Explainer: How does central Europe's ban impact Ukrainian grain exports?

Comvex SA

07/08/2023 12:12

By Luiza Ilie and Marek Strzelecki
       BUCHAREST/WARSAW, Aug 7 (Reuters) - Ukraine has become
entirely dependent on alternative European Union routes for its
grain exports after Russia last month exited a year-long deal
that had allowed them to be shipped safely via its Black Sea
ports.
    This has exacerbated Brussels' efforts to find a balance
between helping Ukraine with the demand of five eastern EU
member states to protect their own markets by extending a ban on
domestic sales of Ukrainian grain till at least the end of 2023.
    A current deal to protect farmers in the five states near to
Ukraine - Bulgaria, Hungary, Poland, Romania and Slovakia - is
due to expire on Sept. 15.
    Russian attacks against Ukraine's inland port infrastructure
on the river Danube – its last waterborne export route – in the
weeks since the collapse of the Black Sea deal have piled
further pressure on the EU to allow proximity grain sales again.
    Here are details on how the temporary ban in the five CEE
states has affected sales of Ukrainian grain and its transit to
other destinations.
    
    WHY DID UKRAINIAN GRAIN INFLOWS RISE IN CEE?  
    Ukrainian grain is exempt from EU customs duties, which has
made it cheaper than local production.
    Ukraine's proximity and high logistics costs drove an
unprecedented surge in its grain exports into the five states in
2022 and early 2023, creating sales disruptions, squeezing out
regional crops from domestic and some export markets, depressing
prices and prompting farmers' protests.
    Poland's grain imports rose nearly three-fold in 2022 to
3.27 million tonnes, of which 75% was Ukrainian grain, mostly
corn and wheat. High imports continued until March 2023.
    Romania, one of the EU's biggest grain exporters in its own
right, saw 3.2 million tonnes of Ukrainian grain and oilseeds
remain within its borders by May, the agriculture ministry said.
Its imports before the start of the war were negligible. 
    Cezar Gheorghe of Romanian grain market consultancy
AGRIColumn, who placed Ukrainian grain sales at around 4.7
million tonnes, said imports continued even after the ban was
enforced under the guise of existing contracts.  
    Hungary imported up to 50,000 tonnes of grains and oilseeds
annually from Ukraine before the war. The flow spiked to 2.5
million tonnes of grains and oilseeds in 2022. In 2023 it was up
to 300,000 tonnes until the import ban was put in place.  
    In Slovakia, imports of Ukrainian grain rose to 339,000
tonnes in the second half of 2022, an almost 10-fold increase
versus the first half of the year, official data showed.
    
    WHAT HAPPENED AFTER THE IMPORT BAN?
    In April, Poland and Hungary unilaterally closed their
borders to imports of Ukrainian grain and other food. Romania,
Ukraine's biggest alternative transit route, stopped short of a
ban but started sealing transports. 
    In May, the EU allowed five states - Poland, Romania,
Hungary and Slovakia all border Ukraine, while Bulgaria lies
south of the Danube - to ban domestic sales of Ukrainian wheat,
maize and oilseeds till June 5 - later extended to Sept. 15 -
while still allowing transit through them for onward export.
    After the ban, transit surged. Transit of wheat from Ukraine
via Poland jumped to over 90,000 tonnes in June from between
43,000-51,000 a month in the first quarter of this year. Transit
of corn increased to 170,000 tons in June from about
50,000-70,000 tons a month in the first quarter of this year,
the Polish agriculture ministry said. 
    Romania has shipped about a third of Ukraine's grain exports
since the start of the war through its Black Sea port of
Constanta – 8.6 million tonnes in 2022, and 7.5 million tonnes
in the first half of this year. 
    Volumes increased in May and June, particularly via barges
on the Danube from Ukraine's river ports.
    
    HOW WILL BRUSSELS HANDLE EXTENSION REQUEST?    
    On July 19, the five countries requested the ban to be
extended till at least the end of the year. Brussels will review
the ban in early September, taking into account harvest results,
storage capacity, and the situation in third countries in terms
of their access to grain. 
    Poland, with an election due in October or November, has
already said it will not open its border on Sept. 15, increasing
pressure on Brussels to extend the protective measures. 
    Meanwhile, Lithuania has asked the European Commission to
develop a route for Ukrainian grain through Baltic ports. The
five ports in Lithuania, Latvia and Estonia have a combined
grain export capacity of 25 million tonnes. 
    But the key issue will be the economic viability of 
alternative land routes, known as "Solidarity Lanes". 
    Ukraine estimates the extra cost of the EU transit route at
$30-40 a tonne. Transiting by land via Poland added 37 euros
more per tonne than through Romania's Constanta port, said
Viorel Panait, the manager of port operator Comvex  CMVX.BX .

 (Reporting by Marek Strzelecki and Luiza Ilie; Additional
reporting by Gergerly Szakacs in Budapest and Jason Hovet in
Prague; Editing by Gareth Jones)
 ((luiza.ilie@thomsonreuters.com; +4021 527 0312; https://www.reuters.com/journalists/luiza-ilie))