Ukraine’s MHP: poultry for Europe

With recession fears spreading across the globe, finding safe investments is becoming trickier by the day. There is one thing, however, that the world’s growing population is certain to spend on, even in times of recession: food.

Ukraine’s budding agribusiness and food companies are well positioned to help feed a hungry world. Among them is London-listed MHP, the country’s largest poultry producer.

“Ukraine today is still known as the breadbasket of Europe, but we hold vast potential to also become the meat basket of Europe by exporting meat and other value-added food products,” says Yuriy Kosyuk, CEO and majority owner of MHP.

The company is the leading poultry producer in a country known as the birthplace of chicken kiev, a rolled cutlet stuffed with oozing hot garlic butter. The dish gained an extra international dimension from George H W Bush’s August 1991 “Chicken Kiev” speech, when he warned a newly independent Ukrainian leadership to avoid “suicidal nationalism”.

Ironically, Ukrainians – who lived in Soviet days more on a diet of pork sausages and potatoes – have only in the past decade turned towards healthier white meat. This, along with rising exports of poultry products, is fuelling double digit growth for Ukrainian producers.

MHP is a vertically integrated company with its own farming operations. It had revenues of just over $1bn in the first nine months of 2012, up from $880m during the same period in 2011. Earnings before interest, tax, depreciation and amortisation were $379m, up from $301m, and net profits were $281m, up from $201m a year earlier.

MHP has about half of Ukraine’s growing domestic poultry market and, like other producers, has been exporting in recent years mainly to markets in the CIS, the Middle East and Africa. But the industry is keen to capitalise on more profitable European markets, where doors are starting to open.

This month, the European Union opened its 27-nation market to hundreds of millions of dollars worth of poultry and egg products from Ukraine. The decision follows years of inspections and reviews by the EU’s food safety and consumer rights protection bodies. It is seen as the first step before further opening up of the EU market to fast-growing Ukrainian agribusiness.

Exports, curtailed by tariffs, are expected to begin within months once technicalities are worked out. But larger volumes of chicken and eggs could be making their way to the EU if Kiev and Brussels ink a much-talked about free trade agreement next year.

“Our company hopes to export up to 20,000 tonnes to EU markets next year, increasing our share of exports [from 20 per cent] to 30 per cent of total production, which itself will increase by at least 15 per cent to 460,000 tonnes with the launch of a brand new factory in Ukraine’s Vinnytsia region,” Kosyuk says.

“Despite tariffs of €800 a ton for fillets and €150-200 a ton on chicken cuts, Ukrainian poultry will be very competitive on EU markets. Our brand new, state-of-the-art factories are EU certified.

“We are looking to diversify our sales. The European market is very interesting for us because of its high demand for value-added products, as well as fillets,” Kosyuk says, adding that MHP is looking at possible acquisitions in Europe in distribution, production and processing.

MHP is also in talks with Yum! International to become a supplier for its KFC restaurants in the region – including a chain that is expected to be rolled out in Ukraine soon.

Tamara Levchenko, analyst at Kiev-based investment bank Dragon Capital, says Ukrainian producers could in coming years export about 30,000 tonnes of poultry products to the EU annually, accounting for 4 per cent of imports and 0.3 per cent of the EU’s annual consumption.

While that market share is quite small, Levchenko says, the EU is a promising market for Ukraine with poultry prices about 19 per cent higher than the current price in Ukraine of $2.17 a kilogram.

The floodgates allowing billions of dollars of competitively priced Ukrainian food products to burst onto the European market could open wider if Kiev and Brussels put aside tariffs by signing a free trade agreement in coming years.

A proposed deal is currently frozen amid concerns about a rollback of democracy under the rule of Viktor Yanukovich, Ukraine’s president. Nevertheless, diplomats on both sides hope the agreement will be signed next year.

Related reading:
EU gives Ukrainian poultry a green light, FT
Corporate Watch, beyondbrics