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WAR FOR MARKETS

The competition between European farmers and Ukrainian food is just beginning- all the loud scandals are yet to come

Canceled quotas

Few people will remember how many obstacles and problems had to be overcome when Ukraine signed an agreement on a free trade zone with the EU. In this case, the main struggle was for the supply of food. After all, our country wanted so badly to sell at least a thousand tons more to such coveted EU markets.

After the signing of the agreement on the free trade zone with the EU, every new year in Ukraine started in the same way: quotas for individual products were distributed quite quickly. In particular, it is possible to name the allocation of quotas for such products as honey, eggs, chicken, apple cider, garlic… It was self-evident about the allocation of quotas for the supply of such products as wheat and corn.

According to the Association Agreement with the EU, Ukraine can supply 36commodity items to the European Union duty-free within the limits of the approved tariff quotas. The list is extensive: beef, pork, lamb, poultry, milk, cream, yogurt, cereals, bran, honey, sugar, starch, mushrooms, garlic, malt, grape and apple juices, butter, cigarettes, ethanol, eggs and albumins.

Sometimes quotas were chosen literally in a day. Outside of quotas, trade with the EU was less interesting. There was no margin.

And suddenly a full-scale invasion of the territory of Ukraine began. A great war began.

As a gesture of support for the Ukrainian people, in June 2022, the EU canceled all tariffs and quotas on Ukrainian products for 12months.



Records of duty-free trade

Mutual trade in agricultural products between Ukraine and the EU in 2022amounted to 16.5billion dollars. This is the highest figure during the Association Agreement between Ukraine and the EU, which exceeded the previous record figure of 11.9billion dollars in 2021by 39%. The low price and the absence of duties played a role in the good results of mutual half-time work. The main European partners for Ukraine last year were Poland, Romania, Spain, the Netherlands, Italy, Germany and Hungary. It is about 77% of the total domestic trade turnover of food with the EU.

Total exports to the EU in 2022amounted to 27.9billion dollars. (or 63% of Ukrainian exports). As for the agricultural sector, in 2022, food exports to the EU reached $13.1billion, an increase of $7.9billion, or 66%, compared to 2021.

The main part of exports, namely 90%, is made up of oil and fats, grain and oil crops, and meat products. Last year, all the mentioned product groups showed growth in terms of value.

It is worth noting that the EU has been the main market for various food products from Ukraine for the past few years. Last year, butter and milk pastes were actively supplied to the markets of EU countries ($44million, 54% of the value of foreign supplies of this type of agricultural products), egg products ($20million, 87%), honey ($120million, 88%). In addition, it is worth mentioning the supply of such goods as ready-made meat products ($14million, 64%) and dough products ($29million, 73%). The list can be continued.

Benefits of Europe

A good indicator of Europes benefit from Ukrainian goods and raw materials is the example of Bulgaria, which for the first time managed to load the capacities of its own processing plants thanks to Ukrainian sunflower. In the first quarter of 2023alone, Bulgaria received 127,000tons of Ukrainian sunflowers, while for the whole of 2021, it purchased less than 2,500tons of sunflowers from Ukraine.

Rumor has it that last year, for example, Hungarian farmers, after selling their own grain to the state, bought Ukrainian grain, resold it and… made money.

And the representatives of the Polish-Ukrainian Chamber of Commerce (PUC) said that they were «shocked» by the content of the order of the Minister of Development and Technology of the Republic of Poland regarding Ukrainian agricultural exports, and asked the government to check the decision and initiate urgent consultations with the business community and the public.

In this way, the benefits for our neighbors are obvious.

Polish hub

The main commodity flows to/from Ukraine currently go through Poland. The country has turned into a huge hub. One can only imagine the millions of zlotys coming to the budget thanks to this. Add here the advantages of the processing industry, which received raw materials at reasonable prices. Analysis of food trade between Ukraine and Poland only confirms this opinion.

In 2021, Poland did not buy Ukrainian sugar, and in the 1st quarter of 2023, it imported more than 18,000tons. Almost 300,000tons of wheat were bought in the 1st quarter alone, and only 3,000tons in 2021(2021is taken as a base for comparison, because 2022is not indicative).



For the huge market of Poland, the volumes of food from Ukraine are relatively small. Moreover, none of the markets collapsed. On the other hand, this is a signal for local business: attention, worthy competitors are nearby!

A chance that was taken

After Europe hospitably opened its doors in the summer of 2022, significantly simplifying access to its markets, the consequences did not have to wait long.

The explosive mechanism went off in the spring of 2023and many trucks with corn were sent to Europe. As is already well known, the focus of the scandal is Poland, Hungary, Slovakia, Romania, Bulgaria, and the Czech Republic.

Poland set a precedent by banning the import of Ukrainian grain. And then other countries began to make decisions on banning the import of goods. Poland was supported by its neighbors.

Thus, Poland, Hungary, Slovakia, and Bulgaria blocked the opportunity to export Ukrainian grain and foodstuffs at least until the beginning of July.

The business community states: the confrontation was predictable and expected. All points of conflict with the export of Ukrainian grain directly or indirectly relate to one issue, namely competition for markets.

Even in peacetime, it was more profitable to export from Ukraine than to sell on the local market. It is because of this fact that sometimes food crises occurred in Ukraine. Business representatives have always wanted Ukrainian products to reach the table of the European consumer, but the conservative policy of Brussels and strict requirements for product quality control did not allow them to take an effective position on the European market.

The current behavior of partner countries is not surprising. They already restrained themselves for a long time, until they began to block food supplies.

The huge and attractive market of Europe functions according to long-established rules and norms. In February 2022, the world turned upside down. Over the next few months, Western neighbors worried about how to help, receive and settle millions of refugees from Ukraine. Towards the end of the year, when it was time to sum up the season, the results were not very good. Someone has already lost sales markets, and someone may lose. However, no one wants to lose the benefit.

A game for everyone

The situation with the export of food to Europe resembles a game where everyone knows the rules, but everyone plays according to their own rules.

Ukraine, which was deprived of the opportunity to export for several months, is trying to make up for what it lost and make money.

The countries of Europe, which (we emphasize once again) exist within strict rules and restrictions, got the opportunity to choose between Polish and Ukrainian canola.
Border countries of the EU received additional financial preferences from the European budget.

The implemented bans are valid until the beginning of the new marketing year, namely on July 1. That is, two months. And what will happen next? Will there be free trade again? We are waiting for a response from EU representatives.

Polish and Hungarian farmers who went on strike found themselves without earnings and margins. In addition, Ukrainian farmers are also in a difficult situation, thanks to which the huge export machine continues to work successfully. After all, the « Black Sea Grain Initiative» and «Corridors of Solidarity» continue to exist at the expense of the domestic farmers. Representatives of the agrarian business have no choice. Sometimes they sell the grown products for nothing and go to work in the field again to plant products for the new crop.



Competitors
Life has shown that although there is a war in the country, business still continues to play an important role in our lives. No one wants to lose their own profit, no one wants to have a loss even by helping a country at war. Although our country is actually a buffer zone between Europe and the front line. All countries were, are and will be competitors. Each country tries to produce its own food, because it gives independence from external factors.

The world exists within the limits of free trade. The market is a mechanism designed to make money and move forward. Any intervention in the market leads to a failure in the system. Sometimes the consequences can be unpredictable and unpleasant.

Our country has made its choice. Europe has also made its choice. Perhaps such «export scandals» will push the parties to create a code of trade rules in the new common space, to take into account each others interests and wishes as much as possible. In addition, these rules will allow all countries to live as sincere good neighbors who help each other and can conduct joint business.

The main thing is to wait for the May decision of the European Parliament regarding the cancellation of import duties, quotas and trade protection measures for Ukrainian exports to the European Union for another year. And remember that no one canceled the rule «one sold cheaper, the other bought cheaper».


Source: MIRROR OF THE WEEK
Author Larysa Huk Agricultural expert of the AGRO PERSPECTIVA information and analytical center

03.05.2023


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