How Ukrainian grain wrecked the Polish grain market

By bne IntelliNews September 25, 2023

The Polish grain market has been thrown into disarray by cheap Ukrainian grain that sent prices plummeting in April, causing Warsaw to impose a five-month ban, backed up by the European Commission.

None of Ukraine’s grain travelling out of the war zone by train, and intended for the underdeveloped markets of the world that are heavily dependent on Ukraine grain imports, was ever supposed to end up on the Polish market. So how did it get there?

While some types of Ukrainian grain could be sold in Poland, most of it doesn’t meet strict EU standards of production and storage at the border, as mould can develop.

However, the sheer volume of low-quality Ukrainian grain transiting through Poland was irresistible to traders. Consequently local dealers stepped in, purchasing vast quantities of this subpar grain and dumping it on local markets for large profits. Grain prices collapsed, making local Polish farms unprofitable.

EU data paints a stark picture of what happened. By the end of March 2023, around 3mn tonnes of Ukrainian cereals inundated the Polish market. Within this, 900,000 tonnes were wheat and 1.3mn tonnes were corn. While the exact volume that continued its journey west to the Netherlands, Spain and China – the biggest buyers of Ukraine’s grains – remains unclear, a substantial portion remained within Poland's borders, according to reports.

Adding to the pressure on prices was the large amount of unsold Polish grain belonging to the increasingly desperate local farmers who had been holding out for better prices, but were increasingly forced to dump their grain as well to generate cash. Although, again, precise figures are elusive, it is reported that at least 3mn tonnes of local grain remain unsold, exacerbating the grain overhang that now plagues the Polish market.

The repercussions were felt globally. Poland’s eastern regions were hardest hit, with prices dipping below the break-even point while warehouses operated by brokers suddenly found themselves swimming in surplus grain as the summer wore on. Tadeusz Michalski, the president of the Polish Association of Corn Producers, told the press recently: "The market is completely unstable."

Selling at an average of PLN1,000 ($231.5) per tonne means that farmers must offload 6-8 tonnes per hectare just to cover production costs roughly equivalent to the average yield. Prices remain depressed despite the ban on Ukrainian imports because of the overhang in supply.

Monika Piątkowska, president of the Grain and Feed Chamber, added: "In June, a tonne of wheat cost PLN1,600-1,700 and there was a time when it reached PLN2,000. Today, a tonne costs PLN900 or even PLN800, while production is profitable at PLN1,200-1,300 per tonne."

Adding to the farmers' woes, many had invested in nitrogen fertilisers during the autumn. However, fertiliser prices also soared, as Russia is the main supplier, but supply chains were hit by sanctions sending those costs soaring too. Fertiliser prices jumped to around PLN4,000 per tonne – an increase of PLN1,000 to PLN2,000 compared to pre-sanction costs, further reducing the profitability of Polish grain producers.

The core issue lies in the quality disparity between Ukrainian and EU grain, say experts. Ukrainian produce falls short of the EU quality rules, creating a situation where European Union farmers are penalised for exceeding stringent standards related to fertilisation and plant protection product use, which just don’t exist in Ukraine.

Furthermore, concerns arose from the prolonged storage of some Ukrainian grain in wagons at the border, potentially leading to fungal contamination. Despite these concerns, this grain found its way into the Polish market, leaving many wondering about the efficiency of the Polish food sanitary regime.

The European ban on Ukraine’s grain imports expired on September 15, but still reeling from the glut of grain that remains in their silos and the low prices on the market, Poland, Slovakia and Hungary all elected to defy the EU, which has the sole power to make or break trade deals, and unilaterally extend the ban for the meantime, causing a blazing row with Kyiv, which is threatening to sue the trio for compensation at the World Trade Organisation (WTO).

The spat highlights the gapping crevasse between Ukraine’s economy and that of the EU. As bne IntelliNews argued in a recent feature, Ukraine can’t join the EU until the Common Agricultural Policy is reformed, because of the enormous size of the subsidies it will be entitled to. But the grain row shows that Ukraine’s agricultural sector needs top-to-toe reform and modernisation as well just to bring it up to EU standards.

In the meantime, Ukraine and Poland have suggested a compromise that better documents Kyiv’s grain shipments to ensure they only pass through Poland on the way to their ultimate customer, by-passing the local markets.

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