In BMI’s Q109 Food and Drink Business Environment rankings, Ukraine ranks 12th out of 14 major CEEmarkets, having previously occupied last position. Its overall score is actually lower than in the previousquarter, as Ukraine remains disadvantaged by a number of factors, including excess bureaucracy,corruption, illegal trade and the low per-capita food and soft drink consumption. While its overall scoremasks a number of opportunities within its food and drinks market, including beer and confectionery,Ukraine will continue to receive less foreign interest than its larger neighbour, Russia, especially in lightof its political and economic woes that are resulting in falling levels of consumer confidence.Earlier in the year, Prime Minister Yulia Tymoshenko attempted to push through price control legislation,and while this attempt was blocked to date by President Viktor Yushchenko - to the relief of food andbeverage producers - worsening economic conditions mean the introduction of such caps remains apossibility. Rising energy and commodity costs have negatively impacted earnings of major food anddrinks players, including that of the dairy conglomerate Ukrproduct, which announced that its H108gross profits declined by 3% year-on-year (y-o-y), despite higher sales. Around the same time, a numberof mass grocery retail (MGR) operators - including German Metro Group and Russian X-5 Retail andPaterson - abandoned their expansion plans in Ukraine.In the meantime, BMI expects a marked slowdown in Ukrainian economic growth through the mediumterm and has slashed the 2009 real GDP growth forecast. We now expect GDP to contract by 3.2%, downfrom our previous forecast of 2.2%. Although the extension of a US$16.5bn emergency loan offer fromthe International Monetary Fund (IMF) will provide a significant degree of support to aid domesticeconomic stability, we caution that numerous downside risks to our forecast remain. Moreover, as themajority of problems - including the ongoing fragility of the domestic banking sector, a weaker localcurrency and a drastic deterioration in both external demand and credit markets - have emerged at a timewhen the country has already passed the peak of its economic cycle, we believe the prospects forUkrainian economic growth through the medium term are looking increasingly dire, which will clearlyhave an effect on food and drink spending. Indeed, we expect private consumption to contract by 2.6% in2009, and grow by only 2.7% in both 2009 and 2010, significantly lower than the 10.1% average annualrate of expansion between 2005 and 2007.Nevertheless, other foreign players continued to increase their involvement in the Ukrainian market, withAnglo-South African brewer SABMiller recently completing its acquisition of Ukrainian brewer CJSCSarmat. Similarly, the German arm of Danish brewing giant Carlsberg was reportedly in advanced talkswith the government in the Kharkov region of Ukraine to build a green-field brewery. Following a dealwith Scottish & Newcastle as part of a takeover bid launched in 2007, Carlsberg now controls BalticBeverages Holding (BBH), previously a joint venture, which has struggled in recent years in Ukraineagainst the market dominance of Belgian InBev.