The Russian invasion of Ukraine has disrupted Ukraine’s main export route via the Black Sea, whereas the agreement brokered by the United Nations and Turkey did little to solve the problem. As a result, Ukrainian grain exports were redirected to transit the territory of bordering countries, all members of the EU: Romania, Poland, Hungary, Slovakia, the Czech Republic and Bulgaria. Under the original terms, Ukrainian grain was supposed to merely transit EU territory on its way to African and Asia markets. However, with the decision of wholesale traders to purchase duty-free Ukrainian products either directly or through intermediaries, a large volume of grain stayed in Europe, creating a surplus which prompted a sharp drop in market prices. Talks about the difficulties experienced by farmers in Romania, but also in Poland, Hungary or Slovakia, started as early as November-December 2022, and affected farmers staged several protests, calling for a swift and effective solution.
Facing widespread protests, the governments of the six countries started considering the introduction of measures designed to protect their markets. The European Union also intervened in an attempt to reconcile all stakeholders – both its members as well as Ukraine, a country that is critically dependent on agriculture-related revenues.
Like many other topics linked to Ukraine, the grain crisis was also used to discredit Kyiv and undermine international assistance to this country. Certain aspects about this story have been exaggerated or taken out of context, while quite a few false narratives have also surfaced in the region. Veridica has examined 12 burning questions about the Ukrainian grain crisis.
1. Is Eastern Europe truly dealing with a grain crisis?
Yes, there is a crisis that has to do with an oversupply of grain, which triggered a drastic decrease of prices (we are referring to revenues collected by producers, as consumers were not affected by the price drop-off). Millions of tons of Ukrainian agricultural products (according to official data, over two million tons are in Romania alone) have entered European markets, although in theory there was no demand for such items. Therefore, granaries across the EU remained filled with grain harvested in 2022 that risks going bad. This also begs the question if EU countries have enough storage space to stockpile this year’s crops, including the first yield of the year, which is due at the end of the May threshing.
2. How did it come to this? What are the main reasons?
As a rule, grain is sold in two stages. The first stage starts shortly after harvest, when farmers with limited or no storage capacity sell their yields at low prices, seeking to dispose of most of their production. There are also small farmers with relatively limited areas of farmland (up to 300 hectares) who sell their grain “in the field”. The second stage starts a few months after the harvest, at the end of autumn, when summer stocks start dwindling. This is when prices go up, and those who had sufficient liquidity allowing them to conduct their activity under normal circumstances, as well as intermediaries trading in wholesale grain, may now up their prices, ensuring a larger profit margin.
In autumn, since the original agreement regarding the transport of grain via the Black Sea was bound to expire and Russia was not showing signs it was willing to extend it, many farmers refused to sell, hoping the price would see a substantial increase on the stock market. The agreement was eventually extended, at which moment East-European grain markets were literally “overrun” by cheap Ukrainian products, which triggered a sharp decrease of prices on the relevant markets. In other words, a farmer from Brăila County who preferred to remain anonymous told Veridica that “traders and intermediaries could then choose between buying a whale or a pig for the same price”. He also says some of his peers were even forced to undersell in order to secure enough funds to offset their operating expenses. The most affected farmers were those who kept stocks on the side and “wagered” on a possible end-of-year increase in prices, because when that time came, the market value of products in some cases fell short of the original production costs.
3. What was the situation on the grain market prior to being “overrun” by Ukrainian grain? What is the forecast for the coming period?
In November 2021, the average price for one ton of wheat was 290 Euro, whereas in June 2022 it sold for 401 Euro. In early 2023, the price had already dropped to 360 Euro, a tendency expected to continue over the summer as well. Right now, this year’s wheat harvest in Europe sells for 287 Euro per ton, cheaper than the current one, although we need to keep in mind that the global wheat harvest this year will probably be smaller, experts say.
4. Which countries influence the price of grain at European and global level?
The Black Sea region has very little impact in terms of establishing European and global quotas for grain, and of all the riparian countries, the only one whose contribution is not negligible is the Russian Federation, which has a yearly output of over 90 million tons of wheat, of which 20 million is export-bound. Overall, stock market prices are influenced by the world’s largest traders. On the Romanian market, the most important players are traders from the USA, China, Switzerland or the UAE, who export 4 billion Euro worth of grain every year.
5. How much does Romania produce and consume and how much has it imported from Ukraine?
On average, Romania produces approximately 10 million tons of wheat on an annual basis, of which less than a third, or tantamount to 3.5 million tons, is earmarked for domestic consumption. The rest is export-bound. In 2022, 7.3 million tons of Ukrainian grain entered Romania, of which 2 million was purchased by traders with local operations, while the rest remained in transit. We are therefore talking about a 35% increase in the volume of export-bound grain, which led to the current oversupply crisis. Adding to the “excess” of grain are also the huge delivery times of Romanian exporters, who sometimes may also see their grain delivery contracts terminated. The situation is caused by huge unloading times in ports for Romanian exporters, whose trucks have to wait in line and give priority to Ukrainian trucks.
6. How is the situation in Romania any different from elsewhere in Europe?
At European level, imports of agricultural and food products from Ukraine reported a significant increase as well, according to European Commission reports examining the agri-food sector in 2022. Ukrainian agricultural products reported a total increase of 32% at community level, while total exports reported an 88% increase in 2022 compared to the previous year. Therefore, Ukraine has become the third-largest exporter of agri-food products to the European Union.
7. Does Ukrainian grain pose any health hazards?
European farmers are also upset because Ukrainian products are not subject to the same phytosanitary regulations observed at European Union level, which are extremely strict. This allows Ukrainian farmers to significantly augment their production, which makes the price per kilo greatly inferior to the reference level that makes the cultivation of grain a profitable business for Romanian farmers. If we also factor in the lower subsidies received by Romanian farmers compared to those in other member states, Romanian products will therefore be less competitive due to a much lower price.
At the same time, the discussion about the doubtful quality of Ukrainian grain is obviously an exaggeration from part of Romanian society. Indeed, many Ukrainian farmers who grow grain use fertilizers and pesticides that are banned in the European Union. The ban however has nothing to do with their toxicity, even less so their origin, but is simply meant to encourage EU-wide production in this sector. Therefore, Ukrainian grain is no more harmful to human health than tomatoes cultivated by Romanian producer growers with the help of chemical growth stimulants, to give just an example. Besides, according to the National Statistics Institute, a significant part of Romanian imports from Ukraine is represented by fertilizers, which means there are also many Romanian grain farmers who use Ukrainian fertilizers.
8. Is the grain issue a national security threat?
It certainly is. For this reason, it has been brought up in a meeting of the country’s Supreme Defense Council. The confirmation was delivered by president Klaus Iohannis himself, who argued that Romania will continue to help Ukraine export its grain, as long as this doesn’t affect Romanian farmers. The president has called on the government to come up with solutions in this respect. The Romanian state is one of the major players on the grain market, selling and buying stocks on a periodic basis, with a view to regularly refreshing state supplies. Although the exact volume of the state’s food reserve is unknown, in August 2022 the National State Reserve Administration announced that Romania had 2 million tons of wheat, which were left unused from 2021.
9. Why haven’t the prices for grain-derived products dropped?
Many farmers have accused intermediaries of mixing Ukrainian grain with Romanian grain, so they can later resell it to traders and subsequently to processors. Under these circumstances, the final consumers often ask why prices for grain-derived products haven’t dropped? There are several reasons, from traders taking advantage of low prices for raw materials to boost their profits, to the energy consumed in baking processes, as well as the authorities’ indifference in the face of an increase in prices that is not warranted by any financial argument.
10. What measures have other countries taken?
At first, the governments of Romania, Bulgaria, Poland, Slovakia and Hungary called on the European Commission to implement a number of measures to cap the price gaps generated by Ukrainian imports on European markets. At the same time, these governments also called for the reintroduction of customs duties for Ukrainian agricultural products, as long as no other method has proved effective in stopping these products from entering the market. Faced with the decision of the European Commission to extend the duty exemption applied to Ukrainian grain imports until June 2024, the Polish Agriculture Minister, Henryk Kowalczyk, resigned in early April amidst growing disgruntlement from local farmers.
Later, in mid-April, Poland and Hungary decided to ban imports of grain and other foodstuffs from Ukraine in order to protect the local agricultural sector. For a number of days, Poland maintained a ban on the transit of grain and Ukrainian food products. The measure was later suspended in the wake of the visit to Warsaw paid by Ukraine’s first deputy prime minister Yulia Svyrydenko. On this occasion, the two parties agreed on a set of measures meant to ensure that these products, addressed to third countries, will stay in Poland only in transit. A few days later, the Bulgarian government took a similar decision to ban Ukrainian grain imports, with the exception of the transit of transports. Slovakia too blocked the trading of Ukrainian grain on local markets, and later introduced a ban on all agri-food products from Ukraine after discovering pesticides banned at EU level in a batch of grain from Ukraine.
11. What measures has the Romanian government taken to protect affected farmers and why hasn’t Romania suspended imports of grain from Ukraine the same time as other countries did?
The European Commission has provided countries affected by the import of cheap Ukrainian grain with an initial assistance package worth 56 million Euro to offset losses sustained by local producers. When pressured by national governments and farmers, the European Commission announced a second compensation package worth 100 million Euro. Of this, approximately 40 million Euro was earmarked to Romania, although losses sustained by Romanian farmers stand at approximately 200 million Euro. The European Commission reacted to the bans introduced by Poland, Hungary, Slovakia and Bulgaria, arguing the unilateral decisions of the four states are “unacceptable”. The Commission also pointed out that trade policy is the exclusive remit of the European Union. This was also the argument used by Romanian authorities in order to justify their refusal to ban agricultural products from Ukraine. Right now, the European Commission agreed to temporarily ban Ukrainian imports for Romania as well until June 5.
12. What will happen in the coming period?
Right now, the governments of the 27 EU member states have agreed to extend until June 2024 the temporary suspension of all customs duties applied to imports of Ukrainian products. At the same time, the European Commission announced the signing of an agreement in principle with Poland, Hungary, Bulgaria and Slovakia (with Romania also expected to sign) to guarantee the transit of four products from Ukraine: wheat, corn, rapeseed and sunflower. Subsequently, the Commission will also conduct an analysis of other Ukrainian products, such as soybeans and olive oil. Ukrainian products will only transit the five countries and the loads will be sealed and monitored during the entire time of the transfer. In Romania, the transports will be inspected also to examine compliance with health regulations enforced by the National Sanitary, Veterinary and Food Safety Authority (ANSVA) and European legislation. Once the European law is drafted, the sums allotted to each country by the European Commission will be wired immediately.
Although experts expect a smaller grain output this year compared to 2022 at global level, Romania expects to harvest 1 million tons of wheat more than last year. Therefore, 2023 could spell more difficulties for Romanian farmers in terms of prices, considering the stock market price has dropped significantly while regional grain markets will be again flooded by large volumes of non-EU products, as both Ukraine and Russia announced bumper crops this year.