Interview:
Kateryna Mudriian
ASAP Agri Chief Analyst
Rodion Rybchynskyi
Director of the Union of Millers of Ukraine
In the face of war and economic instability, Ukraine's agricultural sector is facing serious challenges. A key part of this sector, the flour milling industry, is currently struggling with a shortage of quality raw materials, export difficulties, and rising energy costs. In an exclusive interview with ASAP Agri, Rodion Rybchynskyi, Director of the Union of Millers of Ukraine, discusses how millers are adapting to these tough conditions, the solutions they are finding, and what the future holds for the industry.
Mr. Rybchynskyi, could you please provide insight into the ratio of feed wheat to milling wheat in this year's harvest?
According to SGS Ukraine, food-grade wheat (classes 1-3) makes up 27% of the total harvest in 2024. This is the quality wheat that millers can work with. The remaining grain consists of either non-classified varieties or fourth-class wheat.
Did the grain production meet your expectations? Why were better results not achieved?
The harvest was worse than expected, despite favorable weather conditions that initially raised hopes for higher quality. However, there is a consistent decline in grain quality since 2016 that prevented farmers from harvesting a better crop. This is because of reduced use of mineral fertilizers, less intensive field management practices, and deteriorating seed quality.
How does this year's harvest impact the flour milling industry in Ukraine, since, as you’ve said, Ukraine’s harvested only around 30% of milling quality wheat?
The lower quantity and quality of this year’s wheat crop have affected both prices and volumes available for millers. With milling wheat accounting for 30% of the total crop, about 6 MMT of food-grade grain is available. This is enough to meet Ukraine’s domestic consumption of 3.5 MMT. On paper, this should be sufficient. However, with anticipated overall wheat exports (both milling and feed grades) of 16.2 MMT for the 2024/25 MY, demand for higher-grade wheat is expected to rise. Farmers are already limiting their sales of food-grade wheat on the domestic market, thus pushing prices higher.
The reduced harvest makes it difficult for millers to accumulate reserves to ensure production and prepare milling wheat batches for future periods. Although current flour production remains stable, the lower harvest impacts production intensity, complicating mid-term planning. For example, companies are hesitant to sign long-term export contracts for flour due to uncertainty about wheat prices in the next 2-3 months. This unpredictability is disrupting the overall stability and rhythm of flour production in Ukraine.
How do the current "wartime conditions", including potential power outages, affect flour prices?
Since the winter of 2022/23, enterprises have had access to additional generators and backup power sources. Some companies invested in generators back then, while others are purchasing them now, including through humanitarian programs. However, the main challenge is that generators are 2-2.5 times more expensive to run than grid electricity. Maintenance and fuel add further expenses.
The impact of power outages also depends on the size of the enterprise. Smaller businesses can manage short-term production with generators of 300-500-700 kW, but larger industrial mills require much more energy than generators can provide. To summarize, generators serve as a temporary backup solution, primarily for smaller enterprises.
Why have exports of Ukrainian flour to foreign markets, including the EU, declined?
It is difficult to plan exports due to uncertainty surrounding flour production volumes and raw material prices. Additionally, it is important to note that in 2022/23 MY, Ukraine increased flour production thanks to low wheat prices, which gave Ukrainian flour a competitive edge. This advantage made logistics more feasible.
But today, logistics have become a significant challenge for Ukrainian flour exports. Transporting one truckload from central Ukraine to the EU costs around 2,500 EUR, adding roughly 100 EUR/MT in transportation costs. The Ukrainian logistics infrastructure is not well-suited for such goods. And given high grain prices and irregular procurement, companies are reluctant to risk their reputation and money by investing in these exports. As a result, most businesses are opting for short-term contracts with small flour volumes.
How has the war changed the ranking of key buyers of Ukrainian flour?
Before the war, Ukraine's main flour buyers were in the Middle East, North Africa, and the MENA region. Now, the top buyers are Moldova, Palestine, Israel, and EU countries. This shift is primarily due to logistics, as Ukraine now exports its products in containers. Ukrainian companies cannot export flour beyond Palestine and Israel, as blocked routes through the Red Sea are forcing container ships to travel around Africa. Such logistics are impractical and financially unfeasible for Ukrainian exporters.
What impact did the wheat export memorandum have on millers?
The export memorandum had no impact on Ukrainian millers because the Union of Millers of Ukraine did not sign the addendum in 2024. The Union advocated for a quota for food-grade wheat, suggesting it be limited to 30% of the total export volume of 16.2 MMT. However, this proposal was not accepted, and the Union chose not to sign the memorandum.
Are there currently any government programs supporting the flour milling industry?
Currently, there are no specific government programs aimed at supporting the flour milling industry in Ukraine. General credit resources, such as the 5-7-9% loan program, are available, but they are not tailored for millers specifically. Overall, the processing sector as a whole does not receive any subsidies or preferences from the state.