Boston, MA -- (SBWIRE) -- 03/08/2013 -- BMI View: We continue to favour the grain sector in the country as we see more growth opportunities for production and more diversity in export demand. If the country's poultry exports have just been authorised into the EU, we do not see a similar opening for dairy exports in the near term and therefore see weaker growth coming strictly from domestic demand. In fact, we have revised down our outlook for growth for the country in the near term and believe this will particularly impact demand for meat and dairy products, as they tend to be considered less staple than grain. Production for these could also be mildly discouraged as a result.

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Key Forecasts

- Wheat production growth to 2016/17: 1.0% to 22.2mn tonnes. We see the majority of investment going for the wheat sector in the near term and see export demand supporting production. The rate of growth over the whole forecast period is here minimal because of base effects (2011/12 was a bumper year).
- Poultry consumption growth to 2016/17: 14.0% to 955,000 tonnes. Poultry demand will benefit from improving domestic income conditions as well as its preferred status as a cheaper and healthier alternative to red meat.
- Milk production growth to 2016/17: 3.1% to 11.2mn tonnes. Over the medium term, consolidation and increased investment are expected to start to compensate for industry exits, with production projected to start rising again from 2014/15 and to reach 11.2mn tonnes in 2016/17.
- 2013 real GDP growth: -0.5%, down from 0.1% in 2012. Predicted to average 1.9% from 2012 to 2017.
- 2013 consumer price inflation: 4.1% average, up from 0.5% in 2012.
- BMI universe agribusiness market value: 16.1% year-on-year (y-o-y) decrease to US$18.4bn in 2012/13, forecast to grow on average 3.9% annually between 2011/12 and 2016/17.

Industry Outlook

Ukraine-based dairy company Milkiland announced slower sales growth in 9M 2012 with a 4% decline in sales of the main cheese and butter segment was offset by 12% growth in the whole milk products segment. Weaker sales growth was explained by the ripple effects of the Russian ban on cheese exports from Ukraine, which was lifted in May but has had longer-term effects on the company's sales than expected. Milkiland indicated recently that it would only return to its pre-export ban levels by November 2012, thus impacting Q412 sales.

The 2012/13 Ukrainian grain harvest was effectively complete as of mid-December, and in line with our long-held expectations, production fell owing to lower yields. The country's wheat crop was particularly affected, falling by more than 40% to 13.0mn tonnes, while corn production fell by a comparatively small 6.7% to 21.0mn tonnes. The wheat crop was one of the lowest in 15 seasons.

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