Increasing The Competitiveness Of The Dairy Supply Chain In Ukraine: Role Of The Government

In 2012 Ukraine experienced two flashes of dairy trade disputes with Russia. First time in February and then in early fall Russia suspended imports of cheese from several Ukrainian dairies. The formal reasons for trade restrictions from Russia’s side were ensuring food safety and quality. As Ukraine exports about 40% of its dairy products, and about 70% of these exports goes to Russia, this dispute has been quite critical for the sector. This has not been the first dairy conflict in the history of both countries since the break up of the Soviet Union, nevertheless Ukraine keeps exporting its dairy exports mainly to Russia. This reflects not so the failure of the sector to learn the lesson and diversify its dairy exports’ structure, but rather more fundamental and persistent problems that inhibit the sector from increasing its competitiveness and diversifying its exports accordingly. These fundamental and persistent problems include: i) shortage of human capital, ii) limited access to credits, iii) limited access to modern agricultural technologies, iv) not reliable budget support programs, v) inefficient taxation system in agriculture, vi) rigid, outdated and overly complex food safety and quality system, More fundamental problem is, however, a strong misconception of the Government of Ukraine (GoU) and policy makers about the linkages in the dairy supply chain and about appropriate policy measures to foster the development of the whole supply chain. Minimum raw milk farm-gate prices have been one of the many evidences of this misconception. Negative economic consequences of this measure for the whole supply chain are well documented in the economic literature. Nevertheless, last spring minimum prices were introduced against the background of the dairy conflict with Russia. This spring already two draft laws1 suggest introducing minimum raw milk prices. Other examples of inadequate government measures are abound and, unfortunately, are rather a rule than an exception.