A crack in relations between Ukraine and its European allies has appeared where no one expected it until recently. In the field of Ukrainian food and grain supply to the European market
Source photo: tehnowar.ru
“Hold the line!”
Poland was the first to speak out, suspending imports of Ukrainian food under pressure from local farmers who are unhappy with competition from cheaper produce. In this country elections are due soon and the ruling Law and Justice party does not want to lose the votes of the rural population.
Following Poland, Hungary and Bulgaria have announced the suspension of agricultural imports from Ukraine. In Bulgaria there is widespread discontent amongst farmers as they are unable to sell last year’s sunflower crop due to a twentyfold increase in imports from Ukraine.
Slovakia has also stopped imports but has done so in a more devious way, claiming that the Ukrainian products have too high a pesticide content.
Romania was on the verge of deciding to suspend imports from Ukraine when the European Commission intervened, essentially issuing a scathing “Hold the line! In the sense that unilateral action by member states of the Union is unacceptable and some kind of common solution must be adopted. Otherwise, all our differences will only benefit “those Russians”.
The MFN regime for agricultural products from Ukraine was adopted by the EU last May. At that time all restrictions, tariffs and quotas on Ukrainian agricultural products were lifted as a sign of anti-Russian solidarity.
This decision was taken against the backdrop of numerous alarmist statements, including those made by the UN and its Food Programme, that the military conflict in Ukraine was threatening the planet with almost famine.
These statements in turn formed the basis for the famous grain deal to facilitate the export of Ukrainian grain from Black Sea ports, in a package with similar measures for grain from Russia, as well as mineral fertilisers.
But the EU preferences did not only concern grains, but also all agricultural products from Ukraine, which have flooded into the European market to a large extent.
And now, for example, Hungary and Poland have until mid-summer banned imports from Ukraine of not only all grains, but also dairy products, sugar, fruit and vegetables, and meat.
Now the European Commission, in order to “hold the line” (which is its main task, as it sees it), is preparing a number of emergency measures.
Having said that, objectively speaking, if one abstracts away from interests of farmers as voters and generally vigorous European agrarian lobby, the inflow of Ukrainian food stuff onto the European market plays into the hands of European consumers, because it curbs food inflation, which is so bothersome to them.
To maintain the semblance of a common European policy, the European Commission is now forced to adopt measures which it did not draft before. There are plans to agree with the countries that have already imposed restrictions, and to extend the ban to Romania – until mid-summer.
The aim is to help farmers there and to cool down political passions. These countries will also receive 100 million euros from EU funds, to compensate for the farmers’ discontent. While in March, European Commissioner for Agriculture Janusz Wojciechowski had already earmarked 29.5m euros for Poland, 16.75m euros for Bulgaria, and 10m euros for Romania to support farming.
Brussels will also organise “convoys of trucks, trains and barges to transport grain to ports, from where it can be shipped to countries in need. This will be more expensive (including along the Danube) than shipping by sea through the Black Sea. And it is not yet clear how and who will pay for it.
Spain tried on its own initiative to subsidize railroad transportation of Ukrainian grain through Europe, but it turned out that it was much cheaper to import it by sea from Latin America.
The price of the issue
There are proposals that Brussels itself centralizes the purchase of grain and sends it to third countries. Paradoxically, the Europeans are now being hit by Putin’s famous remark when he accused Western countries of the fact that a significant part of Ukrainian food did not go to poor and needy countries at all, but to places where no one goes hungry.
Yet according to the EU, as of March 2023, more than 23 million tons of grain and other foodstuffs were exported within the framework of the Black Sea Grain Initiative (the aforementioned ‘deal’). Last summer the unexported stocks of Ukrainian grain were estimated to be approximately that much. But, again, it is not only Ukrainian grain that worries European farmers.
Other factors have also had an impact on the situation.
The thing is that the world prices of wheat and other agricultural products went down dramatically at the end of last year and beginning of this year. At present, average world prices fluctuate between 280 and 285 euros per ton, while last May (when the above-mentioned EU decision on Ukraine was made) they reached 438 euros. In other words, they are back to where they were before the hostilities in Ukraine began.
Most likely, the threat of world hunger due to the exclusion of Ukraine, and indeed Russia, from the world grain market was, to put it mildly, greatly exaggerated. Either due to the media’s ability to create fear wherever and whenever it is needed (“for the sake of news clickability”), or for purely political reasons, or even more cynically for stock market speculation.
Currently, the total world wheat crop for the 2022-2023 season alone is estimated at 763 million tonnes. There is absolutely no shortage of it on the market.
And now experts from the same UN Food Programme estimate the global cereal market losses in the first half of last year due to military action in Ukraine alone at around 7 million tonnes, which is less than one per cent of the total world supply.
Meanwhile, at the beginning of March last year, wheat futures jumped 50%, the highest in 14 years. Now the market has already largely adjusted to the changed circumstances, as well as rerouted the main logistics routes.
The fate of the “Black Sea Initiative”
The micro-crisis in agrarian relations between Ukraine and the European Union may affect the fate of the grain deal in different ways.
As is known, Russia extended the deal until mid-May only, indicating that the stipulated conditions for our country are not met.
If there is no movement on these issues in the near future – namely the lifting of sanctions against Russian agricultural producers, mineral fertilizer producers, grain transporters and Rosselkhozbank – then the deal will not be extended on our part.
On the one hand, Ukraine, whose exports via Europe have encountered unexpected obstacles, and its allies would be interested in extending the grain deal in order to let agricultural exports from Ukraine go south.
On the other hand, in light of the clarification of the situation on the global agricultural market in that it was not as acute as was feared last year, the interest in extending the deal is objectively reduced for some players.
Last year was relatively successful for Russian farmers. Even against the background of the “Black Sea Initiative”, which is in effect inoperative regarding Russia, our country managed to supply 23 million tons of cereals and 20 million tons of fertilizers to the world markets without any help from the United Nations. However, it could have exported the entire 60 million tons of grain, because there is still much left at the grain elevators.
Against the background of the restructuring of the world grain market, which has already partly taken place, if Russia announces its withdrawal from the “Black Sea initiative” in the middle of May, the initiative itself may die a natural death. Until and unless Ukraine’s western allies take care of “saving” its agrarian exports.
By the way, another circumstance emerged, but this time with a glimpse of the future. Ukraine, as we know, intends to join the European Union. Brussels gave Ukraine all sorts of engagements on this subject. Some European politicians even promised Ukraine an accelerated accession.
And now it turns out that to the east of the EU is a state that has the potential – of course, after the end of hostilities – to become the most powerful player on the European agricultural market. But they do not seem to be waiting for such a player on this market. And this despite the fact that, as was said by another politician on another occasion, “we haven’t even started yet”.
Georgy Bovt, REGNUM news agency
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