Fighting competition against inflation

Poland, together with a number of Eastern European countries, is asking for the return of customs duties on agricultural products from Ukraine: the duty-free import allowed to it, the applicants believe, complicates the work of farmers. It is expected that the issue will be discussed at the upcoming EU-Ukraine summit, which will be held on 3 February. So far, there are no grounds to believe that the customs regime will be tightened: increased competition and lower prices, both situationally and in the long term, fit into the counter-inflationary and pro-competitive policy pursued by the EU in the agro-industrial complex.

Imports of agricultural products to Europe from Ukraine continue to grow, which is alarming for EU farmers, according to a joint report by Poland, Romania, Bulgaria, Hungary, the Czech Republic and Slovakia, prepared for the next meeting of the EU Council on Agriculture. The statement notes that the import of corn from Ukraine to the bordering EU member states for 11 months of 2022 compared to the same period in 2021 increased from several thousand to several million tons. In particular, to Poland — from 6 thousand tons to 1.638 million tons. In total, the import of Ukrainian corn to the EU increased by about 75%, from 7.3 million to 12 million tons. In other categories, the growth is also serious: imports of Ukrainian wheat increased tenfold (from 287 thousand to 2.85 million tons), sunflower seeds increased 70 times (from 25 thousand to 1.8 million tons).

The signatory states called on the EU to respond to the current situation immediately, noting that their producers have already suffered from the consequences of the Russian military operation in Ukraine: production costs caused by higher prices for fuel, energy and fertilizers continue to grow. Among the proposed measures are the payment of compensation to farmers who suffered losses due to an increase in the import of Ukrainian products, a flexible approach to the implementation of the common agricultural policy of the EU countries, a change in supply routes from Ukraine (products, the authors of the document believe, should not settle on European markets, but be sent there, where it is really needed – in developing countries).

The general meaning of the statement is that duty-free imports create additional competition for local farmers.

However, we note that it is precisely in it that the EU leadership is now interested: on the one hand, competition allows only profitable businesses to remain on the market, on the other hand, to reduce prices that have jumped up after the start of the military conflict. Over the past ten years, the EU has consistently reduced support for the agro-industrial complex in terms of subsidies, focusing on highly profitable farms. Thus, the heads of the ministries of agriculture of the countries participating in the bloc agreed to reduce the cost of supporting agriculture for 2014-2020 by 13%: from €417 billion in the previous seven-year budget to €363 billion. In 2021, the EU, without deviating from the trend to reduce subsidies , redistributed them in favor of green farmers.

The situation when Europe abolished customs duties on exports from Ukraine not only failed to unfold this trend, but also fit into it: the reduction in subsidies already stimulated the market to increase profitability “on its own”, but now only those whose agricultural products should gain a foothold in the industry withstands competition with cheaper Ukrainian.

According to the European Commission, Ukraine accounts for 10% of the world market for wheat and 15% for corn (approximately the same shares in the EU market). Duty-free importation made it possible to limit fluctuations in food prices to some extent: at the end of the year they stabilized. According to Ukraine itself, more than 50 million tons of grain were exported in 2022, 30% of them (15 million tons) went to Europe. Considering the volume of deliveries and the size of the EU import duty, which in 2021 on various types of agricultural products averaged $5.5 per ton, it turns out that the losses from the easing of the customs regime turn out to be almost imperceptible for the EU and are compensated, in addition to political advantages, also by economic ones.

Christina Borovikova