Tag: trade

EU / Ukraine: analysis of the main agricultural crop sectors

Posted on - Posted by Farm Europe

As part of the process of enlarging the European Union to include Ukraine, Farm Europe has analysed both the weight and comparative competitiveness of Ukraine’s main crop sectors compared to those of the European Union. 

The difference in competitiveness ranges from 19% to 39% depending on the sector, with structural factors accounting for most of the difference. To this must be added the ‘carbon’ competitiveness conferred by the natural richness of Ukraine’s soils. 

At a time when the steps and conditions of accession are about to be drawn up and the pre-accession programmes defined and launched, we feel it is important that objective data can serve as a basis to define the European Union’s roadmap, without bias or avoidance.

Ukraine & European Union: key figures for the main agricultural crops 

In 2022, Ukraine’s utilised agricultural area covered 41.3 million hectares, including 32.7 million hectares of arable land (State Statistics Service of Ukraine (SSSU)). This agricultural area makes Ukraine the largest agricultural country on the European continent. 45% of the country’s surface area is made up of humus-rich, particularly fertile soils known as ‘rich’ chernozems.


Marked by its communist past, the Ukrainian agricultural sector is characterised by 110 huge vertically integrated agricultural companies, known as agro-holdings, which control all or part of the production chain (crop-livestock, processing, trade). These entities aim to maximize returns on invested capital, investing heavily in cutting-edge, large-scale equipment and the use of inputs. Twenty of these companies are estimated to control 14% of Ukraine’s Utilised Agricultural Area (UAA), and 57% of the UAA is farmed by enterprises of more than 1,000 ha. Agriculture plays a major economic role in the country, accounting for 10.9% of GDP in 2021 and almost 14.7% of employment.

Sugar

The organisation and competitiveness of the Ukrainian sugar sector is very different from that in Europe: agro-holdings, huge vertically integrated farms, cultivate 93% of the sugar beet area. The average cultivated area is 23,700 ha, 1,763 times more than in the European Union. 

Ukraine has much lower labour and investment costs. What’s more, the presence of fertile soils means that fewer inputs are used on crops: up to 1.5 times less fertiliser than in the European Union. 

The opening up of the European market to Ukraine has resulted in an influx of sugar, which has led to an increase in European stocks. Exports of sugar from Ukraine to Europe have increased by 230% between 2022 and 2023, with a forecast export capacity to the EU of 800,000 tonnes to 1 MT. The introduction of safeguard measures now limits exports for the time they are in force. 

Detailed analysis for the sugar sector

Cereals

Cereal production is not as dominated by large farming structures as the sugar sector: 51% of production is carried out by structures of less than 1,000 ha. It should be noted, however, that 22% of production is carried out by companies with more than 3,000 ha. 

If Ukraine were to join the European Union, the country would account for 20% of European cereals production, with 49% of maize production and 15% of wheat production. 

Ukrainian cereal production costs are on average 30% lower than those in Europe. 

For these reasons, grain imports from Ukraine have doubled between 2019/21 and 2023. The European Union has become a pillar of support for the Ukrainian economy, accounting for 51% of wheat exports in 2023, compared to 30% in 2021.

Detailed analysis for the cereal sector

Sunflower

While 58% of production is carried out by structures of less than 1,000 ha, companies with more than 3,000 ha account for 17% of production. In 2023, Ukrainian production alone was greater than the entire EU’s production. As such, if Ukraine were to join the European Union, the country would become Europe’s leading producer of sunflower seeds, as well as sunflower oil. 

Ukraine has been the EU’s leading supplier of sunflower oil for around ten years now. The opening up of the European market to Ukraine has had no significant impact on the flow of sunflower oil from the country.

Detailed analysis for the sunflower sector

Rapeseed

Farms of less than 1,000 ha account for 73% of rapeseed production, but oil production is dominated by 5 companies which accounted for 92% in 2021.

In 2020, the cost of rapeseed production in Ukraine was, on average, 1.5 times lower than in France.

Compared to the 2018-2021 average, Ukrainian production of rapeseed and rapeseed oil has risen by 57% and 174% respectively. Similarly, exports grew by 37% and 170% respectively. If Ukraine were to join the European Union, it would become the leading rapeseed producer in the EU, accounting for 24% of seed production and 4% of oil and meal production.

The EU was already the largest importer of Ukrainian rapeseed products before the war.

However,  imports of rapeseed have increased, and the EU now receives 93% of Ukraine’s rapeseed exports, compared to 83% in 2020/21.

Detailed analysis for the rapeseed sector

(Click on the image to enlarge it)

Deforestation: Farm Europe welcomes a simplification for EU farmers, keeping the level of ambition untouched

Posted on - Posted by Farm Europe

The European Parliament made a positive step forward in its vote on imported deforestation (EUDR-2023/1115). This position will remove unnecessary red tapes for EU farmers, while securing the level of ambition in the fight against deforestation. 

The perimeter of the regulation covering operators and traders is unchanged. The delay is  limited to one year, necessary to finalise the implementing acts of this regulation which is cornerstone for trade reciprocity, sustainability, and fair value chains for agriculture and food products.

MEPs approved the amendments introducing a new “no risk” category for countries, which comes in addition to the existing “low,” “standard,” and “high” risk categories for deforestation. Countries designated as “no risk”— defined as those with stable or growing forested areas—would face notably reduced compliance requirements. 

The current version of the text was agreed upon by the Parliament with 371 votes in favour, 240 votes against  and 30 abstentions. It is now crucial for the Council of the European Union to join the Parliament’s approach as soon as possible, and for the Commission to fully complete the implementation of the regulation, including the platform providing an “early warning system” to assist the competent authorities, operators, traders and other relevant stakeholders, as established by Recital 31. 

The Commission is also expected to complete a country benchmarking framework by June 30, 2025.

A TRUMP PRESIDENCY CAN HAVE A BIG IMPACT ON AGRICULTURE AND ON THE GREEN DEAL

Posted on - Posted by Joao Pacheco

The upcoming second Trump Presidency can have dramatic consequences on EU agriculture, trough trade and policy impacts.

What comes immediately to our minds is the increased risk of trade frictions or even trade wars, which could one way or the other impact upon EU agriculture.

This note discusses the different scenarii as far as trade problems are concerned, but goes further and highlights another major likely impact – on the EU Green Deal. 

In discussing what could happen we will not dig in the discussion on the advantages or disadvantages of higher tariffs, which although being of real importance would merit a specific and deep economic analysis, well beyond the more focused purpose of this note.

TRADE

On the trade front Trump has quite consistently talked about raising US import tariffs. He has also consistently singled out China has a major target for US tariff hikes. 

It would not be anything new as in his first Presidency he took the charge against China and raised multiple tariffs against steel or aluminium imports, which, as is well remembered, impacted the EU and lead to difficult negotiations after a round of trade retaliatory measures.

What could a second Trump Presidency bring anew?

There are several possible scenarii:

  1. The US could raise its tariffs across the board, bringing its average weighted tariff of little more than 2% to 10 or 20%. On China, the US would likely raise its tariffs even further, the figure of 60% has been put forward. 

The difficulty with this scenario is that it would impact every country in the world, including the US, most likely trigger retaliatory measure by the countries affected, and leave very little margin for negotiation.

The US would get increased protection for some of its sensitive sectors, but loose export markets and increase import (and input) costs even for sectors where the new Administration is not seeking to reshore its industrial basis.

The EU would most certainly retaliate, increasing tariffs and thus reducing US imports.

Our agriculture exports to the US would be reduced. Although we might replace the US in some third countries markets that would have also increased tariffs on US imports, the final balance would be negative for our interests as we currently enjoy a large trade surplus with the US.

Trump could also have difficulties in passing this across-the-board tariff hike in Congress. Whereas for specific tariffs he might have the power to act, it is unlikely that power could be extended to such a comprehensive measure.

I would thus rank this option as not very likely.

  1. The US could raise its tariffs mainly against China and a few other products and countries, targeting those areas where higher tariffs would be more effective to bring industry back to the US and protect sensitive sectors. Or the US could demand reciprocity on some specific products, i.e that third countries apply the same tariffs than the US.

The EU could be impacted on cars, steel, and other industrial products, and also directly on agriculture as Trump has been vocal against the EU for restricting US food exports. That would inevitably trigger retaliation against US imports. 

From there, three alternatives are possible: that both sides stay with mutual targeted higher tariffs; that the retaliation triggers counter-retaliation and a trade war; that some form of negotiated settlement is found. 

The outlook for EU agriculture exports to the US would depend on which products would be targeted by US higher tariffs. That is very difficult to predict, but the prospect is real.

This scenario could be more appealing to the new Administration. It would enable her to exert pressure and settle for a better negotiated deal.

In both scenarii the impact of much higher tariffs on Chinese exports to the US would be felt also in the EU. China would be left with more goods to export at even lower prices to the EU (and to the rest of the world). The EU would most likely feel compelled to protect herself, and could even do it under the framework of an agreement with the US. China would however not watch idle while its exports were being targeted. Thus, EU agriculture exports could easily be on China’s list of retaliation.

Also, in both scenarii the WTO would be even further sidelined to the point of practical oblivion. Recourse to the WTO dispute settlement mechanism would not be a viable option to deter the new US Administration.

GREEN DEAL

The trade problems discussed above would result on the initiative of the US to break its WTO commitments and unilaterally impose tariffs on others with no valid internationally accepted legal arguments. The WTO exception to allow members to retain otherwise WTO-inconsistent measures — such as discriminatory tariffs or import quotas or bans — on grounds of national security, cannot justify every measure, and even less an across-the board tariff hike.

Turning now to the EU Green Deal. 

EU ETS (Emission Trading Scheme) is a mechanism that restricts and prices carbon emissions within the EU creating a market for emissions allowances. CBAM (Carbon Border Adjustment Mechanism) levels the carbon cost playing field for imported goods, by applying a differential tax at the border. 

As it stands the applicability of the Green Deal, without devastating consequences for our economies, depends upon the implementation of the CBAM. Without a CBAM the industries that are subject to mandatory emission reductions and real biting ETS would face a double-edged shock – higher production costs and more competition from imports. That would be a recipe for disaster, which would most likely be politically (and socially) unacceptable. 

The CBAM is already being deployed but the implementation of actual border taxes is scheduled to start from 2026, when the free distribution of ETS certificates comes to an end.

Thus in 2026 the EU would start taxing imports of cement, electricity, fertilisers, iron and steel, and aluminium hydrogen, and some precursors and downstream products made from cement, iron and steel, and aluminium, when their emissions are higher than what is accepted within the EU.

Contrary to what would happen if (when) the US raises tariffs unilaterally, now it would be the EU doing it.

The new US Administration would most likely retaliate. Even if some Republicans are willing to impose carbon taxes on imports, which would mostly concern China, they would never accept that US exports be taxed for that reason.

Our legal ground to apply a CBAM under WTO rules has not been tested. The EU knows it is in shaky ground, and it is understood that it would privilege securing its ground through agreements with countries concerned. That could prove difficult, if not unlikely, but notwithstanding the US would not seat down to accept an EU CBAM, nor would the US wait for a WTO panel decision to react. 

What is more, the US would probably be followed by other major economies, like India and China. Even the UK would be in a difficult position, as agreeing with the EU and implementing their own CBAM would put them at a crossroads with the US.

The result would be that either the EU goes ahead with the Green Deal and accepts that a large share of its industries is put in dire straits due to higher production costs and lower exports, with all the economic, social, and political consequences, or the EU pauses the application of core elements of the Green Deal, starting by the ETS and the CBAM.

The former is highly unlikely, as it would cause reduced welfare and jobs. If now, at an earlier stage of implementation of the Green Deal, political and social opposition is mounting as the costs are becoming clearer, as those costs would sharply increase if the EU stays the course of implementation of the Green Deal, what would the reaction look like? Politicians and public have now an acute awareness of the consequences, and I would expect the Green Deal key measures to be paused and the EU back to the drawing board on the best way forward.

Although only the EU’s industry is directly concerned by the ETS and the sharp reductions in emissions, agriculture would also be on the spot as fertilizers are concerned, not to mention likely trade retaliation.

In addition to that, the pause of the implementation of core elements of the Green Deal would open wide the door to a broader re-evaluation on how the EU should tackle climate change, on which measures should be implemented without jeopardizing the EU economic and social fabric. 

That is of utmost importance to EU’s agriculture. The issue is not that climate change is real and impactful. The issue is how best we should address this challenge. The issue is to tackle climate change without reducing our welfare and our strategic autonomy.

To conclude, a Trump Administration surely brings a higher risk of trade spats, but also the opportunity to rethink how we deal with climate change in the EU.

It brings on the one hand the negative prospect of reduced trade opportunities, but on the other hand it opens the possibility of re-tooling the Green Deal to fight climate change without reducing our well-being, shifting to a technological and incentive-based approach. 

Long term solutions needed to cope with the surge of imports from Ukraine

Posted on - Posted by Farm Europe

Yesterday, Agriculture Commissioner Janusz Wojciechowski intervened in the Agriculture Committee on the situation on the European cereals market in relation to the war in Ukraine and the end of the “Black Sea grain deal”.

The Commissioner wanted to explain in detail the enormous pressure that the import of Ukrainian cereals has brought to the market of the five neighboring countries (Poland, Romania, Slovakia, Hungary, Bulgaria) and which has justified the block of imports of maize, wheat, rapeseed and sunflower seeds in these countries until 15 September.

This protectionist measure will therefore soon expire and the Commissioner said he was concerned about the impact this could have on the markets. Mr Wojciechowski recalled that in 2022 Ukrainian grain poured into the five countries to the value of EUR 5 billion more than before the war. The Commissioner then presented his proposal -and he emphasized that it is his proposal that has not been validated by the Commission and will be discussed at the College- to break the deadlock.

According to the Commissioner, today it is possible to export from Ukraine through the solidarity corridors, but cereals still remain in the EU (and do not go to third countries as was previously the case) due to the increased transition costs of passing through several European countries and ports, greatly increasing the cost of Ukrainian cereals and making them uncompetitive for third countries. This is why the Commissioner is proposing European transit subsidies to cushion these additional costs and proposing compensation of €30 per tonne. The Commissioner believes it would therefore take a budget of EUR 600 million to cover 20 million tonnes of cereals.

According to our assessment this proposal of a transport subsidy would equal an export subsidy which would directly compete with local production in third countries. Therefore it will not probably not be accepted internally after the European Commission legal assessment. Instead, we consider that the focus of the European Union should be in fostering alternative logistic facilities and processing within the European Union in order to rebalance markets and invest in sustainable, long term solution instead of short term quick fix that are legally uncertain and not viable in the medium to long run.

However it is clear that solutions must be put on the table. Our infographic with the latest figures from European customs highlights the continuing dynamic of cereal and oilseed imports from Ukraine, a minima jusqu’au mois de juin pour lequel les données sont disponibles. Sugar imports, which did not exist before autumn 2022, have increased to significant levels, upsetting the balance of the domestic market.

During the 5 first months of 2023, the EU imported 3 Mt of wheat (meaning the whole 2022 imports), has increased by + 60 % its imports of maize compared to the same 2022 period (Jan-June), + 200% its imports of soja and by a dramatic 1180% the sugar imports.

Therefore, measures are needed to help Ukraine to export its productions while preserving a fair and balanced EU agri market. The EU should support investments in infrastructures and processing.

Ukrainian crisis : investments in the bioeconomy provide a lasting solution

Posted on - Posted by Farm Europe

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. 

Mercosur: EU farmers would be exposed to more unfair competition

Posted on - Posted by Farm Europe

The draft Protocol proposed by the European Commission doesn’t provide answer to the actual environment and climate concerns on the Mercosur deal, and much less in attempting to establish a level playing field for EU farmers. Vague political declarations seem to be what’s on the table. Will they suffice to convince the European Parliament and the Council?

The European Commission is known to be seeking an additional Protocol with Mercosur that would accommodate the European Parliament and Council concerns on the lack of strong environmental and climate provisions in the deal. Without further assurances the political process of ratifying the deal was actually frozen.

A leaked draft of that Protocol, labelled “EU-Mercosur Joint Instrument”, sheds light on the approach being followed by the Commission.

The draft consists on a recollection of previous international commitments of all parties; it lists a set of general good intentions with regard to the environment and to fighting climate change; it sets a single new non-binding target on the reduction of deforestation (-50% by 2025), without any proper independent verification process; and, last but not least, it lacks any enforcement mechanisms whatsoever.

What would be the real value of this Protocol? What is the added value in recalling international commitments? To which extent, if any, would that add to the existing commitments? What are general good intentions worth, without targets, and without any enforcement provisions? Even on the well-known problem of deforestation, what does the draft Protocol add to the provisions of the recently adopted EU Regulation on imported deforestation? Does an aspirational, non-binding target assuage widespread concerns on the preservation of the Amazon? If there are no enforcement mechanisms, to which extent are the good intentions and declarations more than empty words?

It is crucial however to put the current on-going negotiations on the additional Protocol in the right context.

The negotiated EU-Mercosur deal between the Commission and the Mercosur countries was already seen as too weak on environmental and climate protection. Since then the Commission has embarked in a set of proposals – the Green Deal – that are piling up new restrictions and obligations on EU farmers: the SUR proposal to reduce by 50% the use of chemical pesticides; the IED, Directive on industrial emissions, encompassing a large part of the EU livestock production; the proposals on mandatory reductions on chemical fertilisers, and on setting aside land for biodiversity; the additional efforts asked to the agricultural sector to reduce GHG emissions.

Does the draft Protocol address any of the new environmental and climate measures proposed? Does it attempt to set-up real “mirror clauses” on imports from Mercosur? 

We see none of it. The application of the deal would thus lead to increased unfair competition for EU farmers. They would face higher costs, lower profitability, as a result of the Commission Green Deal proposals, that their Mercosur competitors would not. The situation today is worse for the EU agriculture sector than when the negotiation was finalised in 2019, but the draft Protocol bluntly ignores that fact.

Inevitably, if that were to be the case, imports from the Mercosur would further increase with regard to earlier forecasts. EU agriculture production would decrease, and EU consumption would be satisfied by more imports produced under much lower environmental and climate standards. EU farmers would be worse-off with no world climate benefit.

This draft Protocol doesn’t provide answer to the actual environment and climate concerns on the deal, and much less in attempting to establish a level playing field for EU farmers. Vague political declarations seem to be what’s on the table. 

Will they suffice to convince the European Parliament and the Council?