Milk Policy and the Opportunities and Challenges of Euro-integration

BY BRIAN MILAKOVSKY

Ukraine’s small dairy farmers can be seen as something of an indicator group for the success of Kyiv’s Euro-integration efforts. Rural smallholders have only a short time to meet EU agricultural standards, and how Kyiv handles the matter will say much about whether the process of Euro-integration is seen as a boon for the country’s rural poor or simply another chapter in the long socioeconomic decline of the Ukrainian countryside.

The crux is that the EU-Ukraine Association Agreement requires Kyiv to phase in European milk quality standards over the course of 2018–2019. These standards would prohibit dairy plants from purchasing Class II milk, which has higher levels of bacteria than standard Class I milk.

This move is sensible on the surface and should benefit Ukrainian consumers. But the Ukrainian dairy sector faces significant barriers to complying with the regulation. Since the dissolution of the collective farms in 1991 and a threefold reduction in the Ukrainian dairy herd, more than a third of the remaining production has shifted to rural households that keep only a few cows. This is a crucial economic lifeline for numerous families, but because of a primitive facilities, the lack of cooling equipment, and poor handling by buyers, little of their milk is graded Class I.

Kyiv has put off enforcement of the new rule until 2020 to tamp down fears of unemployment and supply shortages. The Ukrainian press has covered the issue in alarmist fashion, warning of a “massive slaughter of cows and inflows of Polish milk.” The Russian media have chimed in, with RT and the Ukrainian branch of Ria Novosti portraying the EU as trying to eliminate local competition to their milk exports.

Both Kyiv and Brussels are trying to reassure Ukrainians that the new standards are attainable. Prime Minister Volodymyr Groysman claims “there will be no ban.… We need to organize basic hygiene controls at the collection point,” adding optimistically, “That’s not hard to do.” The EU representative office in Ukraine asserts: "We heard many of the same worries spread by the Ukrainian media in Poland, the Czech Republic, and the Baltic states when they adopted similar European requirements. Travelling around those countries, you can assure yourself that that these myths did not prove true. Of course, to raise the standards you need investment. But Central European farmers survived and today are thriving.”

Implicit in the EU’s position, however, is a crucial assumption: that Ukraine has the same governing capacity as the Central European countries to make the necessary investment and carry out complex reforms. But does it? The answer will determine the success not only of obscure milk standards but of much of the ambitious Western-backed liberal reform program.

There is some good news. In Dnipropetrovsk, Zaporizhzhya, and Kherson oblasts, more than 100 modern “family farms” of more than five cows have been established with technical and material assistance from Canada. These farms focus on optimizing the collection process, retrofitting barns, and installing small-scale refrigeration equipment. Together with 800 smaller producers they formed the Hospodar cooperative, which controls 65 percent of milk production in the eight raions (counties) where it operates. More than half the milk the cooperative presently produces is Class I.

Maksym Maksymov of the Dnipropetrovsk Agricultural Consultation Service claims this model “destroys the myth that small-scale milk production can’t be a competitive business and can’t produce quality milk.” In fact, he claims, “it is easier for small producers to adapt to the new standards than for industrial farms. It is simply a lie that large farms uniformly produce better milk.” This is a pointed rebuke to the perspective of some agribusiness companies that the solution is to phase “village milk” out of the supply chain.

The urgency of extending the model is greatest in the rural Donbas, where socioeconomic problems are sharpened by the armed conflict. In Luhansk oblast 70 percent of milk is produced by smallholders, who lost most of their traditional market when separatist and Russian forces seized eleven of the oblast’s fourteen cities. The region’s remaining dairy plants cut the prices they pay smallholders by nearly half, prompting many families with marginally profitable farms to slaughter their dairy cows. As a result, one-third of the oblast’s village dairy herd has been lost in four years, with no end in sight to the decline. There are already many villages where the lowing of cows has been replaced by silence.

In my work in the Donbas humanitarian sector, I have encountered many smallholder farmers and can attest to the general despondency, confusion over the new standards, and uncertainty as to what to do next.

An ambitious intervention by Kyiv with international donor support is needed to turn the situation around. Maksymov estimates that retrofitting a smallholder operation into a successful family farm costs at least $3,000 a cow, underscoring the need for hundreds of millions in investment.

There is some progress: the Agriculture Ministry wants milk cooperatives to be a priority for the 4 billion hryvnia (around $152 million) in the 2018 national budget designated for supporting the livestock industry. But Kyiv will have to work hard to ensure these funds make it to the thousands of smallholders who desperately need assistance and not to agribusiness, which is much more experienced at accessing subsidies. In addition, a small army of agricultural extension agents is needed to train villagers in improved milking and storage techniques, barn retrofitting, and transport. Few oblasts have functioning extension agencies, and the government is only beginning to think about investing in this human capital.

Kyiv must pick up the pace, however, for the next two years will amount to the first experience of hundreds of thousands of low-income rural Ukrainians with Euro-integration. Will that experience be a positive one, as they benefit from technical and material support to upgrade their dairy production, or will they see only the indifferent undermining of their livelihoods?