Ukraine

During the second half of 2004, the electoral crisis in Ukraine, also known as the 'Orange Revolution', threatened to have a tremendous impact on the country's poultry consumption. For reference, the Orange Revolution was the movement of Ukrainian citizens protesting election fraud in the second round of Ukraine's election on November 21, 2004. Prior to the election, the outgoing government attempted to retain power by increasing minimal pension payments from August through December of 2004, resulting the in the rise of many low-income groups; thus changing the groups' consumption habits, particularly in regards to meat and meat products.

In January of 2005, the newly elected government, under President Yushchenko, targeted poultry imports as an important political issue and discussed plans to change the current import system by eliminating tax privileges associated with the Special Free Economic Zones (FEZ), as well as the imposition of meat quotas, especially for poultry, in order to curb soaring imports and provide support to domestic producers.

As of late March of 2005, the government of the Ukraine (GOU) eliminated tax privileges, along with the FEZ's with the idea of creating a more transparent and liberal economic environment. In doing so, the prohibitive import tariffs imposed throughout the country created a trade barrier effectively stopping imports of poultry by no longer allowing them to legally circumvent the high import tariffs. A significant obstacle was developed for U.S. producers jeopardizing their plans for further expansion of legal exports for 2005 and 2006. Despite amendments to the Customs Tariff in June of 2005 aimed at reducing tariff rates, legal U.S. imports of U.S. poultry continue to be unprofitable. However the situation is compounded by the fact import duties for chicken parts are significantly higher compared with that of whole chickens (see table.)

According to the table, chicken cuts and offal (HS020714) accounted for about 90% of all imports, while whole chickens only 3% in 2003. If imports of chicken cuts and offal are broken down to HS 8-digit subcategories, 93% of all U.S. exports fall under HS020714. The official tariff for this category remains at 30% of the CIF price or no less than 1.5 EUR per kilogram. Given an average CIF price for HS020714 of $0.41 per kilogram (kg) in 2004, the 1.5 EUR import duty transfers into a prohibitive 439% ad valorem equivalent tariff rate. Thus, the 10% tariff rate reduction (0.4 EUR/kg) on frozen whole chickens will have no short term effect, but may possibly stimulate some changes in 2006.

New poultry tariff rates were signed into law August 8, 2005 and published August 16, 2005. Rate changes (see table) were uneven with some decreasing, some increasing, and others remaining constant, however in the end applied tariffs for all poultry products increased significantly since the early part of 2005. Prior to the elimination of the FEZ's, only 3% of all poultry trade was subject to import tariffs, while all other legal imports were either transshipped duty free or processed and repackaged in the FEZs with very insignificant payments made to local budgets. Based on the assumptions that no legislative reform will take place and the market will remain stable, it is expected that U.S. exports to the Ukraine will be insignificant in 2006. U.S. competitors (Brazil and the EU) might take advantage of the situation by exporting whole chickens to the Ukraine at lower tariffs, though it is unlikely Ukrainian traders will import large quantities given current price levels and sizes of available shipment allotments for sale. Red meat imports are projected to grow in 2006 serving as a substitute for poultry. In light of this, the U.S. and the Ukraine are currently in trade talks for a bilateral agreement, which if successful would ensure the Ukraine's accession into the WTO.

On the other hand, Ukraine's poultry production projected to grow substantially at 30% a year for the next three years. The plan is supported by publicly accessible business plans and open lines of credit at Ukrainian and foreign banks. The expansion plan focuses on vertical integration and modernization with hopes of also breaking into the duck and turkey meat market. Industry experts predict it will be able to satisfy Ukraine's domestic demand and begin exporting to nearby markets in five years time.

On October 20, 2005, Ukraine parliament placed a six-month ban on poultry imports from all countries, and introduced strict border control measures to prevent bird flu from entering the country. The president hasn’t signed this into law yet.
Source: USDA FAS / FAO / Various Newswires

To view the full report, including tables please click here

Source: USDA's Agricultural Marketing Service - 25th October 2005