The grain sector of Ukraine is and will remain, at least in the medium term, one of the most important branches of the agricultural industry. In view of Ukraine’s official acquisition of the status of a candidate for EU membership and the possible start of official negotiations on this issue already at the end of this year, it is important to understand exactly how Ukraine is ready to integrate grain business into the internal EU market, and how Ukrainian partners in the European Union see this process.
From a formal point of view, according to the latest official data on Ukraine’s progress in fulfilling its obligations under the Association Agreement with the EU, Ukraine has adopted legislation in the field of food safety by 78% and by 66% in the field of agriculture and rural development. From the point of view of practical business, agribusiness representatives of Eastern European countries are already asking the question: “Will Ukraine, on the one hand, be ready to work on the creation of agricultural market systems and structures that will meet EU requirements? And on the other hand, what exactly will the integration of the grain sector look like in practice: what transitional periods will be established, and what restrictions can be applied to Ukrainian producers?”.
After the victory over Russia, Ukraine will actually not have much time for preparation and a lot of work so that accession to the EU becomes an incentive, and not a restraining factor, for the development of the entire agro-industrial complex and the grain sector, including.
The issue of European integration for the grain sector is extremely complex and includes many important aspects - from phytosanitary issues and financial instruments of the Common Agrarian Policy and their reform to the organization of the EU internal market after the accession of Ukraine and trade with third countries.
As of now, Poland increased its exports by more than a quarter, reaching a record level of EUR 47.5 billion. Poultry production, including thanks to Ukrainian grain, increased by 7.5%. Poland, together with other countries of Eastern Europe, where restrictions on Ukrainian grain have been temporarily introduced, imported agricultural products (agricultural and food) from Ukraine for 7 billion euros. According to expert estimates, of this volume, approximately 3.5 billion euros were grain and oilseeds, which were exported to other countries after transshipment.
If we look exclusively at the export of grain and oil products, then 80% of Ukrainian transit is there. At the same time, the export of agricultural products from these five countries increased by 18 billion euros in 2022.
Aggregate supplies of agricultural products to the EU tripled, and the EU’s share in external supplies of agricultural products in 2022 reached a record 55% or $12.9 billion. However, as a whole for the year, exports of agricultural products from Ukraine still decreased by $4.3 billion or by 15.5%.
In 2022, agricultural exports from Hungary increased by 23%, also reaching a record level of 13.3 billion euros. Romania’s exports increased by a quarter to a record level of 12.0 billion euros. Romania earned the most from the import of Ukrainian oil crops, their processing and further export or re-export. The export of oil crops increased by 34%, and vegetable oil - by 78%. In 2022, Slovakia increased agricultural exports by 36% to the level of 5.0 billion euros. And for Slovakia, as well as for other neighboring countries of Ukraine, this became a record indicator in terms of export volumes.
That is, the border countries of the EU have multiplied, not lost, in conducting trade relations with Ukraine. And with the extension of the ban on a number of Ukrainian agricultural products, not only Ukraine will lose, but also themselves. The situation with restrictions on imports to the countries of Eastern Europe is now mostly political. Which in no way lessens the problems for our business because of it.
The process of accession to the EU has already actually started. So far, according to the apt comment of one of the Club’s participants, rather “blindly” on the Ukrainian part. Implied? Again, it’s the same: Ukrainians have to calculate all options and scenarios of our European integration process: from the positive to the most unpleasant. Well, at least have a plan B in case something goes wrong.
Ukrainians often say or hear such an argument that they are big and efficient, we have such a structure of production and land use, and that’s why farmers in the EU are afraid of them. Even if this is partially true, agree, it will be difficult to “sell an elephant” with such an argument. Ukraine needs to develop a base of positive arguments “for” membership in the EU for the EU itself.
Do you know what business says about joining the EU? It is clear that it is not easy, and that it will require us to make certain concessions, but the EU is about values and those things that do not have price tags.
Ukrainian politicians must be honest with agribusiness: when we say a little presumptuously that some governments of EU countries (such as Poland) are afraid of Ukrainian entry because some of their farmers will definitely go bankrupt, then we must understand exactly the same as some Ukrainian businesses in some sectors will go bankrupt. Olga Trofimtseva, former AgMinister of Ukraine, says that the Minister of Agricultural Policy, who will lead our agricultural industry in the EU, will be cursed. And it’s true. But it will go down in history. This is also true.
Ukraine has to come to negotiations with the EU ourselves with a vision in which sectors and markets the EU is of interest to us, and in which we rather see the countries of Asia, Africa, and the Middle East as a priority. Or again - calculate and justify everything.
In matters of phytosanitary, as in everything, we must speak the same language with our partners in the EU to prevent misunderstandings and conflicts. That is, definitions and a common glossary are the basis of any dialogue.
UKRAINE GRAIN OUTLOOK
Currently, sowing in Ukraine is coming to an end. Corn has already been sown more than planned - 3.9 million hectares, the plan - 3.6 million hectares. 5 million hectares of sunflower have already been sown, the forecast was 5.6 million hectares, Ukrainian AgMin thinks it will be somewhere like that in the final result. In general, it is planned to sow 476,000 hectares more than last year. Soybeans - 1.7 million hectares were sown as of June 1, the forecast is 1.8 million hectares. Let’s not forget that Ukraine temporarily lost about 24% of the land that could be sown. This is almost 7 million hectares. Accordingly, the difference with the previous pre-war season in numbers is as follows: 21/22 – 28.6 million hectares, 23/24 – 21.7 million hectares.
Regarding the harvest, Ukrainian officials expect 45 million tons of grain crops at least. The breakdown is as follows: wheat – 16.6 million tons (last year – 20.5 million tons, before the war – 32.5 million tons), corn – 21.7 million tons (last year – 25.6 million tons, before the war – 42 million tons).
According to Ukrainian AgMin’s expectations, the production of oil crops will increase to 19.2 million tons against 18.2 million tons the previous year: sunflower – 11.5 million tons (last season 11.1 million tons), soybeans – 3.9 million tons (previous year 3.4 million tons). Forecasts of the export of the main crops in the new season of 2023-2024 depending on the logistics routes. According to the State Customs Service, as of May 31, 2023, during the 22/23 season, Ukraine exported 58.5 million tons of agricultural products.
Next season, the figures will, of course, be smaller, this is due not only to a smaller crop tonnage but also to the fact that last year, due to the start of a full-scale war and the closure of seaports for 5 months, Ukraine entered the season with heavy balances of 20 million tons of grain alone. This year, Ukraine will not have such carry-outs, the market is targeting 5 million tons.
However, let’s not forget that Ukraine is an agrarian and export-oriented country, a key supplier of grain to the EU and Asian countries. In addition, Ukraine continues commercial and humanitarian shipments to African countries.
Ukrainian domestic consumption will decrease by approximately 10.8%: before the war country needed 19,8 million tons of all grains, now we are talking about 17,7 million tons. This is taking into account the fact that the population of Ukraine temporarily decreased by 7 million people due to occupation and migration.
The situation with the grain corridor is complex. Russia is blackmailing the world again and does not release Ukrainian grain until the sanctions, which do not concern food, are lifted. In May, just 1.32 million tons of food and feed outbounded, including 1 humanitarian vessel and another planned for the near future.
The Russians are taking advantage of the Ukrainian predicament - the difficulty with the transit of their products through Europe. Russians are blocking ports - for now, inspections have been stopped again. The last vessel left the Port of Pivdenny on May 14, and a total of 33 vessels left the three ports of Great Odesa in May - that is, a little more than 1 vessel per day on average - such a slow rate of export through the Corridor has not been seen since the beginning of its operation.
In the conditions of the war and restrictions on Black Sea export logistics, the importance of trade relations with Ukraine’s neighboring EU countries — Poland, Slovakia, Hungary, Romania, and Bulgaria — has undoubtedly grown significantly. Agricultural exports to our neighboring EU countries immediately increased 5.2 times to a record $7.2 billion. Compared to previous years, grain deliveries to Poland, Slovakia, Hungary, Romania and Bulgaria have increased almost 65 times in physical volume, according to Ukrainian AgMinistry. According to the results of 2022, the value of imports of agricultural products by the European Union increased immediately by 30% or more than 45 billion euros.
At the same time, Ukraine’s direct contribution to the corresponding growth amounted to only 14% (+6.2 billion euros to the level of 2021). Neighboring European countries increased agricultural imports from third countries by 80%, and Ukraine’s contribution to growth was 69% (+4.9 billion euros to the level of 2021) according to data provided by Ukrainian AgMin. In terms of grain supplies, Ukraine is one of the key suppliers for EU countries — more than 40% on average over the past 5 years. In 2022, our share of the EU market amounted to 44%, not reaching the record level of 50%, which was in 2019.
Neighboring countries of Ukraine are not considered traditional grain importers — their share of grain imports among EU countries was only 2% up to and including 2021. Providing about 30% of all grain production in the EU, Poland, Slovakia, Hungary, Romania and Bulgaria position themselves primarily as grain exporters.
We must understand that the EU is not a static union either. This is an organism that changes and will continue to change. What will it look like when Ukraine enters? It also depends on us.