A solution for Ukraine’s grain exports … for now

3 min read

For more than a year, Ukraine enjoyed the unwavering support of the EU, as a whole.

For many months, its European allies delivered weapons, ammunition and anything needed, they welcomed the millions of Ukrainian refugees. With accepting several sanctions against Russia, they tried to stop the war, disregarding their own economic interests. It became an almost-obligation to provide assistance to Ukraine, whether it was reasonable or not, or whether it hurt Europe’s economy almost as much as Russia’s.

For many months, Ukraine, one of the world’s top exporter of wheat and other grains enjoyed the benefits of unhindered access to EU markets, providing much needed cash to the country’s economy.

With its main export route via the Black Sea disrupted, most of its produce has been diverted to cross through bordering EU countries via “solidarity lanes” and without tariffs, but instead of getting shipped to far away destinations, grain exports remained in Central Europe because of various logistical challenges and supply bottlenecks. Excess Ukrainian agricultural products have put pressure on storage facilities.

But even the staunchest allies might reach a point when reason has to prevail over hopes, reality over dreams.

Poland, which, for the last fourteen months, has played a leading role in supporting Ukraine, acting both as a transit hub as a main donor, stood up against cheap grain shipments, announcing a ban on April 15, and got quickly followed by others.

Probably understandably.

In 2021, 6,269 tons of corn and 3,033 tons of wheat were exported from Ukraine to Poland. In 2022, Poland received 2.08 million tons of corn and 579,315 tons of wheat. The numbers are not that big for the other four countries, but the increase is significant, nevertheless.

Polish Prime Minister Mateusz Morawiecki declared that the “import ban would cover grain and certain other farm products and would include products intended for other countries”.

His Bulgarian caretaker counterpart, Prime Minister Galab Donev issued a similar statement, “If this trend persists, or grows stronger after the introduction of similar bans by other countries, there may be extremely serious consequences for Bulgarian businesses”.

The reaction from Kyiv came immediately, officials having declared the decision unfair and “in contradiction with past agreements”.

The reasons behind the ban were manifold, starting with lower production standards and safety measures in Ukraine (just recently 1,500 tons of wheat contaminated with a banned pesticide were discovered in Slovakia) and ending with the collapse of grain prices, negatively affecting the rural populations in Eastern Europe.

Ever since February 2023, blockades had been regularly organized in Poland’s Dorohusk region by different farmers’ unions, causing a significant political problem. The country’s agricultural minister was already forced to leave due to the crisis.

Slovakia’s government also notified the European Commission about the challenges it faced, “there is a need to solve the problem … in order to stabilize the market and the prices of agro-product … […] … we would appreciate the whole-European solution [to] the Ukrainian grain because the topic is relating to the protection of the whole internal European market”.

At first, the European Commission was “perplexed” and said that “unilateral actions on trade were unacceptable under EU policy”, but in the end, it listened to the complaints of those five states.

Instead of threatening the five countries with disciplinary measures, the Commission was open to find a solution, stating that “eastern European nations had been supporting Ukraine in many areas and … [it was] not about sanctioning, but finding solutions based on EU law that are in the interests of the Ukrainians and the EU”.

The Commission not only agreed to allocate € 100 million as compensation to farmers adversely affected by the excess Ukrainian grain, but also gave exemptions to those countries. According to the agreement, wheat, maize, rapeseed and sunflower seed coming from Ukraine cannot be sold in the five countries that had complained about the negative effects of cheaper Ukrainian agricultural products on their own domestic production. Ukrainian products can only be exported to the five states for onward transit.

The deal came under attack the moment it was reached.

Ministers from 12 other member states (including Ireland, Austria, Belgium, Denmark and Slovenia) urged the European Commission to explain its deeds and “return to a transparent procedure”, as the deal was made “without consulting member states”, especially when it comes to the € 100 million grant.

On the surface, it looks as if the argument would be about free trade (and illegal barriers, aids and grants) within the common market, but at the bottom of the issue is the question of financing Ukraine. Who and to what extent should bear the costs of giving a lifeline to the Ukrainian economy. Reversing the deal would actually mean that a large part of that sum was to be the burden of Eastern European countries, which, before the deal were disproportionately affected by the influx of cheap Ukrainian grain.

As of now, the Commission holds its ground and sticks to its rational decision.

And, as of now, these steps might be enough.

Especially as long as the UN-backed agreement to allow a safe corridor via the Black Sea holds on, taking some of the pressure off land routes. As Russia has hinted on refusing to extend the deal beyond May, the importance of land routes will grow again, so will the chances of yet another bottleneck forming.

Trends on the world market, like Brazil gaining foothold, having almost doubled its 2021/22 exports to 50.9 million in the 2022/23 season, might also render Ukrainian products less important for the rest of the world. Russian wheat exports have also risen following a record harvest in 2022. This might force the bloc to buy or subsidize Ukrainian wheat to sustain the country’s economy, recreating the problem.

The EU should maybe start to think ahead, so when the time comes it can have reasonable solutions instead of irrational steps.

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