Ukraine’s cheap grain exports are causing an awkward rift with its European neighbors and staunch allies

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April 19, 2023
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Farmers inspect unsold grain stores on a farm in Sedziejowo, Poland, on Monday, April 17, 2023.

Bartek Sadowski | Bloomberg | Getty Images

Western nations have sought to help Ukraine maintain its vital exports of grain and agricultural products since the war with Russia began, but troubles have been brewing in eastern Europe where a glut of Ukraine’s abundant and cheaper produce is seen to be damaging the interests of domestic suppliers.

Following a tide of rising anger from their own producers, Poland, Hungary and Slovakia in recent days have introduced temporary bans on Ukrainian grain imports and other agricultural products, saying these have created unfair competition and trading conditions for local farmers. The suspensions of imports are due to last until the end of June.

Bulgaria has also said it’s considering a ban while on Tuesday, Romania’s ruling Social Democrat Party stated that it plans to request that the country’s governing coalition enact a temporary ban on Ukrainian agri-food imports in order to “protect Romanian farmers.”

The move to ban Ukraine’s agricultural imports has angered the European Union given that the bloc has sought to help Kyiv maintain its exports as an economic lifeline for the war-torn country.

Ukraine is one of the world’s largest exporters of wheat, corn and sunflower products and a blockade on its ports by Russia last year led to global food price rises and shortages in some basic products, hitting poorer countries hard.

A deal between Ukraine and Russia to allow grain exports to leave the country via the Black Sea was brokered by the U.N. and Turkey and this helped to ease the crisis. The EU also created so-called “solidarity lanes” to assist Ukrainian exports to leave the country via land routes in Europe, as well as suspending import duties on Ukrainian exports.

But countries in eastern Europe now say that logistical challenges and supply bottlenecks have meant that cheaper Ukrainian agricultural products have flooded into their own countries and have not been moved on, putting pressure on storage facilities and forcing down prices. Farmers have protested against the situation, putting pressure on national governments to act.

National interests first

The rifts caused by Ukraine’s cheap food imports have created an awkward tension between Kyiv and its eastern European neighbors, particularly at a time when Ukraine is largely reliant on goodwill for political, military and economic support as the war with Russia continues.

Any souring of relations with Poland, in particular, is undesirable for Kyiv as Warsaw has stood out as one of the most vociferous supporters of Ukraine at an EU level, pledging battle tanks and MiG fighter aircraft when its continental neighbors were still balking at the idea at the start of the year.

Polish farmers protesting against Ukrainian agricultural products imports, which instead of being transported through Poland to the countries of destination have tended to stay in the country and flood the local market.

Nurphoto | Nurphoto | Getty Images

Nonetheless, Poland is wary of voter sentiment and farmers’ protests over the issue as it is holding parliamentary elections later this year, as is Slovakia.

Slovakia’s Ministry of Agriculture and Rural Development told CNBC that despite its temporary ban on Ukrainian imports, the country continued to be open for “solidarity transit,” meaning that Ukrainian grain could still pass through its territory to other countries. The grain would be sealed “in order not to end on the Slovak market,” it said in a statement.

“There is a need to solve the problem … in order to stabilize the market and the prices of agro-product,” the ministry said, adding that it had made the European Commission aware of its challenges. The ministry added that “we would appreciate the whole-European solution [to] the Ukrainian grain because the topic is relating to the protection of the whole internal European market.”

Hungary’s Ministry of Agriculture meanwhile summarized to CNBC comments made by its minister István Nagy who said that “if current market trends prevailed, they would cause so serious damage to the Hungarian agricultural sector that extraordinary measures need to be taken to stop them.”

It said Ukraine’s agricultural sector operated with production methods that were no longer allowed in the European Union and, as a result, had “extremely low production costs,” adding that Ukraine had started to export large quantities of poultry, eggs and honey to the European market, in addition to cereals and oilseeds, which has rendered it impossible for Hungarian and Central European farmers to sell their products.

“The Hungarian government will always stand by Hungarian farmers and protect Hungarian agriculture,” Nagy stressed, the ministry noted.

EU, Ukraine perplexed

The suspensions have caused consternation in Ukraine, which issued a statement saying it regretted Poland’s decision to suspend grain imports and that Ukraine “has always been sympathetic to the situation in the Polish agricultural sector and responded promptly to various challenges.”

There has been some positive developments to the dispute after Polish and Ukrainian ministers met for two days of talks to discuss a way to resolve tensions, with the officials agreeing Tuesday that no Ukrainian agricultural products will stay in Poland and that they will only be allowed to transit through the country under escort.

How the agreement will work in practice remains to be seen. CNBC contacted both Ukraine and Poland’s Ministry of Agricultures and is awaiting further comment on the agreement.

Truck drivers queue on over ten kilometers at the Rava-Ruska border checkpoint on the Ukrainian-Polish border, on April 18, 2023.

Yuriy Dyachyshyn | AFP | Getty Images

The European Commission was perplexed by the surprise import bans by several of its member states (it already has frayed relations with Hungary and Poland), saying unilateral actions on trade were unacceptable under EU policy.

It said Monday that it was in contact with the EU member states that had introduced the bans and was looking at the legal basis that the suspensions were enacted.

It added, however, that it recognized that eastern European nations had been supporting Ukraine in many areas and that it was not about “sanctioning, but finding solutions based on EU law that are in the interests of the Ukrainians and the EU.”

It also said it recognized the impact of the “oversupply” of Ukrainian imports on EU farmers, particularly those in bordering nations.

The commission has already introduced a package of measures worth 56 million euros ($61.3 million) to compensate affected farmers in Poland, Bulgaria and Romania for what it described as “the economic loss due to increased imports of cereals and oilseeds and [to] limit the impact of market imbalances on their planting decisions.” It is also planning a second package of support, it said Monday, with details yet to be finalized.

Ships, including those carrying grain from Ukraine and awaiting inspections, are seen anchored off the Istanbul coastline on November 02, 2022 in Istanbul, Turkey.

Chris Mcgrath | Getty Images

There are certainly concerns that the eastern European import bans could bolster Russia’s case for abandoning the “Black Sea Grain Initiative” that was brokered by the U.N. and Turkey last year and enabled Ukrainian grain to leave the country via several sea ports.

While the deal has been extended several times, it is already under severe strain with Russia repeatedly accused of blocking grain ships from leaving Ukraine; on Monday, the EU’s foreign policy chief Josep Borrell accused Russia of blocking 50 ships loaded with agricultural products from leaving Ukrainian ports.

Moscow has also said that there are no guarantees that it will agree to extend the deal beyond May 18, when it expires.