Posted on June, 6, 2023 at 11:34 pm
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.
Source: Cepa