A surprise EU proposal to expand agricultural ”emergency brake” import restrictions will cost Ukraine €1.7bn

A surprise EU proposal to expand agricultural ”emergency brake” import restrictions will cost Ukraine €1.7bn
The EU is set to expand restrictions on Ukrainian agricultural imports in a move that will cost the cash strapped country €1.7bn and further impede its ability to fight a war against Russia. / bne IntelliNews
By Ben Aris in Berlin March 19, 2024

EU countries have overnight agreed to impose new restrictions on Ukrainian agricultural imports to the EU that will cost the cash-strapped country €1.7bn and hurt its ability to fight the war against Russia.

EU member states have reportedly cleared the way to include several new categories of goods to a restriction list under discussion that is a reversal of a decision made only last week to reject new product additions to the restrictions, Politico reported on March 19.

The Ukrainian association for agricultural producers say that the inclusion of the new food products will cost Ukraine €1.7bn if it is adopted.

Ukrainian agricultural producers are in confusion at the abrupt change, which will be discussed later on March 19, as if it is enacted it will further restrict Kyiv’s access to its only major source of foreign exchange earnings.

The European Parliament Trade Committee has been examining the European Commission’s proposal for the renewal of Autonomous Trade Measures (ATMs) between the EU and Ukraine that were tabled on January 31.

The EU suspended all import duties and restrictions on Ukrainian agricultural goods shortly after the Russian invasion two years ago as a form of indirect support for the embattled country. But when cheap Ukrainian grain wrecked the Polish grain market causing prices to crash locally, Warsaw unilaterally banned imports of Ukrainian grain and was soon followed by several other Central European countries. That ban was supposed to end last September, but has been unilaterally extended.

Polish truckers have likewise blocked the border with Ukrainian after similar restrictions on the number of trucks that could cross Poland were lifted last year, with Ukrainian haulers significantly undercutting small and medium-sized Polish firms. The dispute remains unresolved and has further hurt Ukraine’s exports to Europe.

As a compromise the EC has proposed a series of regulations and restrictions to limit the flow of goods so countries affected can protect their local farms.

The original proposal was to create an “emergency brake” on imports of eggs, sugar and poultry, with the trigger based on 2022-23 volumes.

The Committee appears to have rejected a proposed amendment to add more Ukrainian agricultural imports to this list and endorsed the extension of trade liberalisation measures to support Ukraine. But only last week member states in the European Parliament rejected this recommendation and added cereals and honey to the list of “sensitive products” that would be subject to an emergency brake. Politico reports that at a meeting scheduled for March 19 new products like wheat and honey will be added to the list after all.

“This decision is particularly galling considering that at the same time the European Parliament waved through the suspension of all remaining duties on imports from Moldova – a country in which Russian oligarchs continue to generate money for the Kremlin,” the Ukrainian Agribusiness Club (UCAB) said in a press release.

“UCAB sees this development as another kick in the teeth for the Ukrainian people who are, as we speak, fighting and dying for the European ideal. Since the beginning of Russia’s full-scale invasion, the temporary trade regime between the EU and Ukraine has been a vital financial and commercial lifeline for the country.”

The agricultural sector plays a disproportionately large role in the Ukrainian economy and the country’s food exports are a crucial source of revenue for Ukrainian President Volodymyr Zelenskiy’s increasingly cash-strapped government.

In 2023, agri-food products accounted for 61% of all goods exported – and these trade restrictions will further undermine Ukraine’s ability to fight off Russian aggression, UCAB said.

The war with Russia has already severely reduced Ukraine’s agro-exports, which have fallen from $27.7bn in 2021 to $21.9bn in 2023, while agricultural goods have grown in importance with their share in total exports increasing from 40.7% in 2021 to 61% in 2023 as the rest of the economy comes to a standstill.

“These numbers mean only one thing: Ukraine's ability to defend itself and maintain a relatively stable macro-financial situation depends on the agricultural industry,” UCAB said.

At the end of 2023 European agricultural associations issued appeals and proposals to significantly limit agricultural product imports from Ukraine to stem the damage these were doing to local markets. According to preliminary calculations of UCAB, the level of losses from these proposals, under discussion now, would amount to about $5bn.

The EU member states’ decision comes in the context of an escalating concerns of EU farmers in the face of cheap and copious supplies of Ukrainian agricultural goods. As bne IntelliNews has reported, Ukraine cannot join the EU unless the latter’s Common Agricultural Policy is reformed. Thanks to the size of Ukraine’s agricultural sector, it would be entitled to a whopping €186bn in subsidies that would necessitate a complete overhaul of European agricultural subsidy payments and funding.

The current changes in the European agricultural market as a result of dropping earlier restrictions on Ukrainian agricultural exports have already fuelled spreading farmers’ protests across EU member states in recent months.

In January the European Commission proposed imposing certain new ATMs for sugar, poultry and eggs that would limit imports, but the UCAB claims that the price of these products remains stubbornly high, and “the share of imported Ukrainian products is too small to have a tangible impact on European producers.”

According to the UCAB:

·       the share of imported Ukrainian eggs in the EU consumption is less than 1% (example calculation: 1 EU citizen (out of 500mn people) will consume only 2 imported Ukrainian eggs during the year);

·       the share of imported Ukrainian poultry in the EU consumption is less than 2% (example: 1 EU citizen will consume 4 packs of 6-piece nuggets produced from Ukrainian poultry meat during the year);

·       the share of imported Ukrainian sugar in EU consumption is less than 3% (example: 1 EU citizen will drink only 44 cups of coffee with 1 spoon of Ukrainian sugar in it during the year).

“The introduction of restrictions on these three products would be relatively painful and would lead to the loss of foreign exchange earnings by Ukraine worth €242mn,” the UCAB said.