Liubov Zharova, Ph.D., Professor, Head of the International Economic Relations, Business and Management Department, NAQA international expert:
The large-scale invasion changed not only Ukraine but also the world. These changes are multi-level and multi-factorial. In today’s world, it isn’t easy to single out just one factor of influence because the consolidation of relationships leads to the synergy of results. At the same time, the interaction between Ukraine and the world in general, and Europe in particular, is changing. These changes are not caused by the fact that someone is tired of the war but by the fact that economic and social processes have not stopped, the development of the economy as well, and each country takes care of its interests and the well-being of the population. That also partially resulted in restrictions on the export of Ukrainian grain. It is worth analyzing the situation retrospectively to understand what is happening and why.
How does it look like before? Ukraine was an essential player in the international grain market, one of the guarantors of food security in the world, with the potential to increase grain production and export. In the 2013-2014 marketing year, Ukraine sold 32.5 million tons of cereals and legumes. The general trend for the period 2013-2021 is the growth of export volumes (Fig. 1). As of February 21, 2022, Ukraine exported 42.6 million tons of grain: 17.8 million tons of wheat, 5.6 million tons of barley, 160.1 thousand tons of rye, 18.7 million tons of corn, 66.3 thousand tons of flour [1].
Among grain crops, wheat ranks 2nd in the world. In 2021/22, wheat production set a new record — 779.3 million tons; world production practically corresponds to the harvest collected in 2020/21 — 775.7 million tons. As of February 21, 2022, Ukraine ranked 7th in world production.
What happened after February 24? In the four months since the beginning of the Russian attack, Ukraine managed to export only 5.2 million tons of agricultural products, while until February 24, the country exported 4-5 million tons of grain every month through seaports. The committee on the agricultural and land policy of the Verkhovna Rada [2] reported that the impossibility of exporting crops from Ukraine during 2022/2023 years, the reduction of areas under winter and summer grain crops will cause a further increase in world prices for food products, and the world will feel the consequences of the food crisis due to the actions of the aggressor yet one year. Moreover, the assessment of the Ministry of Agrarian Policy stated that, since the beginning of the full-scale war, Russia has illegally exported about 400,000 tons of grain from Ukraine [3].
According to the Ukrainian Grain Association, from July 1, 2022, to June 30, 2023, Ukraine exported more than $20 billion of grain and oil crops [4]. The ministry noted that under normal conditions, Ukrainian farmers could expect more significant sums, in particular, 25-27 billion dollars; Ukrainian farmers lost more than 1 billion dollars just because of the downtime of grain ships.
After Russia launched an invasion of Ukraine and blockaded its Black Sea ports, there were fears that the traditional markets that received Ukrainian grain would not find a replacement. This problem affects the countries of Africa most acutely [5].
The world community supported Ukraine and provided an export opportunity. The agreement offers safe corridors in the Black Sea between Ukraine and the Bosphorus – ships in these corridors and their respective ports cannot be attacked. The export of grain is monitored in the coordination center in Istanbul under the leadership of the UN, in which representatives of Russia, Ukraine, and Turkey will work.
The European sanctions imposed on Russia by the European Union do not prohibit the import, export, purchase, or trade of food and fertilizers (except potash). Despite this, the Russian authorities demand the removal of a significant share of economic sanctions that somehow affect agricultural production.
Ukraine was developing export opportunities because this is an opportunity for social and economic development. In particular, during a full-scale invasion, the pressures on railways, motor vehicles, and Danube ports increased significantly. The railway can transport more than 1 million tons of grain per month, cars – more than 600 thousand tons. Danube ports export more than 2 million tons per month and can reach 3 million tons. Also, according to the agreement reached in Turkey, 20-25 million tons of grain blocked in Ukraine will finally be able to be exported.
The export of agricultural products from Ukraine is vital for the Ukrainian and international markets – this was emphasized by the Deputy Minister of Agrarian Policy and Food of Ukraine, Markiyan Dmytrasevich [6], speaking during the European Parliament’s agricultural committee meeting in Brussels.
What problems have arisen?
It was challenging to move all the millions of tons of grain until February 24, sent across the sea in large bulkers to land. EU countries came to the rescue: they removed restrictions on trade with Ukraine within the “trade visa-free” framework and introduced “corridors of solidarity.” [7]
This allowed Ukraine to export grain further through Romanian, Polish, and Baltic EU ports. In 2022, Ukrainian farmers increased exports to EU countries by 65%. Export of grain to Poland for 2022, excluding transit, increased by 38 times, to Hungary by 54 times, Slovakia by 575 times, and Romania by 690 times.
According to the statement of the European Union, they allowed the export of almost 33 million tons of grain and food to 45 countries. Poland has become one of the overland transit corridors for Ukrainian grain. Time and volume were of decisive importance in the transportation of grain. But it turned out that Poland is not able to effectively receive and export Ukrainian agricultural products because its transit and port infrastructure are not designed for this.
Six EU countries asked the bloc to reduce the grain surplus on the market. They stated that Ukrainian grain competes with their producers and reduces the demand for local products [8]. “It’s not that European farmers lack sympathy for their Ukrainian colleagues” – Daniela Dimitrova, regional leader of the Union of Bulgarian Grain Producers, told the AP news agency that “we stand in solidarity with Europe and its support for Ukraine,” which was once the granary of the USSR. “But the European Commission,” she said, “must look at each member state and make farmers competitive.” [9]
In July 2022, an alarming statement from the Polish Grain and Fodder Chamber appeared – more than 16,000 wagons were waiting for customs clearance at the Polish-Ukrainian border, every fifth of them with grain. The Polish interpretation of the “corridor of solidarity,” followed in Warsaw even now, is that Poland becomes a regional center for trade in agricultural raw materials for Ukraine, but exclusively in transit – to Africa, Asia and other EU countries.
However, part of the Ukrainian grain (on completely legal grounds) began to remain in Poland. According to the Poles, this affected the local market, which was already full of grain both for domestic consumption and ready for export. In April 2023, the Chamber of Grain and Fodder announced that it had been warning for a year about “necessary urgent government actions: infrastructural, administrative, diplomatic.”
But the problem was that Polish farmers withheld grain. At that time, the current Deputy Prime Minister and Minister of Agriculture, Henryk Kovalchyk, publicly promised them a price increase, while the 2022 panic on the world grain market had already subsided, and prices were gradually returning to normal. This baton of protection of Polish farmers from Ukrainian agrarians was accepted by the new minister, Robert Telus, who described the danger to Poland’s agricultural market, which comes from Ukrainian agriculture.
In the process of the “grain scandal,” several mythologized statements arose about Ukrainian grain and products in general, which the media officials repeatedly repeat:
Given the limited transit possibilities, Ukrainian grain began to settle in Poland and entered the Polish market, which had never before been a priority for our producers. Ukraine had traditional consumers in Africa and Asia and already established transport corridors.
The prices for Ukrainian grains were not dumping, but market prices. However, they were significantly different from the expectations of Polish farmers who believed Kowalczyk’s promises. Despite this, Ukrainian activity in the Polish market was called “unfair competition.”
What happens next? As the matter of the fact the Polish government’s decisions contradict EU legislation, where the European Commission oversees trade policy, and national governments must follow it.
The actions of Ukrainian officials in this situation can be evaluated differently – they behaved according to their own understanding of the issue and competence. Simultaneously, credit must be given to Ukrainian diplomats who, most likely, understood that the Polish authorities would not back down and participate in the events, relying on common sense and cold calculation. It is essential that it was without showing support for any side of the Polish election campaign and discrediting all efforts, as similar mistakes have happened in the past.
It is extremely important for Ukraine to win this grain dispute, which reached a climax when Kyiv filed a complaint with the World Trade Organization (WTO). It is about both the source of foreign currency and the replenishment of the budget, as well as the preservation of the reputation of the “granary of Europe” with its enormous potential as a guarantor of food security on the continent and in the world.
At the same time, Poland remains almost the most important ally of Ukraine, and it is essential not to allow the deterioration of mutual relations, which will never be limited exclusively to the economic dimension. Both countries need to understand that currently, mutual relations must be built in the realities of the war, which, according to forecasts, will not end quickly and will directly affect the needs of Ukraine. The grain scandal should become the starting point for the next stage of Polish-Ukrainian relations, their strengthening, the formation of priorities, and the search for mutually beneficial partnership tools.
