Export of agricultural products is a matter of survival of the Ukrainian economy

Anton Naichuk, Ph.D, the head of East European Council

The decision of Poland and other EU countries to stop the transit of Ukrainian products through their own territory is a significant blow to Ukraine’s economic position.

Seizing the opportunity, the Russian Federation began blocking the operation of the “grain corridor”, trying to further destabilize economic situation in Ukraine.

Along with the difficult conditions for the sowing campaign, the suspension of transit routes will lead to catastrophic consequences.

Sowing campaign 2023

Despite the compliance of economic situation and active military actions, Ukrainian farmers started sowing accordingly in the planned terms. On April, almost 800,000 hectares of land have already been sown (up to 5% of the planned volume). In general, it is planned that up to 19,000,000 hectares (about 70% of the total land) will be settled in 2023, in fact up to 7,000,000 hectares (about 30% of the total land) have been lost due to hostilities, mining, temporary occupation, etc.

In the existing obstacles, farmers expect to collect at least 40,000,000 tons of grain and legumes to meet their own needs and support exports.

For a general understanding, before the war in Ukraine more than 80,000,000 tons were grown, in the first year of the war they managed to grow a little more than 53,000,000 tons, that is, the “decline” will reach 50% compared to 2021.

Certain changes are planned in the structure of sowing, in positions that are primarily intended for export: if the grain is stored in the previous proportions, then corn will be sown less (due to problems in implementation and difficulty in storage), and the sowing of oil crops (soy, sunflower, rapeseed) will increase to to maximize exports (in particular, overland routes through Poland, Romania and other countries).

Interestingly, it is planned to allocate up to 6,000,000 hectares of sowing for oil crops, which is more than 30% of the total area (quite a high volume).

At the level of farmers and the Ministry of Agriculture, there are three key problems with the implementation of the 2023 sowing campaign:

– limited financial resources. About 230,000,000,000 UAH are needed to implement a sowing campaign within Ukraine (equivalent to approximately 6.3 billion dollars). There are not many sources of income. In particular, farmers did not have time to sell their products from the previous sowing and receive funds that they planned to sell for the 2023 sowing, which limits their own opportunities. For them, Poland’s decision is a key blow;

– provision of affordable loans by the state. Due to the lack of resources in the country’s budget and a number of bureaucratic problems, it is difficult to receive preferential funds. Since March, the lending program at 5-7-9% has been operational, but there are a number of technical points: in particular, if a farmer has already attracted 90,000,000 UAH of soft credit, then he cannot ask more for a soft loan, but with the existing prices for fertilizers and services, the specified amount is very small, it must be increased at least twice, which requires overcoming bureaucratic obstacles;

– technical support of sowing. To a greater extent, it is derived from the lack of funding and consists in the absence of the possibility of using the necessary equipment and obtaining mineral fertilizers. In particular, as of April, only 60% of the required fertilizer needs are met (the main reason is the high cost and lack of sources).

Implementation of products in the 2022-2023 marketing year

Due to the Russian military aggression, as of April, farmers were able to sell only approximately 30,000,000 tons of grains, so about 23,000,000 tons are still in warehouses and have not been sold. If the transit routes through Poland, Romania, Hungary, Slovakia blocked, it will not be possible to sell all the products that are “hanging”.

It is interesting that in 2022 the revenue from exports amounted to 20,000,000$, but:

• a significant amount of goods was exported before the start of the war;
• the financial year does not exactly coincide with the marketing year (for example, from June 30, 2022 to July 1, 2023);
• it was planned that the revenue would be more than 30,000,000$ (Ukrainian budget did not receive up to 35%)

Thus, without the operation of transit routes, the income in the fiscal year 2023 may even fall, and the agro-industrial complex is one of the largest direction to get money.

An important fact is that approximately 2/3 of exports go through the grain corridor, and 1/3 (about 10,000,000 tons) through land routes (Poland, Romania, etc.).

 

Poland’s decision to stop transit

 

The key position of the Office of the President is that problems with grain export should not affect the deterioration of bilateral relations between Ukraine and Poland (it is necessary to make concessions that are acceptable to all sides).

Ukraine does not deny the existence of a problem – partly traders sell grain on the Polish market. However, the issue does not appear to be one that cannot be resolved with minimal risks. That is why the reaction of the leadership of “Law and Justice” leads to the opinion of excessive “politicization” of the issue against the background of the elections in 2023. Especially if you pay attention to the following arguments:

• Ukrainian exporters sold up to 700,000 tons of grain, which did not have a key impact on the decrease in the price of products in Poland, since this number is only 6% of the total market in Poland (the decrease in value is a global situation);
• last but not least, the concerns/initiatives of the Polish government are conditioned by the desire to receive greater compensation from the EU for losses due to the provision of assistance to Ukraine with the operation of loyalty routes;
• in Ukraine, there is still no clear understanding of how much grain was not sold by Polish farmers (various estimates from 4 to 10 million tons are received), so questions arise about how the Polish side determined the amount of losses.

Following the intention not to develop a conflict, the Ukrainian side expects to find a compromise according to the following model:

• Ukraine will not export grain for Polish consumers at least until the end of the marketing season (July 2023);
• instead, Kyiv asks not to block exports through Polish territory and to eliminate all technical obstacles at the borders. Firstly, that all products go through Polish territory to the final consumers, and secondly, that as part of the settlement of the “grain dispute”, the Polish side should simplify customs procedures – not complicate phytosanitary control, not delay trucks and trains on a border.

It seemed that after the visit of Volodymyr Zelenskyi to Poland on April 5, all contradictions were resolved. However, after the fact, the Polish side unilaterally adjusted its own position – prohibited import, transit, and also expanded the number of products subject to restrictions.

Conclusions:

1. Ukrainian side understands the presence of political motives for the grain scandal, but in Kyiv nobody has intention of creating problems for bilateral relations, the only purpose to find the solution in frames of model – stopping exports to the Polish market (at least until the end of this marketing year), but preserving export routes;
2. The Ukrainian side will try to get support of the EU. Official letters have already been addressed to the European Commission both at the official diplomatic level and by farmers’ associations. Without resolving disputes, Ukraine will be pushed to the brink of a political crisis and the first reaction of Brussels corresponds to Ukrainian position;
3. Ukraine understands the concerns of Polish farmers and strives to find a compromise solution. The restriction of the export of Ukrainian products by the Polish government violates the principles and legal framework of European legislation in the field of trade. The Ukrainian side offers various solutions to the problem – sealing of wagons, transit of grain without unloading. However, an effective solution to the problem requires political will on the part of the Polish leadership;
4. Preservation of export routes through neighboring countries (primarily Poland) is critically important for the export of 1/3 of agricultural products. It is not possible to reorient everything to the “grain corridor”, since Russia is systematically sabotaging its work, and recently – blocking it at all. If farmers do not export products through land corridors, the economy of Ukraine, as a country that fights with Russian aggression, will become close to collapse, which benefits the Russian side.

Grain is a matter of the survival of the Ukrainian economy and farmers, so Ukraine urges Poland to find the necessary solution together and as soon as possible.