Ukrainian crisis : investments in the bioeconomy provide a lasting solution

Structural changes call for structural responses. The stronger tights between Ukraine and the EU are here to stay. It is very likely that new processing capacities will be needed to valorise agriculture commodities that will be attracted by the EU market, depending on global markets and transport costs developments. This new reality calls for a new direction to be given to the Green Deal. A new impetus to the bioeconomy in the EU would not only strengthen strategic productions (food, feed, biofuels, biomaterial, etc.) and help stabilising agricultural markets, but also provide a long term support to Ukraine economy and democracy. 

Imports of grains from Ukraine into neighbouring EU countries have disrupted local markets, pushing farmers to ask for an end of duty-free imports, and some countries to follow suit and block them. The crisis has raised shock waves in Brussels, as the well-justified support to the Ukrainian economy, victim of the Russian aggression, created a large movement of opposition to one of its key components – the temporary abolition of all custom duties.

The Commission attempted to compensate the affected farmers with a first additional support package through the CAP crisis reserve, but quickly enough a second and larger package was deemed necessary. Despite throwing resources to calm the protests, calls for an application of safeguard clauses are still on the table.

The competitiveness of Ukrainian wheat, maize, sunflower and barley (to mention only a few sectors), is well known. Already more than 20 years ago, after the fall of the Berlin Wall and the end of the USSR, Ukrainian imports of wheat were coming into the European Union, even after paying the full import taxes. That situation led the European Union to renegotiate its external protection for wheat in the WTO, raising the duties applied.

Ukrainian exports suffered with the Russian aggression, dropping in the case of maize from the highs of 27 million tonnes in 2021/22 to a forecast of 20 million tonnes in the current campaign, on wheat from around 19 to 15 million tonnes, and on barley from around 6 to 3 million tonnes in the same campaign years. However, despite the fall in exports, the opening of alternative trade routes to the traditional Black Sea made large quantities of Ukrainian grains available in the EU neighbouring countries.

The root causes of the problem will not go away. EU markets are more attractive to Ukrainian exports than far away markets in developing countries. Even when the war is over, and hopefully Ukraine starts recovering from the wounds, it is likely that the European Union will extend forms of financial, economic and trade support for a large period, also in view of a possible accession of Ukraine to the EU.

Therefore, the EU should figure out lasting solutions to the Ukrainian grain imports, instead of pilling up compensation package after compensation package. Boosting the bioeconomy could provide a long-lasting solution to the additional availability of grains beneficial for global food security. 

Incentivizing investments in bioeconomy could add value to maize, wheat, barley and sunflower production to mention a few, into high value and much needed proteins, energy and all kinds of biomaterials. Those products are highly needed to overcome the challenges of food security and environmental transitions, while at the same time stabilizing agricultural markets. This would benefit global food security as imports from Ukraine would reduce the overall EU footprint on other markets, notably soy from South America. 

In the first five months of 2023, the European Union imported roughly the same amount of grains from Ukraine as in the entire pre-war campaign. This, despite the war’s impact on Ukrainian agriculture. A large share of this grain face difficulties to be re-exported to global markets, as is already the case with Central European countries’ production. Logistic challenges in this part of Europe are not new.

The European Union needs to set up new processing capacities to valorise an additional production coming from Ukraine on a structural basis, that will otherwise weight yearly on the EU market, especially considering further integration of the Ukrainian economy to the internal market. 

Short-term measures triggered by the EU won’t be enough to address a structural challenge. Indeed, the lack of effective market mechanism tools currently included in the Common Agricultural Policy to cope with market disturbance is plain to see. This should press the European Union to rethink its agricultural policy to provide more teeth to its economic levers. However in the current situation no market measure will compensate a structural shift in market reality. Structural changes call for structural responses. 

In a context where high-value food, feed, energy, and biomaterials is increasingly strategic, the EU should not delay launching a new wave of investments in these sectors. This effort should provide a new direction to the Green Deal’s approach, promoting sustainable growth for agriculture and related sectors. 

Included within the current Renewable Energy Directive (RED), the European Union has room for maneuver to incentivize bioeconomy that produce at the same time a wide range of food, feed, biofuels and biochemical products. Today, the percentage of crop-based biofuels in the transport energy mix in the EU hovers below 5%, whereas the RED accepts a higher limit of 7% to be accounted for the EU renewable energy mandates. Ambitious climate targets calls for higher contribution from agriculture in the decarbonation effort of the economy. 

The recent Council Conclusions  “on the opportunities of the bioeconomy in the light of the current challenges with special emphasis on rural areas”, on the initiative of the Swedish Presidency, “emphasises the role of a sustainable and circular bioeconomy in dealing with climate, biodiversity, energy and food security issues, as well as its potential to diversify income, create jobs in rural and coastal areas, and support the EU’s green transition and increased resilience.”

This political will should lead to actual investments. The Commission should facilitate the process through policies that encourage investment in the bioeconomy, without excluding any sectors that might contribute. Particular attention should be made not to hamper investments through ill-conceived taxonomy regulations. Member States should establish national mandates and policies that foster these investments.

Let us react to the present crisis to bring forward-looking and lasting solutions, mobilising the EU investment capacities to trigger a surge of the EU bioeconomy. This would also provide a long term support to the Ukrainian economy and democracy.