Costly gas drives Ukraine poultry production to bankruptcy

31-01-2022 | | |
Photo: Tetiana Shevereva
Photo: Tetiana Shevereva

Soaring natural gas prices have contributed to the closure of 20 egg farms and 10 broiler farms in Ukraine, Sergey Karpenko, general director of the Ukraine poultry union, said during a press conference in Kyiv.

In early 2020, Ukrainian poultry producers had to spend on average 1.6 hryvnias (US$0.059) to produce 1 kg of broiler meat. In early 2021, this figure increased to 2.11 hryvnias (US$0.075), jumping to 6.4 hryvnias (US$0.23) in December, Karpenko said, adding that this increase is coupled with a sharp rise in the price of feed.

Poultry market could become uncompetitive

He added that small and medium-sized poultry producers are at risk of closure due to the price hike. Currently, Ukraine exports 30-40% of the produced broiler meat and eggs. However, the further rise in production costs is likely to make Ukraine exports uncompetitive on the global market, which would hit the entire poultry industry, he added.

It is believed that small and medium-sized poultry farms account for 25-30% of Ukraine’s poultry production.

Gas prices up over 400%

Over the course of 2021, European wholesale gas prices rose by more than 400%, setting new records. In early January, European gas prices jumped after the breakdown in security talks between Russia and the US deepened concerns about supplies. The picture is believed to be similar across Eastern and Central Europe, where harsh winter conditions prompt poultry farmers to spend more money on heating.

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“Poultry companies use gas at fattening complexes. The process [of growing poultry] takes 1.5-2 months, during which it is necessary to maintain a certain temperature at the poultry houses,” said Alexander Bakumenko, chairman of Ukraine’s poultry union, adding that previously, natural gas accounted for 5% of production costs, but now this share stands at 30%.

Dampen domestic consumption and exports

As estimated by Bakumenko, this situation could push poultry farmers to raise prices by 15-20 hryvnias (US$0.53-US$0.71) to offset losses. However, he warned, this would be bad for both domestic consumption and export supplies.

Not only did poultry producers raise concerns over the rising price of natural gas. Ukraine dairy processing plants may have to stop operations in case of a further rise in prices, the Ukraine Union of Dairy Companies said, estimating that natural gas accounts for roughly 25% of production costs.

In this background, the Ukraine government has rolled out plans to limit the price of natural gas on the market, but so far, this proposal covers only bread producers.

Vladislav Vorotnikov Eastern European correspondent
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