Why Central Europe is Banning Ukrainian Grain Imports
Over the weekend, Poland and Hungary announced that they would be, at least temporarily, banning the import of grain and other foodstuffs from Ukraine. This decision came after a surge in cheap Ukrainian grain flooded the European market, undercutting Central and Eastern European farmers and leading to calls for protective measures.
In May of last year, the European Union (EU) agreed to lift all tariffs and quotas on Ukrainian imports in an effort to support Ukraine’s struggling economy in the wake of Russia’s invasion. This move provided Ukraine with a large export market and a much-needed source of foreign currency. However, it also had unintended consequences for European farmers.
As cheap Ukrainian grain entered the European market, farmers in Central and Eastern Europe found themselves unable to compete with the lower prices. This led to growing discontent and calls for protective measures, with some countries even pushing for a U-turn on the EU’s decision to lift trade barriers.
The situation has resulted in increased tensions within the EU, as customs are supposed to be decided by the bloc at the supranational level, not by individual member states. This introduction sets the stage for a deeper analysis of the impacts and implications of Ukraine’s grain ban on European agriculture and politics.
Ukraine’s Agricultural Economy
Ukraine is often referred to as the “breadbasket of Europe” due to its significant agricultural production and export capabilities. The country boasts the most arable land in all of Europe, excluding Russia. As an agricultural export powerhouse, Ukraine’s food exports previously provided the calories to feed about 400 million people, highlighting its crucial role in global food supply.
Before the war, Ukraine accounted for a substantial portion of the world’s agricultural exports. The country contributed approximately 10% of the world’s wheat exports, 16% of its maize, and a staggering 50% of its sunflower oil. These figures demonstrate Ukraine’s significant position in the global agricultural market and the potential impact of any disruption to its exports.
Despite its geographical proximity to the European Union, Ukraine historically faced challenges exporting its produce to Europe. This was primarily due to the EU’s protective agricultural policies, which made it difficult for Ukrainian products to enter the European market.
Instead, Ukraine heavily relied on the Black Sea routes, particularly the port of Odessa, which was responsible for about 98% of Ukrainian wheat exports. This dependency on the Black Sea for exports made Ukraine particularly vulnerable to disruptions, such as those caused by Russia’s invasion and subsequent blockade of the sea.
Effects of Russia’s Invasion on Ukraine’s Agricultural Exports
The Russian invasion of Ukraine severely impacted the country’s agricultural exports, primarily due to the Russian Navy’s blockade of the Black Sea. This blockade hindered Ukraine’s ability to export via its usual routes, forcing the country to seek alternative means of transportation. The Ukrainians attempted to shift exports through rail, road, and the Danube River, but these efforts proved insufficient in maintaining previous export volumes.
As a result of the blockade and the challenges associated with finding alternative export routes, Ukraine’s export volumes dropped significantly. By April, there were approximately 20 million tons worth of produce stuck in the country, unable to reach international markets.
Despite the ongoing war, Ukrainian farmers managed to harvest 26.6 million tonnes of wheat in 2022 and successfully planted 80% of 2023’s harvest, with most losses coming from fields around the frontlines in Donbass. However, this remarkable achievement was overshadowed by the difficulties in exporting the grain.
In response to the export crisis, the Black Sea Grain Initiative was brokered by Turkey and the United Nations. This initiative allowed Ukraine to export some of its produce through the Black Sea, albeit with significant limitations. Each shipment had to be checked by Turkish authorities, which greatly reduced the volume of exports that could be processed.
Furthermore, the high cost of shipping insurance due to the ongoing conflict further limited the amount of food that could be exported. Ultimately, the Black Sea Grain Initiative offered some relief to Ukraine’s agricultural sector, but it was unable to fully address the challenges posed by the blockade and the war.
EU’s Response and Central/Eastern European Backlash
In an effort to support Ukraine and mitigate the negative economic impact of Russia’s invasion, the EU decided to lift all trade barriers on Ukrainian exports in May. This decision allowed Ukrainian food to flow freely into the European single market, providing the country with a much-needed source of foreign currency and a larger export market.
Despite the EU’s initial unanimous support for lifting trade barriers on Ukrainian imports, the surge in Ukrainian foodstuffs entering the European market led to significant market disturbances for Central and Eastern European farmers.
The increased competition from cheaper Ukrainian produce, combined with the weakness of the Ukrainian hryvnia against the euro, made it difficult for European producers to compete. This, in turn, led to falling prices across the board, negatively impacting local farmers in these regions.
In response to the market disruptions caused by the influx of Ukrainian imports, agriculture ministers from six European countries—Poland, Bulgaria, the Czech Republic, Hungary, Romania, and Slovakia—demanded limits on Ukrainian imports and compensation for affected farmers during a January EU farm ministerial meeting in Brussels.
The countries involved asked for compensation from the EU’s agricultural crisis reserve and requested that the EU actively redirect Ukrainian produce past Central Europe to Western Europe. Although the EU provided some compensation, it was not enough to appease the affected nations, eventually leading to the unilateral actions taken by Poland and Hungary to limit imports of Ukrainian produce.
Poland and Hungary’s Unilateral Grain Import Ban
The mounting pressure on local farmers due to the influx of Ukrainian imports led to political tensions in Central and Eastern European countries. Agriculture ministers in Poland and Romania faced calls to resign, with the Polish minister eventually stepping down.
It is worth noting that many of these countries have upcoming elections, such as Poland’s ruling Law and Justice Party, which is set to face the electorate later this year. Strong support from rural areas was instrumental in their 2019 election victory, and maintaining the support of farmers is crucial for their chances of securing another majority.
EU Commission’s response to unilateral actions
Poland and Hungary’s unilateral decision to limit imports of Ukrainian produce until the end of June was met with disapproval by the European Commission. The Commission stated that “trade policy is of EU-exclusive competence” and, as a result, “unilateral actions are not acceptable.” This reaction highlights the tensions between EU member states and the need for coordinated actions in response to complex economic situations like the one faced by Ukraine.
Impact on Ukraine’s economy and foreign currency inflows
The import ban imposed by Poland and Hungary has significant implications for Ukraine’s economy. Agriculture accounts for a majority of Ukraine’s exports and serves as a critical source of foreign currency. The restrictions on grain imports not only strain the Ukrainian economy but also cast doubts on the extension of the Black Sea grain deal with Russia, which is set to expire in the coming weeks. This potential expiration could further limit Ukraine’s foreign currency inflows and exacerbate the country’s economic difficulties.
Implications for Ukraine’s Long-term Prospects
The import ban and the resulting tensions in Central and Eastern Europe underscore the challenges Ukraine faces in maintaining support from its neighbors in the long run. If these countries are unwilling to allow Ukraine to sell its grain in Europe, it may become increasingly difficult for them to maintain their steadfast support for Kiev in the ongoing conflict with Russia.
Another implication of the import ban is the potential difficulty for Ukraine in achieving EU membership without significant changes to the Common Agricultural Policy (CAP). The CAP would need to be amended to better protect local agriculture industries in Central and Eastern Europe, ensuring that these countries can continue to support Ukraine without causing undue harm to their own economies.
Conclusion
The situation with Ukraine’s grain exports illustrates the delicate balance the EU must strike in supporting Ukraine while addressing the concerns of its member states. As tensions rise between Ukraine and Central and Eastern European countries, the EU must find a way to accommodate both the needs of Ukraine and the concerns of its member states.
Short-term solutions could include compensation for affected farmers or the redirection of Ukrainian produce to Western Europe, as suggested by the six countries in their joint position paper. In the long term, however, more sustainable solutions must be found that allow for a mutually beneficial relationship between the EU, Ukraine, and the Central and Eastern European countries.
Ultimately, the challenge lies in finding a sustainable and mutually beneficial solution that satisfies all parties involved. The EU, Ukraine, and Central and Eastern European countries must come together to find a compromise that allows for the free flow of goods and resources while ensuring the stability and prosperity of all their economies. This delicate balancing act will be crucial in maintaining support for Ukraine and fostering a more cohesive and collaborative European community.
