Western leaders were shocked when Poland, Hungary, Slovakia, and Bulgaria suspended agricultural product imports from Ukraine in April, citing a negative impact on their markets.
In response, earlier this month, the European Commission introduced a temporary ban on the import of several Ukrainian agricultural products into five European Union (EU) member countries — Poland, Slovakia, Hungary, Bulgaria, and Romania — while allowing transit to other European countries.
The ban was initially scheduled to last until June 5 but was then extended to September 15. It applies to four key agricultural commodities, including wheat, corn, rapeseed, and sunflower seeds, and affects approximately 20% of Ukraine’s grain exports, which are transported to the EU by land. The agreement, albeit imperfect, replaces the earlier, more stringent prohibitions imposed by the four national governments. Still, the saga has revealed a contentious issue threatening a vital element of Ukraine’s economy. It’s unlikely to go away in the near future.
Why has it sparked EU disagreement? Following Russia’s full-scale invasion and the imposition of its naval blockade in February 2022, Ukraine was forced to ship millions of tons of grain by land which had previously been transported by sea. To help Ukraine, European countries swiftly lifted trade restrictions and introduced “solidarity corridors,” allowing Ukraine to expand grain exports through the ports of neighboring EU countries including Romania, Poland, and the Baltic states.
Grain exports to EU countries increased by 65% in 2022, making the EU the largest consumer of Ukrainian products. Some of the numbers are eye-popping. In particular, grain exports to Poland increased by 38-fold; to Hungary, 54-fold; to Slovakia by a factor of 575; and to Romania, 690-fold. This stark increase in imports, which were intended to transit to third countries, destabilized some European internal agricultural markets causing local farmers to lose their profits as grain prices tumbled.
Ukrainian grain is often much cheaper than competitor products from elsewhere in Europe because of soil quality, significantly lower labor costs, and the fact that in Ukraine, large areas are predominantly managed by agro-holdings with substantial infrastructure. Central and East European farmers have also said that Ukraine does not have to apply stringent EU production standards.
Why doesn’t Ukrainian grain make its way to the Global South where there are significant shortages? Firstly, grain prices in Europe are higher than in countries of the Global South, which creates an incentive for Ukrainian producers to sell there. Secondly, European countries have a large number of processing plants that specialize in the production of animal feed and require large volumes of grain as raw material. Due to high internal prices, they often find it more cost-effective to purchase Ukrainian grain. Finally, since Ukraine is currently receiving significant amounts of humanitarian aid, many vehicles that come to Ukraine to provide humanitarian assistance return with a truckload of Ukrainian grain. This reduces the cost of transporting grain and makes it more competitive.
The European Commission is working on measures to ensure the transit of Ukrainian grain to its final destination, particularly to Africa, instead of remaining in Europe. This would help stabilize the situation in the markets and ensure equal conditions for all parties. In addition, Ukrainian President Volodymyr Zelenskyy and European Commission President Ursula von der Leyen have announced their intention to establish a joint coordination group with the EU in order to address the problem.
But the EU has additional options available to remedy the situation. One potential solution is the redistribution of agricultural subsidies among EU countries, taking into account the current situation in the grain market. Another important tool could be the adjustment of the Common Agricultural Policy, which takes into account modern global challenges for the agricultural sector and food security. Also, the stabilization of the European grain market is relevant.
The use of these strategies would ensure a more comprehensive and sustainable resolution of the obstacles faced by the export of Ukrainian agricultural products, and they may prove to be more effective in the long term, promoting healthy trade relations between Ukraine and the EU.
Ukraine too could help mitigate some of these issues. It could cooperate with European partners in establishing joint processing enterprises for the production of animal feed, designed for both the domestic and international markets. To avoid similar issues in the future, Ukraine should focus on the development and state support of its livestock industry. This strategy would result in a more balanced agricultural sector, which in turn would reduce the risks associated with fluctuations in international grain markets and contribute to the creation of a broader spectrum of exported agricultural products.
It is vital that the EU and Ukraine address these questions now, as Ukrainian grain exports are fundamental to the health of its economy. According to estimates by the KSE Agrocenter, the Ukrainian agro-industrial complex lost about $15bn to the blockade of seaports from February-August 2022. This means a loss of liquidity, together with bankruptcy, underproduction, and problems with sowing. Meanwhile, 17% of the population works in the unsubsidized agricultural sector, which provides 53% of foreign currency earnings and 20% of GDP. At the same time, Ukraine provides food for more than 400 million people in the world, creating a balance for global food security.
The issues facing EU farmers are a direct result of Russia’s unprovoked war on Ukraine. The countries that limited food imports from Ukraine have already benefitted from this situation, namely through EU financial support, and it is likely that bans on the import of Ukrainian grain were aimed at obtaining more.
This is mostly a political story, with grain imports as part of domestic political struggles. All parties should now take into account the real causes of the complex situation in the agricultural market and find a common approach to restoring stability and cooperation between Ukrainian and European farmers.
Vitalii Dankevych is a Doctor of Economics and Professor at Polissia National University, Ukraine. He is also a Fellow with the Democratic Resilience Program at the Center for European Policy Analysis (CEPA.)
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
