Will Ukrainians get cheaper milk and dairy products?

#AtTheCommitteeConsideration section today is about the draft law No. 3775, which proposes to reduce the value added tax for milk and dairy products.

2019 according to the State Statistics Service was the first year, when the dairy industry of Ukraine demonstrated a record decline: milk production fell to 9.69 million tons or 3.7%. Ukrainian processors did not receive 377.1 thousand tons of raw materials. About 30% of milk processing enterprises in 2019 worked at a loss.

What is the reason?

The main reason is the reduction in the number of dairy cows. Experts of the Association of Dairy Producers of Ukraine claim that Ukrainian farmers are disappointed with the state policy in agriculture, many of them are considering closing the dairy business. It is not profitable, they say, due to the unclear situation with the introduction of the land market, incomplete payments in state support programs, as well as significant reduction of such programs in 2020. This leads to the monopolization of the raw material market and the establishment of high purchase prices for milk, - experts say.

The authors of the draft law No. 3775 claim that out of 27 EU member states, the prices for raw milk in 26 countries are lower than in Ukraine. Therefore, due to the high cost of raw milk, prices for dairy products in Ukraine are higher than in the EU. “From an export-oriented dairy industry Ukraine is becoming import-dependent”, - the authors of the draft law say. Last year, exports decreased by $ 45 million compared to 2018, while imports increased 1.5 times, by $ 46 million. Prices for imported dairy products are sometimes lower, than prices for products from domestic producers. As the result, dairy products from the EU countries, like Poland, Germany, France, the Netherlands, Italy, as well as from Belarus, where raw materials are much cheaper than Ukrainian, is gradually displacing Ukrainian dairy products in the market.

Experts of the Association of Milk Producers of Ukraine claim that one of the reasons for high prices for dairy products in the domestic market is the high VAT rate on milk products — in Ukraine it is as much as 20%, while in European countries the VAT rate is several times lower. In Germany, for example, it is only 7%, in France even less — 5.5%, in the Netherlands — 6%, in Hungary — 9%, Poland — 5% and even in Belarus and Russia — 10%.

What does the draft law No. 3775 propose?

The draft law proposes to amend the Tax Code of Ukraine, in particular, to reduce the VAT rate to 10% on dairy products and raw materials for their production:
-    butter;
-    milk and cream;
-    milk and cream, condensed and with added sugar or other sweetener;
-    buttermilk, coagulated milk and cream, yoghurt, sour cream and other fermented milk and cream;
-    whey;
-    products consisting of natural components of milk;
-    cheeses of all kinds and sour milk cheese.

The authors of the draft claim that it will help to prevent the decline in dairy farming and milk production. It will also boost milk and dairy products production and keep prices at a reasonable level.

The Committee will announce its opinion on draft law No. 3775 at its next meeting on September 16, 2020.