beyondbrics

When the market chatter is about rising commodity prices and threats to food security, wheat and barley tend to be the nexus of worries. But should we be thinking about eggs too?

Yes, says Oleg Bakhmatyuk, a Ukrainian egg baron, who predicts that rising egg consumption in China and India is set to reshape global supply networks and endanger scrambling and omelette-making in the Middle East and Africa.

China and India are currently big egg exporters, but Bakhmatyuk – who is chairman and majority owner of egg producer Avangard – says that as Asian rivals divert more supplies to their expanding domestic markets, a gap will open up internationally.

It’s another example of how rising incomes and changing (some say ‘westernising’) dietary habits in the biggest emerging markets are reshaping the structure of global demand for a host of commodities (including this week’s focus, potash).

But for Bakhmatyuk it’s an enticing opportunity. “As India and China pull out, it creates a vacuum – and someone has to fill that vacuum,” he told beyondbrics in London, where he was promoting his company to international investors.

He floated 20 per cent of Avangard’s shares in London in April, raising $208m, and next week the company will report its maiden interim results.

In spite of Ukraine’s troubled economy its agribusinesses are bearing up well. During the first half of 2010, Avangard exported Ukrainian eggs to Georgia, Iraq, Kazakhstan, Syria, Turkey, although the majority of its output, for now, is consumed in Ukraine.

But it ramped up production in the first half of 2010 from 1.48bn to 1.9bn eggs and if Bakhmatyuk gets his way more of that will be directed toward emerging markets, helping to make Ukraine an egg basket for the Middle East and Africa.

Many oil- and mineral-rich states in both regions have limited domestic egg laying capacity and fast-growing populations in search of cheap protein, he says – a recipe for an “egg deficit”.

He notes that “food security is coming up along with military security” as a key issue for governments keen to guarantee supplies of food commodities for their people.

His comments came as Ukraine is facing up to its own crisis over food supplies. Following Russia’s ban on grain exports Ukraine’s food minister has cited the need to ensure “food security” amid a national debate over whether it should follow suit.

The main cost in egg production is chicken feed, made of wheat and barley, and one glaring omission from the egg baron’s forecast are the implications of rises in the price of the two grains by 50 and 90 per cent respectively since mid-June. That will either hurt producers or push up the price of eggs, thereby delaying any boom in egg eating.

While growing internal consumption in India and China could open up a potential gap for Avangard to fill,  Bakhmatyuk accepts that he also faces competition from Brazil and Argentina.

Earlier this year Abef, the Brazilian Poulty Exporters Association, launched its own initiative to promote egg exports. Currently the Arab world is the chief destination for Brazilian eggs – although the overall value of egg exports compared to Brazil’s well developed poultry sector is tiny.

“Brazil and Argentina, compared to Ukraine, are 10 years ahead technically” he says. They have also enjoyed better access to finance and other support to develop their export agribusinesses.

But another advantage Ukraine has in seeking to become a leading “protein exporter” – and soother of food security worries – is geography: it is much closer, Bakhmatyuk notes, to the key emerging markets.

Reading reading:

World Food, FT Special Report
The State of Food Insecurity in the World, UN Food and Agriculture Organization

[Hey Bric Spender series]

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