Pig Production in Ukraine: Prospects and Opportunities for Ukrainian-Danish Partnership. Remarks by Natalia Zarudna, Ambassador of Ukraine

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1 Pig Production in Ukraine: Prospects and Opportunities for Ukrainian-Danish Partnership Dear Minister Barfoed, Dear Mr.Riskaer, Ladies and Gentleman, Remarks by Natalia Zarudna, Ambassador of Ukraine January 27, 2006, Copenhagen It is my privilege and my pleasure to address such a distinguished audience on such an important issue as prospects and opportunities for Ukrainian-Danish cooperation (or shall I say partnership) in pig production in the context of globalization and ethics. So let s start with globalization which we view as an opportunity rather that threat to our traditional way of life. I am very grateful to the Investment Fund for their initiative because I am confident that only by joining their efforts and resources the European nations can hope to successfully meet the challenges of globalization. Most specifically it concerns agriculture where we face a tough competition from other swiftly developing regions of the world which sometimes have been more generously endowed by nature, and for a foreseeable future can rely on cheap labour force and cheap feed stuff. The large-scale and long-term cooperation between our two nations in pigbreeding shall be carried out on Ukrainian soil and based on Danish technologies and genetic material, as well as on Ukrainian experience, its vast resources and space, its geographical proximity to Denmark and immense consumer markets to the East, and on our traditional love for pork that we so happily share with Danes. It is obvious that in order not to loose its current advantages and a privileged position on the world market Denmark will rely on its state-of-the-art technologies which I once again had a chance to admire last week during the visit of Ukrainian delegation headed by the Minister of Agrarian Policy to the AGROMEK Fair in Herning. However, Denmark should also expand its current cooperation with neighbouring countries, Ukraine being one of them, to form a kind of international alliance of national business entities interconnected in their activities which would pursue common policy and share best practices in pig breeding. In other words, we should follow the principle which contributed so much to exemplary Denmark s economic performance in this millennium: think globally and act locally. Boastful as it might sound but true enough, Ukraine is the largest 100% European country located in the very center of our continent. With 603 thousand

2 2 sq.km of its territory it is nine times larger than Denmark. It equals the size of Denmark, Poland, Latvia, Lithuania, Estonia, Slovakia and Albania put together. On the other hand, Ukraine has a large domestic market with 47 million consumers where demand for meat is high while supply is not sufficient to meet it. Ukraine has a centuries-old tradition and experience in pig breeding. In Soviet times it was the major supplier of meat for over 200 million consumers. In 1971, Ukraine had over 21.4 million pigs (nearly as many as Denmark has now). In 1981, we produced million tons of pork in slaughter weight. At that time Ukraine was developing and introducing high technologies in pig production and had bred many local breeds of sows that we were raising on large pig farms (up to 100 thousand pigs each). Since 1989 the number of pigs has dramatically fallen because it was decided to dismantle a system of large-scale production based on collective ownership on land, and to make an emphasis on private farming in view of higher productivity of individual small farms which existed at that time. Such strategy proved to be wrong. Nevertheless, the reducing of number of pigs went on, and in the last 14 years it dropped threefold to mere 6.5 million heads by the end of 2004, while the pork production decreased 2.7 times to 0.8 million tons. In 1988, an average Ukrainian consumed 78 kg of meat. Now, this figure has dropped to meager 39 kg. Simultaneously, Ukraine increased considerably an import of meat. The price of meat in these years grew many fold because to its shortage on the local market. In 2005, due to radical changes in government s policy and concentration of efforts of private pig producers, banking and governmental institutions, for the first time in the last 15 years we registered a considerable increase in pig heads (nearly 1 million by the beginning of this years). The production of meat grew by 22%, including 40% of poultry and 18% of pork. In 2006, the Ukrainian government plans to add another 3 million pigs, in million, so that by 2010 we would be able to saturate a local market with high quality meat products and Ukraine will turn into a pork-exporting country. In 2005, Ukraine reduced its import of meat by tons (to tons). This year Ukraine will furthermore decrease its meat purchases in other countries. Much to our regret, a larger supply of meat to the Ukrainian market did not result in price fall yet. One of the reasons is the remaining shortage of meat supply that is partially related to the growth in average incomes of population which in 2005 amounted to 40% (wages and salaries grew by 28%). According to estimates, an increase by 1% of average incomes leads to 0.5% higher consumption of meat. Hence, the demand for meat in Ukraine last year grew at least by 15%, and this process will continue.

3 3 Presently, we have an economically ungrounded high price for meat products and a large discrepancy between an average price for grain and for meat. Therefore, the cost of production of pork or poultry in Ukraine is relatively low, and investments in this industry can be recovered in two or three years. Pig-breeding has become a profitable business in Ukraine and attracted attention of both foreign and local businessmen. Currently, 118 previously existent Ukrainian farms are undergoing drastic reconstruction. Close to 70 farms (5-25 thousand sows each) are being rebuilt or built anew on the basis of modern technologies in different regions of Ukraine. So far only ten of them apply Danish technologies and have already been built or still are under construction in cooperation with Danish companies (Graakaer, ACO funki, Danosha, Skov etc.). Ukraine has developed an ambitious national program of live-stock-breeding which foresees in the next 5 years to have pilot pig farms in all districts of the country, which means at least 489 new farms. For this year, we hope to complete construction of pilot farms in all 25 regions of Ukraine. You may wonder how far Ukraine will go and how ambitious are we? International and Ukrainian experts consider that an optimal number of pigs that Ukraine can grow are 40 million or maximum 50 million pigs per year. It will allow not only satisfy domestic demand but it will turn Ukraine into one of the major players on the European pig market. We have all necessary preconditions and resources to do so: 1. Firstly, Ukraine has extremely rich black soil and well developed crop production, though average crop yields are still rather low. In this we rely on increased production of the best natural fertilizer manure, which will contribute to a large extent to bumper crop harvests. There is an enormous demand for this fertilizer in Ukraine since our farmers have always widely used it with relatively insignificant impact on environment because of the vast territory of Ukraine and of rather tough rules and regulations for its handling. 2. Secondly, for the last 5 years Ukraine harvested million tons of grain per year (in million tons, including 18.7 million tons of wheat). Therefore, Ukraine has recently regained its status of bread basket of Europe and began exporting grain in large amounts. But it would be much more profitable to use these crops to produce fodder for the live-stock breeding. 3. So far Ukraine has a relatively cheap labour force, which at the same time is hard-working and well educated (even by European standards). Culturally, Ukraine belongs to Europe while its mentality is close to the mind-set of Danish people. Essentially, Ukrainian culture rests on traditions and ideals of its countryside, and with exception of 70 years of Soviet power, it has always been based on private

4 4 ownership on land. It also explains 500-year-old democratic traditions in Ukraine and an individualistic nature of Ukrainians. 4. Ukraine is rich in natural resources, and its economy has a great potential. Even with all turmoil that we had last year, Ukraine s GDP grew by nearly 3% (which is good for Denmark but not sufficient for Ukraine since it is still lagging behind). Compared to 12.3% in 2004 this is a modest figure but it reflects much more realistic and sound state of Ukrainian economy where for the last year many corruption schemes were destroyed. 5. Economic performance of Ukraine in 2005 was quite impressive when it comes to its finances. The hard currency reserves of the National Bank grew twofold and reached US$ 20 billion. Ukraine still has deficit of the State Budget but it decreased to 2% of GDP compared to 8% in Ukraine has a positive balance of settlement of payments. Its foreign debt last year was reduced by 1 billion euro and now equals 6% of GDP. Ukraine s GDP is still not very impressive (US$ 70 billion) but it has doubled for the last 5 years. However, up to 40% of our economy, unfortunately, still operates in shadow, though its share is literally shrinking. As one of the consequences of it, according to recent estimates by the Polish magazine Wprost, Ukrainian billionaires in 2005 became much poorer. 6. Ukraine has practically completed harmonization of its national legislation with WTO standards and requirements. We have a very tough national environmental legislation which was mostly adopted in the first years of our independence when Ukrainians were very much concerned with pollution and very much ecologically minded as a result of the Chernobyl catastrophe. 7. Ukraine has introduced a ramified system of veterinarian medical control and food safety control. We have implemented all requirements of international documents and conventions in this area, and have agreements on mutual acceptance of veterinary certificates for main commodity groups of food with many countries, Denmark included. 8. And last but not the least. Ukraine has determined its integration into EU and NATO as the main course and ultimate goal of its foreign policy, and is persistently and systematically working to this end. Incidentally, I recall my recent conversation with a young Ukrainian manager of Danish company successfully operating in Ukraine. His project was co-sponsored by the Danish Investment Fund for Central and Eastern Europe whose representatives have kept visiting the farm regularly ever since. The poor guy was complaining that every time the experts from the Fund come they always find something to improve. And it always concerns slurry-handling and animal welfare. Each time the farm would meet their demands but next time it would turn out that there is no limit to improvement.

5 5 Therefore, our cooperation with Investment Fund and other Danish investors is the best guarantee that the pollution from the Ukrainian pig farms will be minimized. I would like to stress that Ukraine will probably never be able to reach the level of concentration of pig production that you enjoy in Denmark. And for the very simple reason: it is nine times larger in size. Therefore, to achieve your level we need to produce at least 200 million pigs per year which is unrealistic. We would be happy with just 40 million pigs and yet it would equal your 4.5 million pigs only. In conclusion, I should say that Ukraine is quite happy with our mutually advantageous cooperation with Danish side that has enormous potential. For the last year Ukrainians learned about Danish agriculture and your achievements more than in all previous years. We even consider the possibility to issue in 2007 a joint Danish-Ukrainian block of stamps which would depict Try to guess. Naturally, the best Ukrainian and Danish breeds of pigs! And finally, Ukraine has chosen Denmark as our partner in pig breeding because you are simply the best. But new and democratic Ukraine also is quite attractive for foreign investors who in 2005 invested US$ 7 billion in Ukraine. It nearly doubled a total sum of direct foreign investments accumulated for previous 14 years (US$ 8 billion). Many foreign companies keep proposing their services for the development of Ukrainian agriculture (US, Austrian, German, Polish, and Israeli ones, to name the few). But we strongly believe that our partnership with Denmark in this area will be long-lasting, and both sides will benefit from it. Thank you.