Almost a year ago, an incremental issue was added to the already devastating effects of the Russo-Ukrainian war. Namely, the Russian naval blockade of Black Sea harbors made it impossible for Ukraine to export its vast amounts of agricultural products.
As a de facto breadbasket, a year before the outbreak of the war, Ukraine was responsible for 46 percent of global exports of sunflowers, 17 percent of barley, 12 percent of maize, and 9 percent of wheat.
During peacetime, these crops were shipped to the emerging Middle Eastern and African markets, where they served to sustain the growing demand for cheap agricultural products.
With the looming threat of a global famine on the horizon and 20 million tons of grain stuck in Ukraine, last summer the UN, in cooperation with Turkey, struck a deal to create a shipping corridor in order to avoid a terrible catastrophe.
In the meantime the European Commission was also working on a similar approach, the so-called “solidarity lanes.” The scheme’s goal was to get as much agricultural product out of Ukraine as possible in the short term, while also improving the non-compatible railway infrastructure for transit between EU countries and Ukraine.
The world is fed, the world is saved. Right?
Well, no. While the UN shipping corridors were exporting these products to pre-war destinations, the EC’s solidarity lanes proved to do otherwise.
As the surplus of cheap Ukrainian products entered the European single market, they were basically absorbed by it, rather than flowing through it. With no regulations standing in the way, cheap Ukrainian produce flooded the European market forcing prices down by more than half, with no way for domestic actors to compete.
Yet again, it was Europeans who paid the “price of solidarity” as the market did what the market does best. Buy cheap, sell high.
The unmitigated flow of Ukrainian agricultural products created a glut within the EU market, with unsustainable prices for farmers, as Western countries (Mainly Germany and the Netherlands) started buying up the surplus for half the price they would pay under normal circumstances.
Cheap is better, why is this a problem?
Simply put, most of Middle and Eastern Europe’s agriculture is reliant on exports within the single market.
Taking Hungary as an example, the price of grain plummeted to HUF 70,000 per ton from HUF 130,000-140,000 per ton, and as farmers told the press, even with a price increase to HUF 90,000 per ton, their work would still be unsustainable.
On top of this, taking into account the disastrous summer drought that greatly hindered European production and put domestic competition in a vulnerable state, the sudden influx of cheap products materialized out of thin air, basically creating an untenable situation where local farmers were forced out of their domestic markets by cheap, imported goods.
What happens now?
It is not only Hungarian agriculture that is drowning in the flood of Ukrainian products. As the issue emerged and farmers started to protest, Poland introduced a temporary ban on the aforementioned products. Hungary adopted the same stance, with four more countries voicing similar opinions and several others arguing for a change.
The European Commission was quick to declare that even though there is a unilateral opposition brewing against the current state of things, individual member states can’t introduce measures against the EU market.
Therefore, the ball is in the Commission’s court now. Let’s just hope that it is not European farmers who will have to pay the “price of solidarity” again.