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The CEE's grain debacle

Today, we are taking a closer look at the influx of Ukrainian grain into the CEE region, the states’ reactions, and the EU’s response. With conflicting interests within the bloc, the resolution appears to be out of reach.

Ukrainian exports and CEE deflation

As the war disrupts grain shipments over the sea, Ukrainian exporters turn to river and land routes through Central Europe, causing a sudden influx of Ukrainian grain to its western neighbours. Poland, for example, received nearly 200 times more Ukrainian wheat compared to the previous year, and over 300 times more corn. Meanwhile, global grain prices have spiraled down to their lowest in years and several Central European nations have decided to halt imports of Ukrainian grain altogether.

Under an agreement with the European Commission, they continue to permit transit for consumers in other markets. However, this also presents difficulties for domestic farmers as they tussle with increased transport costs. Despite the Black Sea Grain Initiative, established to ensure safe grain supplies from Ukraine despite the war, ocean routes are still a chokepoint for Ukrainian exports and the agreement could feasibly end as more fighting looms. Ukrainian exporters will therefore continue using their overland routes and potentially expand them as the maritime options remain under threat. The resulting trouble is creating discord between members, and if the Commission fails to balance these concerns, some Central European nations may return to unilateral measures.

Regional responses

Ukraine is one of the world’s leading exporters of grain, but with combat throughout the country and the blockade of its main ports, supply has become an immediate concern. However, several factors have reversed the trend, including lower-than-expected demand from major markets and large harvests from other countries. In some countries, domestic policies set up in light of the war ended up backfiring. In Poland, for example, the government encouraged farmers to hoard grain while they anticipated more issues with supplies. But these never materialised, and meanwhile, prices have continued to drop.

In Ukraine, exporters were able to maintain much of the outflow by transitioning from blocked sea routes to trains, trucks, and river barges that moved grain out of the country through its western neighbours. The results were difficult for domestic neighbours, and their respective governments imposed bans on imports. In a deal with the EU Commission, these countries now allow the transit of Ukrainian grain on through to other markets and have received roughly $100 million in assistance.

The Black Sea Grain Initiative offered hope for renewed maritime shipping, but it came with too many caveats to allow Ukrainian exporters to move away from western routes. Although civilian cargo ships are permitted to enter and leave the area, each is subjected to inspection and only three ports are open to process them, leading to long queue times. The initiative itself is also under threat, for it is set to expire on July 17th and its renewal is in question as Russia uses it as negotiation leverage. Finally, the anticipated counteroffensive could bring the fighting to new areas, further threatening shipping. Facing limited capacity, the potential reversal of the agreement and the threat of combat forces exporters to continue using the western routes.

EU action

With no end in sight, the crisis demanded attention from the European Commission. Commissioners criticised the CEE states’ unilateral action, but ultimately allowed for bans and sent financial aid under the condition that those countries allow Ukrainian grain to transit through. But the influx is testing the capacity of those routes and in turn, transport prices are rising. Coupled with the continued low price of grain, farmers in Ukraine’s western neighbour states are struggling.

The EU’s accommodations are also controversial. The Commission’s support for affected farmers is raising ire among western member states. Despite that and Ukraine’s pleas, the EU has agreed to extend restrictions on Ukrainian grain imports until September 15th, allowing Bulgaria, Hungary, Poland, Romania and Slovakia to ban domestic sales of Ukrainian grains. Despite that, the prospect of increased aid to farmers is unlikely.

The outlook

As grain prices continue to fall, Ukraine’s neighbours are under even more pressure to enact measures beyond the EU’s assistance. This is particularly salient in Poland, where elections will be held later this year. Farmers form a significant part of the ruling Law and Justice Party’s voter base, and allowing Ukrainian grain to trade within the country would harm the re-election campaign. Additionally, as transit costs soar and revenue declines, Warsaw is under pressure to ease the financial burden. The easiest way would be to unilaterally limit the quantity of imported grain. This would place the EU Commission in a difficult position as they try to accommodate central European agricultural workers while factoring in the concerns of other member states. The options for navigating this dilemma are limited, and with 12 member states protesting the current deal, it is difficult for the Commission to expand aid to affected farmers. The results may force countries like Poland to take measures into their own hands once again.

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