The paper studies resource misallocation in Ukraine’s food industry and its impact on industry’s total factor productivity during the period of 2002-2010. Applying Hsieh and Klenow (2009) framework to the dataset of 8,410 Ukrainian food producers, I found that optimal allocation of resources can potentially increase the productivity of this sector by 166-400%. The extent of misallocation in the manufacturing of food and beverages is not uniform across industries, as well as across regions of Ukraine. Results also show that in the case of optimal allocation of resources, small and medium enterprises should have a higher role in food production sector.