There must be clear balance in grain market between interests of farmers, traders and processors – Millers of Ukraine Union's Director
Exclusive interview with Rodion Rybchynsky, Director of Millers of Ukraine Union, for Interfax-Ukraine
By Oksana Ruzhenkova
- How has Ukraine's flour milling industry changed since the beginning of the war?
- If before the war, some 678 enterprises specializing in grain processing operated in Ukraine, then in 2022, some 192 enterprises were destroyed and remained in the occupied territories. As of the end of 2024, some 88 enterprises have been restored. Currently, the grain processing sector in Ukraine accounts for about 8% of all food processing. The industry's enterprises process 9% of all grain grown in the country, with 23% of the products being exported.
Due to the transportation problems in the Black Sea, as it is known, container shipping has not yet been fully restored. Therefore, the geography of sales of grain processing products has significantly shifted: 75% of products enter the European market, of which 55% to EU countries, another 15% go to the Middle East, while 4% to Africa and 2% to Asia.
- Is the decline in production also related to the population leaving Ukraine and a drop in demand?
- This is a combination of factors: a decrease in the existing population, the shutdown of a number of enterprises due to security and economic reasons and, of course, destroyed and unrestored enterprises.
The reduction in flour and cereals exports is logical. Previously, we exported these products by sea as container cargo. Currently, there is practically no such possibility. Exports are redirected to Europe – the European Union and other European countries. Please note, we entered a market that was saturated – this is on the one hand, and on the other hand – we had to deal with fundamentally different logistics, particularly road and rail, which are more expensive than sea transport. By the way, grain prices in Ukraine are also very high now. All this affected the volumes of flour and groats shipments to foreign markets.
- Can you give an approximate percentage of export reduction?
- Yes, we can talk about a 50% reduction compared to pre-war figures.
- What percentage of flour was purchased and processed by Ukrainian bread producers, pasta manufacturers, etc.?
- Domestic consumption by industrial enterprises can be estimated at 85-90%. Even the war did not change this balance. The share of trade with the population is traditionally 10-15%, depending on the enterprise.
- You mentioned that some enterprises remained in the occupied territories. Are there positive examples of those that managed to relocate their capacities?
- One of the large mills, which was opened in Kharkiv before the war, relocated to Western Ukraine, and one of the small mills from Dnipro moved to Uzhgorod. However, the issue is not only in the mechanical transfer of the enterprise – it is about people, raw materials and sales markets.
We have two industrial enterprises in the association with a capacity of over 100 tonnes per day from Sumy region. They need a raw material base and a sales market. They have all this in Sumy region. If they relocate, what will they do with sales? That is why, when an enterprise considers relocation, it often decides to remain in its location until the very end.
The flour milling market is extremely competitive. It is worth mentioning that there have been several waves of flour mill construction in Ukraine. First, these are enterprises that were built before Ukraine's independence – many are still operating today. Secondly, enterprises that were built in the late 1990s-2000s, thirdly, enterprises that were built between 2015 and continues to this day. Mills differ in energy consumption, product range and processing volumes. The oldest ones are focused on large industrial consumers. The enterprises built in the 1990s-2000s have capacities of 100-150 tonnes per day. They are more economically viable, but time has passed, technology advances. Mills built in the last five to seven years are the most modern, have different productivity, are more focused on export, retail, further processing, for example, in baking, pasta, etc.
- Are there free niches in the flour milling business?
- Of course, there are, because the key niche is the terms of trade. If you have a buyer, you can build a new mill or grain mill, etc.
When we talk about grain processing, we must remember that it is not only flour or cereals. It is also combined products: breakfast cereals, energy bars, starch, dry gluten, enzyme preparations based on grain processing products - a very wide range of processed products.
- How high is the investment threshold for entering the flour and cereal business?
- If we talk about the classic processing of grain into flour or cereals, direct investments start at $3 million, but in Ukraine there are examples of businesses and the upper price range up to $15 million. This refers to the cost of equipment, buildings – fixed assets, without taking into account working capital, which can reach 50% of the project cost. After all, to launch an enterprise, you need to purchase raw materials, actively enter the market, foresee marketing costs, etc.
- Can we expect new projects for the production of flour and cereals in Ukraine in 2025?
- Currently, a company for the production of durum wheat flour with a capacity of up to 150 tonnes per day is being built in Western Ukraine with a further processing of pasta, and in Poltava region, a cereal plant with a combined capacity of up to 100 tonnes per day is expected to be launched.
- Since the start of the war, both the media and the agricultural community have often discussed the idea of producing flour domestically, rather than trading in the world grain market. Will Ukraine be able to increase flour production and export it, or are we destined to remain grain traders?
- These are parallel processes worldwide: there is grain trade and there is flour trade. No one says "Let's stop selling grain and trade flour" –that would be nonsense. The global wheat grain market exceeds 700 million tonnes, while the global flour trade market is 14-17 million tonnes, that is, several orders of magnitude less. It is not even practical to compare these volumes.
On the other hand, selling finished products means added value, wages, taxes and food security. When the war began, we saw this very clearly. After all, if you don't produce something yourself, you don't always have the opportunity to buy it. It is enough to look at our problems with military equipment, etc. The same applies to food products. We are either provided with these products in our own country, or we will depend on someone. If we are provided with our own products, then there will always be a surplus of products that it is advisable to export.
There must be a clear balance between the interests of various market players: farmers who grow, traders who export, processors who both process and export. Everyone must have equal access to raw materials, capital, logistics, and so on. Today we see (and it was so before the war) that the possibilities for exporting grain are far greater than those for processed products.
- Am I right in understanding that Ukraine is unlikely to follow Turkey's example and not install flour mills along the coast, due to a lack of export opportunities? Do you foresee this optimistic scenario becoming reality one day?
- In life, nothing is impossible. Drones have destroyed strategic bombers. Who would have imagined that? No one. But in life, everything is possible.
Another example: Uzbekistan and Egypt followed the same path as the Turks. The Uzbeks buy Kazakh grain, grind it and become the main exporter of flour to Afghanistan, from where they displaced Kazakhstan. Egypt buys Ukrainian and Russian grain and became the leading supplier of flour on the African market, partially displacing both the Turks and the French. All this indicates the presence of a state policy. If a country is interested in developing its value-added segment, then it will create this policy and act like Turkey, Uzbekistan, Egypt.
- One of the elements of such a state policy is the annual signing of a memorandum between grain producers, flour millers and bakers. Did you sign the memorandum in 2024?
- No, we did not sign it. We put forward our conditions, but they were rejected. They proposed fixing the export volume not just of food wheat, but of first and second grade wheat, that is, the raw material that we use to produce flour.
- Speaking of state policy, what could the authorities do to help flour millers? What steps would improve the sector's performance?
- First, establish a quota for the export of flour-quality wheat. Second, make certain preferences for exports, for example, as Turkey does. Here you can play with both domestic and export VAT. You can make tied credit lines for those enterprises that export, that is, provide cheaper credit resources for the purchase of grain that will be processed into flour for further export.
If the government saw the point in developing processing in this direction, it would invite representatives of industry associations and ask what to do so that exports instead of the current 60,000 tonnes would amount to, for example, 200,000 tonnes. Of course, we would voice our capabilities and offer our own vision.
I would not like to cite the example of Russia, but taking advantage of the fact that container lines do not enter Ukraine, and we were forced to leave the markets of a number of countries, they took our place, because their damned government helped them.
- What is your forecast for the 2025/2026 season?
- We are concerned about the decline in supplies of flour products to the EU after the expiration of the autonomous trade measures on June 5. Two-thirds of our exports are currently to the EU.
Starting from June 6, we have the opportunity to supply a total of 583,300 tonnes of wheat and wheat flour to the EU market by the end of the year. But since the quota is unified, I am not sure that we will "fit" within it. It is much easier for wheat grain exporters to find a buyer in the EU and close the quota. Therefore, we continue to convey information to European officials through all possible communication platforms about the need to allocate a separate quota for Ukrainian flour for export to the EU or to remove it altogether.
Regarding wheat production volumes in 2025, according to various estimates, around 20 million tonnes will be in Ukraine. This volume is more than enough to avoid internal problems with flour and bread. After all, for domestic consumption, for food purposes, Ukraine needs about 3.5 million tonnes of wheat. These figures are understandable – Ukraine grows much more than it needs.
We cannot talk about the quality of grain today, because we do not know it yet. This issue can be discussed sometime in the middle of September after the grain harvest and after it has undergone post-harvest ripening. We plan to keep the processing volumes at last year's level – within 2 million tonnes of borax.
The sowing of cereal crops – millet, buckwheat, oats, peas – has just been completed. It is still difficult to say what the weather will be like in the summer and, accordingly, the harvest of spring crops.
We can only say with certainty that there will be a 100% shortage of rye in the 2025/2026 season. Already now, Polish rye is partially processed in Ukraine, and bakers use Baltic rye flour. Unfortunately, this is already our reality. The reason is the reluctance of agricultural producers to sow rye, since its yield is a third lower than that of wheat, up to 40 centners per hectare versus 60 centners per hectare, respectively. There is demand for rye only on the domestic market. However, the price for it is currently more than competitive: if in 2024, a tonne of rye cost UAH 6,000 to UAH 7,000, then as of May 2025 from UAH 12,000 to UAH 14,000. Previously, the entire deficit was covered from Belarus, which led to a reduction in rye production in Ukraine – it was difficult for farmers to compete with supplies from Belarus.
- Could this rye shortage lead to higher prices for rye bread?
- Absolutely. Currently, the price of Ukrainian rye flour is UAH 18,000 per tonne, from imported raw materials – about UAH 20,000, while last year in May rye flour cost UAH 10,000. It will not just be an increase in the price of rye bread – many manufacturers of bakery products will simply stop baking it.
As I understand it, we will experience a rye deficit in the 2025/2026 marketing year and will buy it on foreign markets at European prices. And this will make rye interesting for Ukrainian farmers. In the 2026/2027 marketing year, most likely, agricultural producers will increase the area under rye, which will be able to level the situation on the market.
On this occasion, I would like to invite all interested parties to join our conference-exhibition "Bread Industry-2025" which will be held on June 12-13 in Uman. The program includes insights, cases and tools that are already working in Ukraine and beyond, from top experts from the baking, flour milling industries, mechanical engineering, HoReCa and retail. There will be also a sector-specific exhibition and workshops. We will be happy to connect in person.