Friday, April 26, 2024

The Polish-Ukrainian grain war is not yet over

Tank in a wheat field, somewhere in Ukraine (Source: iStock – assistantua)

Kyiv is defending the interests not of ordinary Ukrainian farmers, but of oligarchs and foreign capital. The ban on imports of cheap grain from Ukraine was a necessity from Warsaw’s point of view. Will the new Polish government continue to defend the interests of Polish farmers against unfair competition?


Maciej Pieczyński


Ukraine is the granary of Europe, and maybe even of the world, given that it exports grain to many countries in Asia and Africa. So when Russia introduced a blockade of Black Sea ports, there were fears that this would lead to famine in the Global South, which in turn would trigger further waves of illegal migration.

This is why Kyiv’s appeals to allow exports of Ukrainian agricultural products were so convincing. Russia agreed to let ships with grain pass through, but in practice did not implement the agreement in full, and eventually refused to renew it. Given this situation, the overland route was the only solution left.

In June 2022, the European Union temporarily lifted tariffs on Ukrainian imports, including agrifood. The opening of Western markets created new opportunities for a country struggling against Russian aggression. But cheap Ukrainian grain, instead of saving the countries of the South from starvation, began flooding European markets, including the Polish one. Even so, famine did not break out in the South.

So it appears that Kyiv’s rhetoric was once more based on moral blackmail, in order to achieve its goals, rather than on actual grounds.

Grain from Ukraine was not only cheap, but also of low quality. Some Polish companies started buying so-called “technical grain” – that is, grain that is not intended for human consumption, but is to be used for industrial purposes, and therefore does not have to meet excessively high sanitary standards. They then sold it in Poland illegally, as food grain.

Both Ukrainians and Polish contractors profited from this dishonest practice, while Polish farmers lost out. Grain prices fell sharply, and the farmers’ protests finally forced the authorities to act.

In Spring 2023, Poland, Slovakia, Hungary, Romania, and Bulgaria closed their borders to wheat, rapeseed, corn, and sunflower grain from Ukraine. This decision was approved by the European Commission on the condition that it would be temporary. This ban expired on September 15, 2023, but Poland, Hungary, and Slovakia, in defiance of Brussels, decided to extend it.

In response, Ukraine filed a complaint with the World Trade Organization (WTO) against those countries. Ukraine’s Deputy Minister of Economic Development, Trade, and Agriculture, Taras Kaczka, also announced an import ban on Polish onions, tomatoes, cabbage, and apples. He later backed down from this threat, assuring Poland that it would only be enacted as a last resort and that he was open to dialogue. On October 5, Kyiv suspended its complaint to the WTO.

As long as Warsaw unconditionally supported Ukraine in its fight against the Russian aggressor, Polish-Ukrainian relations seemed better than ever. But when Poland began to pursue its own economic interests and expected concessions from its Ukrainian partner, the attitude of Zelensky’s team toward its closest ally changed dramatically.

The ban on grain imports triggered a wave of angry and often false statements from top-level Ukrainian politicians. Ukrainian Prime Minister Denys Shmyhal accused Poland of blocking Ukrainian grain exports to the European Union. This allegation has been uncritically repeated by Ukraine’s media and politicians, even though it is based on a lie.

The ban on imports was in effect first in five countries, and then only in three. Ukrainian grain has been continuously exported to the rest of the EU without hindrance. Poland did not block its transit through its territory.

Its ban on imports was nonetheless compared to Russia’s blockade of Black Sea ports, and it was suggested that Warsaw was working hand-in-hand with the Kremlin. Speaking at the United Nations, President Volodymyr Zelensky called the grain dispute “political theater” in which Poland was preparing the stage for a “Moscow actor.”

Love hangover in Polish-Ukrainian relations

To understand why the grain dispute has gone to such extremes, one must look at the structure of Ukrainian agriculture.

Ukraine has more than 30 million hectares of arable land, and it benefits from having very fertile black soil. Its agriculture is based on very big farms, even latifundia. On average, they are many times larger than most Polish farms.

And there’s also cheap land in Ukraine. From 2001 it maintained a moratorium on land sales. It was feared that the land would be bought up by oligarchs. This in turn would mean that huge amounts of acreage would be concentrated in the hands of a few agriculture barons, with small farmers losing out.

This moratorium was lifted on July 1, 2021. For the next two years there was open land trade, and prices remained at similarly low levels as before –  that is, at an average of €970 per hectare. Land in the Kyiv region is the most expensive. In 2021, it cost €2,300 per hectare. By comparison, in Poland the lowest prices per hectare (in the West Pomeranian Voivodship) hovered at around €7,000, while the highest (in Greater Poland) were as high as €15,500.

These are figures published by the Polish Center for Eastern Studies (Ośrodek Studiów Wschodnich), which are based on data from Eurostat and the State Service of Ukraine for Geodesy, Cartography, and Cadastre. “Even in Slovakia’s mountainous regions the price of land is higher than that in the Kyiv oblast, and in the Polish voivodships bordering on Ukraine the prices are several times higher,” the OSW report reads.

The Ukrainian government has been using wartime rhetoric not only against its aggressor, but also against its allies. Anyone who does not meet all of its expectations is accused of collaborating with Russia. This applies to the grain dispute as well.

As Alona Kyrychenko of the UNIAN press agency noted some time ago, the integration with the European Union that Ukraine is seeking requires the ability to make compromises.

EU policy supports small farms, for which Ukrainian latifundia are dangerous competitors. Kyiv’s biggest allies in the security sphere are already proving to be its biggest rivals in the economic sphere. In the process of integrating with the EU, Ukraine will be able to build alliances with southern European countries, which, due to their hot climates, do not produce that much grain, so they need an external “granary.”

A little-known aspect of this situation is that exporters of Ukrainian grain were overpaying for its transportation by rail to the West even before the Russian invasion. The “tickets” for freight trains were sold at the last minute, and at auction. The schedules listed the month of departure, without any more detailed information. For years, the authorities in Kyiv have been treating freight transport lightly, investing mainly in passenger transport, which is not very profitable but is popular with voters.

Despite this hindrance of its exports, agribusinesses have had very decent financial results during the war. The oligarchs involved in heavy industry are those who have lost the most. The war hit grain warehouses, but still, the bombs fell mainly on factories, not on fields.

Ukraine will therefore not only continue to be a granary, but is actually going to increasingly base its economy on agricultural production. The importance of the agriculture barons will thus increase as well.

But this is not the only reason why the claim that the Polish ban on imports has brought Ukrainian agriculture to ruin is false. It is also important to note that the adjective “Ukrainian” is not entirely correct in this context.

Of the ten largest agribusiness companies in Ukraine, only one is registered in that country. Five are registered in tax havens: three in Cyprus, and two in Luxembourg. Additionally, two are registered in the United States, one in the Netherlands, and one in Saudi Arabia.

Ukrainian oligarchs hold the largest stake in the five companies registered in tax havens. But even if a company was created by a Ukrainian citizen, once it turns to the financial markets, foreign banks and investment funds usually take a significant portion of their shares. American and European companies as well as financial institutions are big investors in Ukraine’s farming sector. Some companies are indebted to the European Bank for Reconstruction and Development, the European Investment Bank, or the International Finance Corporation. About 28 percent of Ukraine’s arable land is owned by large companies, much of which is controlled by foreign entities, according to American experts.

Also, the lifting of the moratorium on land sales was a concession to Western investors rather than a step aimed at strengthening domestic agriculture, which does not enjoy much support from Kyiv.

The Polish import ban is therefore not so much hurting ordinary Ukrainian farmers as it is hurting the interests of U.S. and European companies that want to make money on cheap grain. And on top of all this comes the rarely-discussed issue of ecology. Ukrainian beekeepers often complain that toxic chemicals which are sprayed over large areas of fields are killing their bees.

Ukraine has to choose whether it wants to be an ally or a resource

In its dispute with Warsaw, Kyiv has reached out to Berlin and Brussels for help. Admittedly, just before Poland’s parliamentary elections in October, Zelensky took a wait-and-see attitude. He forbade his closest associates from having any contact with both the Law and Justice (PiS) party or the opposition. But there is no doubt that he was betting on a change of government in Warsaw. He hoped that a Poland ruled by Donald Tusk’s Civic Platform (PO) would be a comfortable partner for Kyiv to have talks with.

First, Tusk’s party enjoys the sympathy of the EU’s elites, so it can effectively support Ukraine’s efforts to join the bloc. Secondly, while PiS had to at least pretend it was being firm in defending the national interest, PO, in the eyes of many of its voters, must be pro-European first and foremost, and only secondarily pro-Polish. So it may be more eager to make concessions.

But this does not have to be the case at all. As early as June of last year, Tusk criticized the Morawiecki government for not defending the interests of Polish farmers and allowing cheap Ukrainian grain to flood the market. At the same time, it is worth remembering that this was a statement dictated largely by domestic politics, and in particular by the struggle for the countryside vote.

After his election victory, Tusk assured voters that he had raised the grain issue with European Commission President Ursula von der Leyen. “She has observed what is happening in Polish politics and has no doubt about our firm position that there can be no threat to Polish agriculture,” said the leader of the winning coalition.

Paradoxically, then, it may be that the ban will be upheld and even accepted by the previously reluctant European Commission. If pressure from the Ukrainian oligarchs and foreign investors does not prove effective enough, Brussels may allow Tusk to be assertive toward Ukraine, which will win him the support of the countryside without upsetting the Euro-enthusiasts — if it is accepted by Brussels.

In general, pro-EU politicians are allowed to get away with more, since it is known that whatever happens, they will always support the European mainstream. This is what matters most for Brussels. Ukraine, on the other hand, will have to comply, as it cannot allow itself to come into conflict with the European mainstream.

The Rainbow–Banderite alliance in Ukraine

On the other hand, it is also very possible that some sort of compromise will be reached. Tusk himself said this when asked about the details of his talks with Ursula von der Leyen. “This is about a solution that will not be bad from the point of view of Ukraine, because we want to help it, but in no way can it threaten the interests of Polish farmers,” the new Polish prime minister assured his people.

So perhaps the two sides in the dispute will return to the idea that Ukraine put forward in late September.

At the time, Deputy Minister Taras Kachka proposed bureaucratically controlling exports to Poland. A seller of Ukrainian grain would first have to submit an application to the Ministry of Economic Development, Trade, and Agriculture. The Ukrainian ministry would then contact the relevant Polish ministry, and the two parties would jointly assess whether a given supply is acceptable on the Polish market in terms of price, volume, and buyer.

Already in 2022, Poland’s agrarian party PSL, which is part of the new governing coalition, had proposed introducing the requirement of paying a deposit on Ukrainian grain. This was to help combat the then-rampant practice of illegal sales on the Polish market of grain that was theoretically supposed to merely pass through Poland. An exporter would have to pay PLN 1,000 per ton on the grain crossing the Ukrainian-Polish border. This deposit would then be paid back upon the grain leaving Poland.

It remains to be seen which compromise solutions will be on the table for talks, if any. It is clear, however, that the Ukrainian oligarchs will not easily give up their desire to conquer the European markets.

And it is not only Polish farmers who stand to lose from this. It is worth remembering that this is especially the case given that Ukrainian grain does not have to meet the EU’s exacting standards. This gives agriculture barons there another advantage over European farmers.

Perhaps a good solution would therefore be to lift the ban on grain imports, but only for those goods that meet these standards. These were the demands made to the Ukrainians by the Hungarians. It is worth taking an example from them. Then, competition would at least be fair. And the Ukrainians would more quickly understand the responsibilities involved in the process of integrating with the EU.