9 January 2020 – The egg industry in Ukraine is currently faced with an oversupply situation and raw material challenges, and suppliers are seeking to turn to export markets to sell the excess quantities despite unfavourable macroeconomic factors.
Feedinfo News Service spoke to Vitaliy Voron, Director of Egg Production at Ovostar Union Group of Companies – a vertically-integrated market leader with its own feed production activities – to find out more about how his firm has been responding to the changing conditions and adjusting its production and sales plan, as well as the operational efficiencies required to navigate through the tough domestic market conditions.
[Feedinfo News Service] Mr. Voron, what are the main challenges affecting the development of the Ukrainian egg industry?
[Vitaliy Voron] The main challenge of the Ukrainian egg industry today is the oversupply of the market. In recent years, egg production in Ukraine has grown. According to the Association Union of Poultry Breeders of Ukraine, the growth of egg production in the country in 2018 amounted to 4% compared to 2017. And in January-November 2019, 3.5% more eggs were collected than in 2018. This is an estimate of the State Statistics Service of Ukraine. But domestic consumption is not growing, due to a natural reason — the exodus of solvent population. According to various estimates, no more than 30 million people currently live in Ukraine (in 2001, according to the latest census, there were 48.5 million). At the same time, there is no growth in consumption in foreign markets. Since the beginning of 2019, business profitability has been minimised. Many manufacturers have to survive. In this situation, operational efficiency is the key to sustainability and business maintenance. Obviously, operating efficiency and its key indicator — the production cost of finished products — are affected not only by the consumer market, but also by the market of suppliers of raw materials, which is also unstable.
The behaviour of smaller or non-vertically-integrated egg producers is characterized by the fact that when the “temperature gets too high”, they just quit. There are many owners of egg factories in Ukraine who own more than one type of business, and for whom poultry farming is not their main business. When the owners see that eggs have no profitability for a long period, they reduce the flock numbers, abandon the sites and wait. Usually a year or two. During this time, “the temperature” becomes comfortable, as it was in 2017-2018, and the birds return to the houses. In other words, they work in short cycles.
[Feedinfo News Service] How does Ovostar Union address these challenges?
[Vitaliy Voron] The vertical integration of the Ovostar Union creates a sufficient level of efficiency, while maintaining control over the quality of the final product and all components of the process. For many years one of the key points of our strategy has been to depend on the external contractors as little as possible. We have our own parent flock, our own incubator, our young stock sites, our feed mills, we purchase feed components directly from the farmers who grow them, excluding intermediaries from the business chain.
[Feedinfo News Service] From a feed and feed additive standpoint, how is Ovostar Union structured?
[Vitaliy Voron] Ovostar Union has two feed mills which produce feed exclusively for internal consumption. The capacity of each mill is up to 500 tons per day. The feed mill in Vasylkiv was launched in 2009. It provides feed for our Vasylkiv flock (3.6 million birds), for the Mala Soltanivka site where young birds are raised, and for the parent flock at the Romashky site. The feed mill in Skibyn was built in Soviet times on the basis of an elevator for 10,000 tonnes of storage. We have constantly increased its capacity and added new processes. Its goal is to provide feed for the site of Stavysche, where 4.2 million birds are located. We employ approximately 40 staff in Vasylkiv and 65 in Skibyn.
At the same time, modern ingredients are emerging that can improve conversion at a lower feed cost or with the introduction of fewer expensive protein supplements. This is about enzymes and different types of additives: phytases, xylanases, etc. We have expertise in this area. For the entire lifetime of the hens, we gradually apply 12-15 different feed recipes.
Foreign companies supply the Ukrainian market with additives. No one delivers foreign feed as it is more expensive. Modern feed mills in Ukraine are able to produce feed of the same quality from local raw materials. Foreign suppliers sell premixes here, although premixes are also produced in Ukraine. For Ovostar Union’s internal consumption, we produce our own premixes, but we sometimes buy premixes; our main suppliers being DSM and Cargill. As a general rule, we buy components for feed under direct contracts from global manufacturers. If the leader in the category is a manufacturer from China, then we import them from China. Our main goal is the quality of the finished product. There can be no compromise.
[Feedinfo News Service] What are the main nutritional challenges faced by Ovostar Union today?
[Vitaliy Voron] One of the main challenges today is the struggle to obtain the correct planned indicators for moisture and preservation of wheat and corn. There are several ways for farmers who are harvesting to bring moisture to the required standard of 14%. The traditional way is to dry, pour, until a standard level is obtained. It is expensive. And there are chemical methods, for example, at the stage of harvesting to process it so there is no need to dry it later. This, of course, negatively affects the grain, and always in different ways. Sometimes it’s even difficult to determine how exactly it was processed. With modern diagnostic systems we are able to control the quality of incoming raw materials. Another challenge is the bacterial contamination of raw materials. We do not use antibiotics — this is an axiom for our company. Our veterinary service is looking for other ways to protect poultry. This is not associated with T2, T1 toxins, aflatoxins, it is simply a matter of bacterial infection.
[Feedinfo News Service] What are the priorities for Ovostar Union’s feed division in 2020?
[Vitaliy Voron] We aim to reach planned bird productivity levels with less investment in feed. And we will continue experiments on the use of various additives. For this purpose, our factory has set up an experimental poultry house for 1,000 birds where we can test differences in productivity when working with different additives. Another priority is to manage biosafety and control the flow of incoming raw materials, look for options on how to check grain for processing and reduce its bacterial contamination. To do this, we work closely with all our suppliers, including those who supply us with vaccines, who understand what biosafety is, and how to achieve the best results without antibiotics.
[Feedinfo News Service] What opportunities has the opening of EU poultry market in 2014 brought to Ovostar Union?
[Vitaliy Voron] Given the oversupply in the domestic market, the export direction is critically important for Ukrainian agricultural producers. According to the State Statistics Service of Ukraine, in January-November 2019, the volume of eggs exported was 20% higher than last year. The main importers of Ukrainian eggs are the UAE, Iraq, and Hong Kong. Ukraine is a leading supplier of eggs to the EU countries as well. According to the consulting company Pro-Consulting, for the first 11 months of 2018, 105,000 tonnes of eggs, worth USD 108 million were exported. Ovostar Union’s eggs have been present in the European market for a long time. In 2014, we obtained the first certificate for the supply of egg products. In 2015, we opened our own trading office in Latvia, it provides logistics and commercial activity in the EU countries. Among the last “conquered” EU markets is Spain.
[Feedinfo News Service] What does Ovostar Union have in the pipeline with regard to its expansion strategy in the coming few years?
[Vitaliy Voron] Last month, we certified poultry maintenance in accordance with the European BARN standard. Most EU countries are ready to completely switch to products of this standard only, but, objectively, the total volume of production capacities at the moment does not allow to completely abandon the cage maintenance of poultry in favour of the BARN or Free range standards. According to the Agriculture and Rural Department of the European Commission, the share of eggs produced in cages in 2018 was 53%, and BARN was more at 26%. Many European retailers have already issued warnings that in the near future they will switch only to products not lower than the BARN standard.
Today, Ovostar Union sells eggs and egg products in 55 countries. China is a country we seek to supply. We do not yet have the necessary approvals, and I do not know if China is ready for our price, but we are interested in this market.