The Association of Milk Producers (Asotsiatsiya vyrobnykiv moloka, AVM) reported that at the start of October the weighted average purchase price for three grades stood at 16,40 UAH per kilogram without value-added tax (VAT) — 1 UAH higher than a month earlier. Processors expect a further increase in the price of extra- and higher-grade milk from 1 November.
Reasons for rising purchase prices
The Association cites several key factors putting upward pressure on the price: a decline in milk production in Ukraine and globally, strong demand from processors and more active exports of dairy products. Cost inflation for fuel, feed, electricity and logistics is also pushing up production costs.
Because of the war, farms are losing capacity, moving cows to safer regions, culling part of the herd or losing animals to shelling, so the supply of raw milk is shrinking. According to the Association of Milk Producers’ estimate, diesel generation adds approximately 3,5−4 UAH of costs to every kilogram of milk produced.
Demand factors and production risks
Processors are buying more raw milk to produce milk protein, powdered milk, whey and butter, while Ukrainian companies are expanding exports. On the global market, milk supply is growing more slowly than demand for some dairy products.
The Association (AVM) points to additional risks: infectious livestock diseases, notably the potential spread of lumpy skin disease of cattle and the Shamonda virus, which can reduce milk yields and require higher veterinary spending. According to the Association’s forecast, from 1 November purchase prices for extra- and higher-grade milk will continue to rise due to limited raw milk supply.
Impact on retail prices and processors’ margins
The purchase price is the price a farmer receives when selling milk to a processing company; processing, packaging, electricity, logistics, storage and retail mark-ups are then added. The rise in raw-material costs is already putting pressure on producers of finished products and is partly reflected in production costs.
According to the Union of Dairy Enterprises of Ukraine, in August–September the purchase price of raw milk rose by more than 8%, while producer prices for most dairy products increased by only 1,8−2,3%. This creates the need for a gradual revision of selling prices for milk, butter, cheeses, sour cream, kefir and other products.
