Ukrainian Grain Will Have Similar Impact on Europe as American Natural Gas*

*Editor’s note: On March 4, 2022, Russia enacted a law that criminalizes public opposition to, or independent news reporting about, the war in Ukraine. The law makes it a crime to call the war a “war” rather than a “special military operation” on social media or in a news article or broadcast. The law is understood to penalize any language that “discredits” Russia’s use of its military in Ukraine, calls for sanctions or protests Russia’s invasion of Ukraine. It punishes anyone found to spread “false information” about the invasion with up to 15 years in prison.

U.S. agricultural companies could be behind Kyiv’s demands for access to EU markets.

Deputy Minister for Economic Development, Trade and Agriculture of Ukraine Taras Kachka has announced that Kyiv is ready to withdraw the complaints it had filed with the World Trade Organization against the three European Union countries that extended their restrictions on Ukrainian agricultural exports after Sept. 15. However, it can be done only if Brussels guarantees that it will waive its restrictions on grain exports in the near future. Some experts believe that since a significant share of Ukrainian grain is produced on land owned by major U.S. agricultural companies, it is reasonable to compare this situation with the EU liquefied natural gas market.

Although it is true that cheaper Russian natural gas has been almost completely replaced with a more expensive American alternative, it is unlikely that Eastern European countries will lift their embargoes on Ukrainian grain before the Oct. 15 parliamentary elections in Poland.

In his interview, Kachka emphasized that Kyiv can withdraw its complaints with the World Trade Organization against the three EU countries that extended their ban on Ukrainian agricultural imports after Sept. 15.

Earlier this month, the European Commission lifted the ban, which had been in effect in five EU states neighboring Ukraine since the spring of 2023. However, three countries — Poland, Hungary and Slovakia — have extended their nationwide restrictions on Ukrainian agricultural exports. Kyiv retaliated by filing complaints with the World Trade Organization against these countries. On Sept. 26, Kyiv presented its own plan to resolve the “grain conflict,” which involves vetting and coordinating the exports of four major agricultural crops (wheat, maize, rapeseed and sunflower). Poland’s Minister of Agriculture and Rural Development Robert Telus held a telephone conversation with his Ukrainian counterpart, Mykola Solskyi, on Wednesday. Telus stated that if Warsaw opposes the supply of the four crops by the end of the year, Kyiv will not issue licenses for them. Telus considers this a good offer because the final decision in this case remains with the Polish side. He also called for the development of long-term mechanisms that would help Ukraine join the EU. In the meantime, Telus is urging Kyiv to drop its complaints.

In response, Ukraine’s trade representative, Kachka, suggested that it was necessary for Poland and other states, and the EU as a whole, to guarantee Kyiv “that these kinds of restrictions will not be imposed in the future.” At the same time, he admitted that Kyiv was correct in its decision to file complaints with the World Trade Organization simply to show the EU that Ukraine was angry, not so much by its grain market losses as by the very fact that such restrictions had been imposed.

Kachka made his statement in light of Warsaw’s decision Tuesday that EU countries in the World Trade Organization will be represented by the European Commission. The commission will also include experts from Poland, Slovakia and Hungary. Certain sources in Brussels speculate that by initiating arbitration proceedings at the World Trade Organization, Ukraine will shut all other communication channels in order to lift the grain embargo.

Politico states that this is an “awful outcome” for both Ukraine and the European Commission, which demonstrated its weakness in this situation. “This is what a lack of political leadership looks like. This impression is reinforced by the fact that the Commission has so far signaled no intention whatsoever to sue Poland and Hungary for their clear violation of EU law,” said trade expert David Kleimann, a visiting fellow at the Brussels-based Bruegel think tank.

Interestingly enough, Hungarian Prime Minister Viktor Orban recently pointed out that the U.S. is also to blame for this crisis. In his radio interview, he emphasized that much of the Ukrainian grain has long been grown on land owned by U.S. companies.

In this case, U.S. agricultural companies are pushing Ukrainian grain into the European market, which is similar to how EU countries were forced to give up cheaper Russian pipeline natural gas in favor of much more expensive American liquefied natural gas.

Andrey Suzdaltsev, assistant professor and Deputy Dean of the School of the World Economy and International Affairs, believes that American companies are often behind Ukrainian grain producers. Moreover, he says, the U.S. is openly supporting grain shipments from Ukraine to the EU and is trying to influence Brussels to ensure that Ukrainian grain flows freely to European markets. “But I think it won’t help. Eastern European countries will not lift their grain embargoes until the Oct. 15 parliamentary elections in Poland, where the ruling Law and Justice party is very dependent on farmer voters,” Suzdaltsev said. He added that various economic estimates show that opening European markets for Ukrainian agricultural products is fraught with risks for Poland, Bulgaria and other agrarian EU countries. This threatens to have a devastating impact on them because Ukraine has a significant agricultural capacity.

Nikolay Gavris, head of the audit firm Pozitiv, recently published an article titled “Grain Crisis in Poland-Ukraine Relations: Analysis without Emotions,” in which he expressed his surprise at the inability of Polish farmers to compete with Ukrainian agricultural producers. However, he also provided data proving that Warsaw’s ban on Ukrainian crops is reasonably justified. According to Gavris, Ukrainian producers have certain competitive advantages over their Polish counterparts because they have more fertile land and cheaper labor. In addition, Poland appears to have a highly fragmented agricultural sector, where the average farm area is less than 10 hectares (about 25 acres), while 70% of the farms are less than 5 hectares (about 12 acres). In total, there are about 1.3 million farms in Poland. Gavris pointed out that this situation leads to the high production costs and relatively low competitiveness of Polish agricultural producers. Meanwhile, according to official data, the 120 largest agricultural companies in Ukraine account for almost 6.9 million hectares (17 million acres) of arable land, or 16.2% of the total agricultural land in the country (42.7 million hectares, or 106 million acres). Moreover, the 10 largest agricultural companies own 2.9 million hectares (7 million acres) of arable land.

At the same time, the media reported last year that certain well-known American multinational corporations like Cargill and Monsanto had already bought up about 17 million hectares (42 million acres) of Ukrainian farmland.