Russia limits food imports from the EU, U.S./positive for Milkiland

The Russian government imposed on Aug. 7 sanctions on certain countries that have applied economic sanctions against Russia. They involve a ban on the supply of fruits, vegetables, dairy products, meat and seafood from EU countries, the Unites States, Canada, Australia and Norway.



Ukraine was not included in this round of the Russian government’s sanctions, but some of Ukrainian products were recently targeted by other sanctions. At the end of July, the Russian Agricultural Supervision Service introduced a temporary ban of the import of Ukrainian soybeans and soybean meal, sunflower seeds and corn grits. It also banned supplies of fruits from Moldova. On July 4, another Russian regulator banned supplies of cheese produced by most Ukrainian producers, including the facilities of Milkiland (MLK PW), the biggest Ukrainian cheese exporter.



Alexander Paraschiy: The Russian sanctions on Western products will benefit Milkiland, whose Russia-based plants (accounting for 41% of consolidated revenue) will enjoy less competition and higher pricing for their products. On the negative side, the company will have to reconsider the marketing strategy of its Polish-based plant Ostrowia (accounting for 4% of revenue in 2013), which had been purchased by Milkiland to target the Russian market.



Overall, we estimate the positives to be enjoyed by the Russian-based operations of Milkiland will nearly cover the losses from the earlier restrictions on cheese supplies from Milkiland’s Ukraine-based plants to Russia. These supplies generated about 20% of the company’s total revenue in 2013).



Ukraine’s other food producers and exporters will be less affected by the Russian government’s recent move. Among those that might be indirectly affected is poultry producer MHP (MHPC LI), which might suffer from lower global prices for chicken meat (exports accounted for 27% of the company’s poultry sales in 1Q14).

Источник: Конкорд Капитал