EC bans Ukrainian grain imports to Central Europe for another five months, Kyiv bans sugar exports in response

EC bans Ukrainian grain imports to Central Europe for another five months, Kyiv bans sugar exports in response
A nasty row has broken out between Central European countries and Ukraine. The EC has extended a ban on Ukrainian grain imports that hurt EU farmers, leading Ukraine to ban sugar exports to the EU. / bne IntelliNews
By Wojciech Kosc in Warsaw, Ben Aris in Berlin June 6, 2023

Five EU member states bordering Ukraine will be allowed to keep some of their restrictions on imports of Ukrainian agricultural produce in place until September 15, the European Commission decided on June 5.

The governments of Bulgaria, Hungary, Poland, Romania and Slovakia complained that cheap grain had from Ukraine hurt their local agricultural producers by making production unprofitable.

The EC has now presented Poland with a draft regulation that would extend the existing ban on the import of wheat, maize, rapeseed and sunflower from Ukraine to the five countries, Polish Agriculture Minister Rober Telus said on June 5. The proposed ban will run until September 15, according to Telus, and will go into effect from June 6.

Imports restricted 

Imports of Ukraine grain to Central Europe were restricted in May after prices on EU markets tumbled thanks to excess imports of cheap Ukrainian grain. 

The Commission also allocated a financial support package worth €100mn to farmers in the five EU member states most affected by agri-food imports from Ukraine to compensate their losses.

To help Ukraine get its grain to international markets after exports through the Black Sea were impeded by Russia, and to prevent a global food crisis, the EU agreed last year to temporarily liberalise conditions for export via the EU until June 5 and to create “Solidarity Lanes” to expedite this.

Nominally the grain, delivered to the EU via rail, was destined for low income markets like Africa, however, as bne IntelliNews reported, the majority was sold to European companies as livestock feed or feedstock for ethanol fuel production. 

Much of this grain remained in the bloc’s CEE members, creating a glut that drove down prices, hurting the region’s farmers, who lobbied their governments for a ban on further imports of Ukrainian grains.

Countries in the region initially imposed unilateral national bans on Ukrainian grain exports, despite criticism from the Commission and other member states that this was against EU rules. This promoted the European Union to impose restrictions. 

However, the previous ban on the import of wheat, maize, rapeseed and sunflower seed expired on June 5.

Phasing out

Despite the extension, the Commission stressed that the restrictions will not continue indefinitely. “The EU is phasing out … the exceptional and temporary preventive measures adopted on 2 May 2023 on imports of wheat, maize, rapeseed and sunflower seed from Ukraine,” the Commission said in a statement.

“The scope of these measures is further reduced from 17 to 6 tariff lines for the 4 products covered,” the Commission also said.

The EU executive said that the limits on Ukrainian imports are “necessary for a limited period of time given the exceptional circumstances of serious logistical bottlenecks and limited grain storage capacity ahead of the harvest season” in the five affected countries.

Brussels has now prolonged the liberalised rules for another year but gave the five most affected member states additional time until September 15 to deal with the challenges brought about by the imports.

Kyiv has complained to Brussels as the export of grain is one of the few hard currency earners available to the war-torn country.

Poland has been one of countries most affected and actively lobbied for the ban, despite being one of Ukraine’s most ardent supporters, which highlights the power of the agricultural lobby. With important elections later this year, the government in Poland is fearful of hurting its farmers ahead of the vote.

The ban will pressure Ukraine to find alternative markets at a time when the Black Sea grain deal that was renewed on March 18 for another 120 days is not working well, as Russia drags its heels on ship inspections that prevent them from leaving port.

Ukraine's agro-exports down 

The ban on Ukraine’s grain exports to the EU has already hurt the balance of payments for the cash-strapped government.

The volume of Ukrainian agricultural exports in May hit a 9-month low with the total export of agricultural products from Ukraine down by 3% compared to April, to 5.1mn tonnes, according to the agricultural association, UBN reports, due to problems with the grain corridor.

In May, the Russians stopped the operation of sea exports, did not allow new vessels to pass through the corridor, and, even after the grain corridor resumed operation, have significantly hindered its process. Only 1.3mn tonnes of agricultural products were exported through the grain corridor in May, which is 26% of the monthly export.  In March, almost 4mn tonnes of products were exported through this channel.

In May, compared to April, the export of grain crops decreased by 11% to 3.5mn tonnes. Sunflower oil exports fell by 14% to 484,100 tonnes, while cake exports increased by 70% to 445,000 tonnes.  

Tit-for-tat sugar ban

Ukraine responded to the EU grain embargo by banning the export of sugar. A sugar shortage is expected in Hungary – the largest importer from Ukraine. According to ObservatorNews, from October 2022 to April 2023 it imported almost 85,000 tons of Ukrainian sugar, 26-times more than the previous year. Romanian sugar imports from Ukraine account for 30% of the total sugar imports in the EU. In addition, there are currently only two sugar factories left in Romania.

The Cabinet of Ministers of Ukraine introduced a temporary ban on the export of sugar, which will be in effect from June 5 to September 15. The Ministry of Economy explained that the decision was made to avoid a shortage of sugar in the summer-autumn period in the domestic market.

In an effort to export more grain by other routes, Ukraine’s Ministry of Infrastructure says the government had approved a procedure for indemnifying civilian vessels entering its ports for damages if they can’t get insurance.

Launching the damage compensation mechanism will allow charterers and shipowners to continue to enter Ukrainian ports regardless of the grain agreement’s status. Insurers won’t cover ships if the Black Sea grain deal that was renewed on March 18 for another 120 days is not in force for fear of the ships being attacked and destroyed.

The Ukrainian government will pay compensation to the shipowner whose insurer has refused in writing to indemnify damage caused by the war. Only shipowners who have concluded an insurance contract or a P&I (Protection and Indemnity) policy under the procedure established by the legislation of Ukraine or another state will have the right to compensation. To receive compensation, the shipowner can submit a specified package of documents to the Ministry of Infrastructure no later than 90 calendar days from the date of receipt of their insurer’s refusal to pay. Ukraine has UAH20bn ($545mn) to pay such compensation.