Friendship of convenience: The EU compensates local farmers for the 'inconvenience' of agricultural products from Ukraine

Friendship of convenience: The EU compensates local farmers for the 'inconvenience' of agricultural products from Ukraine

European farmers have failed to achieve restrictions on Ukrainian grain in the EU, but are willing to tolerate it for a certain fee

Friendship of convenience: The EU compensates local farmers for the 'inconvenience' of agricultural products from Ukraine

Farmers from several Eastern European countries and the European Commission have found a compromise solution to the market imbalance caused by the record inflow of Ukrainian grain under preferential import. Agricultural producers of European countries demanded to stop this uncontrolled import. The main transit of agricultural goods from Ukraine passes through them. Some were deposited there.

Last week, it was decided that the European Commission would activate €56 million ($60 million) from the crisis fund for Bulgaria, Poland, and Romania in response to the influx of Ukrainian crops into the European Union.

It was preceded by farmers' strikes. On 7 March, Polish farmers blocked the road to Ukraine for a day with cars and agricultural machinery. "The influx of wheat, corn, and rapeseed puts Polish farmers in a difficult situation. The government does not care about them. The second is the terrible quality of this grain from Ukraine," said Piotr Pokrywa, the protest organiser. Last year, 2 million tonnes of Ukrainian grain were imported, some of which ended up on the Polish market, replacing Polish goods or causing prices to collapse.

Earlier, similar actions were held in several other cities, making it clear to European farmers that the problem of Ukrainian grain import was overdue.

The decision taken by the European Commission is still half-hearted, as the root cause of the issue – the preferential regime for grain import from Ukraine – has not been revised, but rather extended for another year. Nevertheless, it was unlikely that the EU would risk imposing any restrictions on Ukrainian goods while the rest of the world was consolidating its support.

However, the interests of European farmers must be taken into account, and monetary compensation is only the first step in this direction.

Mind looked into whether the situation of Ukrainian farmers would worsen after the improvement of the situation of their European counterparts.

Why do European farmers resent land transit, given the grain corridor launch in August 2022 and the possibility of sea trade from Odesa for Ukrainian grain? Yes, in the summer of 2022, with the mediation of Turkish President Recep Erdoğan, three Ukrainian ports were able to resume sea grain export. However, due to the conditions imposed by the russian side, this corridor has a low throughput capacity and requires constant prolongation, which makes it impossible to plan activities.

Therefore, grain crops are being transported by rail, road, and river in parallel, and this alternative logistics via the western borders will remain relevant until the end of the war.

In May 2022, the European Union exempted the import of Ukrainian grain from the requirements of veterinary or phytosanitary certificates to ease transit. This decision was called the 'solidarity corridors' and was dictated, among other things, by the unfolding global food crisis and galloping food inflation, as wheat prices reached a record $500/tonne due to Ukraine's forced withdrawal from the global market.

Officially, about half of Ukraine's 24 million tonnes of grain export have been shipped by land since the beginning of this marketing season. Exports via the 'solidarity corridors' amounted to approximately 3 million tonnes over the month.

Has the problem of overstocking European markets with Ukrainian grain been officially recognized? Yes, it has. Import of major crops, measured in thousands of tonnes before the escalation, is now measured in millions.

"We are observing an increase in supply, a huge increase in import for the border countries," said Agriculture Commissioner Janusz Wojciechowski, "It [activation of the reserve fund] is support for countries where farmers have suffered from increased import from Ukraine."

In Bulgaria and Poland, the sum of their own production and import from Ukraine exceeded the five-year average grain supply on their markets. Romania has been added to the list of subsidy recipients due to its position as a hub for the so-called solidarity routes.

According to the European Commission, wheat imports to the EU from 1 July to 11 December 2022 more than tripled compared to the same period in 2021, to 3.5 million tonnes. The sharp increase in imports is mainly due to a rapid increase in the supply of cheap wheat from Ukraine.

Officially, in the first half of 2022, Poland imported 640,000 tonnes of grain from Ukraine, while its own production is 24 million tonnes of grain per year. Official import figures are questioned by Polish agricultural market participants, who believe that Ukrainian grain is being imported on an unprecedented scale. According to representatives of the NGO AgroUnia, up to 80% of imported Ukrainian goods remain in Poland, which provokes a decline in prices for Polish products. Agricultural producers in the border areas suffer the most, but the impact is felt throughout the industry.

Officials deny this, saying that import is controlled, and that information about its millions of tonnes is an element of russia's psychological operation.

"Spreading false information about millions of tonnes of grain coming to Poland from Ukraine is a big problem," said Henryk Kowalczyk, Deputy Prime Minister and Minister of Agriculture of Poland.

How will the support be distributed? Romania will receive €10 million, Bulgaria about €17 million, and Poland €30 million.

These amounts of support are correlated with the growth of Ukrainian import to the respective countries.

  • The export of oil crops and their seeds from Ukraine to Bulgaria increased 77-fold in the first quarter of 2022.
  • The export of Ukrainian oil crops to Poland tripled from 629,000 tonnes in January-April 2021 to 1.763 million tonnes in the same period of 2022.
  • Supplies to Romania increased from 8,000 tonnes in the first quarter of 2021 to 872,000 tonnes in the same period of 2022.

In the future, the amount of support can be doubled through co-financing from the budgets of member states.

Was the European Commission's decision to subsidise European farmers unexpected? No, it was discussed as a basic decision as early as 20 January in Berlin during the Green Week international forum, when the relevant ministers of the Czech Republic, Bulgaria, Hungary, Poland, and Romania agreed on a joint appeal to the European Commission to protect their markets from Ukrainian grain. "We call on the European Commission to take measures to stabilise the internal market because of grain imports from Ukraine," wrote Hungarian Agriculture Minister István Nod at the time.

Did all the affected European farmers receive support, or were some left behind? From the beginning, six countries were the most vocal about the problem of Ukrainian grain imports: Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Slovakia.

Only half of them were heard.

Hungary, Slovakia and Czechia are indeed at risk, as they have also received large volumes of Ukrainian grain import, but the total supply on their markets, calculated in terms of their own production plus Ukrainian goods, is less than the average for the five pre-war years, which the European Commission considers critical and has taken as a cut-off point.

Does the issue of Ukrainian grain mean that anti-Ukrainian sentiments are on the rise? No, it doesn't.

Even when formulating their claims, European farmers emphasise that they are ready to help their Ukrainian colleagues export their grain, but "not at the expense of themselves".

What are the practical outcomes of additional subsidies to European farmers for Ukrainian grain export? There has indeed been some settling of Ukrainian grain in the border regions of European countries. It should be noted that this practice was sometimes used before escalation, if it was cheaper for a processor to buy raw materials at the border.

Additional subsidies from the European Commission equalise the difference in prices, and the Ukrainian product loses its attractiveness for mills, feed mills and poultry farms.

We can also expect similar actions from Polish food producers, who, although on a smaller scale than grain producers, complain about the presence of Ukrainian finished goods. Producers of flour, frozen berries, poultry, and cereals may raise the issue of compensation for economic discomfort.

Most likely, the changes will concern the system of control over the use of grain and its origin in domestic markets.

The fact that the European Commission initially stipulated its willingness to increase the amount of compensation to European farmers means that it does not foresee and does not plan to reduce the import of Ukrainian grain. In other words, Ukraine is not at risk of the reintroduction of tax restrictions and physical quotas.

Another thing is that the increasingly frequent claim that the quality of incoming Ukrainian grain is poor may lead to the return or partial return of phytosanitary control at the border.

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