- ----------------- -------------- ---- --------------
  Country              Ukraine                               

  Commodity            Dairy, Dry Whole                      
                       Milk Powder                           

  Prices in                              per uom              

                                                             

  Year                 2003              2004                \% Change

  Jan                  10500             12500               19%

  Feb                  10000             12300               23%

  Mar                  10300             12000               17%

  Apr                  10000             11300               13%

  May                  9550              10500               10%

  Jun                  9200              11000               20%

  Jul                  9750              11400               17%

  Aug                  10000             11300               13%

  Sep                  11000             11000               0%

  Oct                  11500                                 

  Nov                  12000                                 

  Dec                  12500                                 

  Exchange Rate         5,05             Local               
                                         Currency/US \$      
  -------------------- ----------------- -------------- ---- --------------

Source: FAS/Kiev monitoring

##