Southern Defense firefighters work at a Russian missile attack site in an Odessa seaport as Russia's attack on Ukraine continues.Ukrainian Armed Forces/Via Reuters
It is not enough for Ukraine to win on the battlefield, as Kiev must ensure that the country's economy stays alive. If exports continue to decline, Kiev could lose its ability to finance the war effort and feed its population even further. Therefore, it is crucial to maintain the flow of its agricultural exports.
The potential is there because Ukraine could easily follow in the footsteps of other Central European states and become another Poland. However, this would require the help of the European Union. The EU's decision in 2022 to accept Ukraine's application for membership was a first – and correct – step in this direction.
If Ukraine were to join the EU, it would have access to tens of billions of euros in subsidies that could give its struggling economy a much-needed boost. While from a geopolitical perspective this would be seen as an open challenge to Russia's claim that Ukraine has no right to exist as an independent society and state, from an economic perspective the disadvantages would be negligible.
Ukrainian agricultural products “account for only 2% of the EU’s total consumption,” noted German Bundestag member Peter Beyer (CDU) in an exclusive interview with Forbes. Forbes also received a letter from Dmytro Oliinyk, CEO of the Employers' Association of Ukraine, which represents over 8,000 companies that generate 70% of the national GDP, to Dr. Ursula Von Der Leyen, President of the European Commission. In it, he notes that Ukraine is already struggling with poverty, with about 24.2% living below the poverty line last year. If the economic situation in Ukraine deteriorates further, there could be a refugee crisis that would put a strain on EU budgets. In this scenario, this could well mean that European farmers receive less subsidies, which could hurt their wallets more than losing a 2% market share.
The attitude of the Ukrainian neighboring state Poland is ambivalent. Militarily, Warsaw firmly supported Ukraine's war effort. On the agricultural front, however, a different narrative has prevailed. As the EU liberalized trade barriers to Ukrainian agricultural exports and created routes that allowed Ukraine to continue exporting goods to the European market while Russian aggression restricted access to other markets, tensions grew with the embattled country's western neighbors, especially Poland. Much of this discontent came from the grassroots, as Polish farmers claimed that cheaper Ukrainian grain was cutting into their profits.
People walk around as they take part in a blockade protest at the Dorohusk Polish-Ukrainian border crossing on February 20, 2024 in Dorohusk, Poland. At the heart of the long-running blockade are demands from Polish farmers and truck drivers to restrict imports of Ukrainian agricultural products. (Photo by Omar Marques/Getty Images)Getty Images
Politicians bowed to political pressure, even though the net impact of Ukrainian grain benefited the EU's economic health. In March 2023, countries like Germany experienced “record food inflation,” and only “the supply of Ukrainian grain alleviated these inflationary pressures,” says Peter Beyer in an interview with Forbes. This position is supported by several members of the Bundestag. The rest of the EU is following Germany’s example. Germany, which continues to suffer from bouts of inflation, would not have helped any of its EU neighbors, let alone Poland.
Poland and other NATO allies must investigate and take action against Russia's involvement in the unrest on Ukraine's western border. There is cause for concern as there are indications that Russian proxies have taken advantage of the recent upheaval and taken part in some farmers' protests. In November 2023, 16 foreign nationals were charged with espionage and organized crime on behalf of Russia. In addition to the allegations, disturbing details also emerged, including the fact that these individuals had been monitoring military sites and seaports. Solving this problem will never be easy, but if the Kremlin's attack on Ukraine pays off, pressure on Poland and attempts to destabilize it will likely only increase. As Ukrainian Prime Minister Denys Shmyhal recently noted, economic tensions have not yet threatened the flow of arms from Poland. This comes at a time when the Ukraine aid bill is being delayed in the US Congress, further complicating the situation.
This month, the European Parliament will decide whether to continue free trade with Ukraine for another year or to suspend it and limit it to the terms of the DFTAFTA agreement signed in 2017, which imposes several restrictions and trade quotas on Ukrainian imports to the EU. While the European Parliament agreed to trade liberalization in 2022 and 2023, this year proved more challenging due to the position of Poland and France. The influence of the two countries influenced a draft regulation in the European Commission that provides for “trade support for Ukraine with safeguards for EU farmers” and sets conditions under which the Commission can restrict food imports from Ukraine. If Poland and France decide to postpone the EU vote, there is a risk that it will not be passed in time.
This decision is not yet final, but could be a harbinger of things to come, as 2024 will be a crucial test for Ukraine's foreign fans. In November, Americans will go to the polls and choose between the “As Long as It Takes” candidate and the ceasefire candidate. Nevertheless, the EU is now making decisions that will undoubtedly shape the war in the coming months. Restricting trade liberalization with Ukraine will harm what remains of its struggling economy, which relies in many ways on agricultural exports. For comparison, exports to the EU account for almost two-thirds of Ukraine's total exports and thus constitute a large part of its foreign exchange reserve earnings (as mentioned in Mr. Oliinyk's letter to Dr. von der Leyen). Therefore, if the EU understands the importance of maintaining the resilience and stability of Ukrainian statehood, it should allow the country to continue supplying its goods, including food, and eventually admit Ukraine into the EU's internal market.
agriculturally used area in the world. A stork flies over a wheat field while a combine harvester from the agricultural company TVK Seed harvests wheat not far from Myronivka, Ukraine, July 29, 2022. Commodity exports from Ukraine, one of the world's biggest producers of wheat, corn and vegetable oil, have stalled since Russia's invasion on Feb. 24 affected key port infrastructure. (Photo by Alexey Furman/Getty Images)Getty Images
Protectionists would certainly object to such a move; However, the data does not support their concerns. Russia's bombing of Ukraine and its mine-laying activities have rendered previously fertile farmland unusable. Cleaning up these areas will take years, if not longer, and a flood of Ukrainian exports is unlikely any time soon. Ukraine's budget is likely to be stretched if restrictions on the country's access to the European market come into force. Peter Beyer pointed out that Ukraine's budget deficit in 2024 is alarming and amounts to about $41 billion or 20.6% of annual GDP. Allowing the situation to worsen could potentially lead to Russia ceding the initiative.
Shrinking the country's struggling economy will only punish ordinary Ukrainians, about 14% of whom work in agriculture. It would also harm Europe's strategic goals to deny Russia's victory, the same ones that President Emmanuel Macron promotes on the one hand and paradoxically adopts Poland's stance on agricultural imports on the other. The West must walk the talk – if the EU is serious about Ukraine's integration, Brussels must align Warsaw and Paris and allow Ukraine to continue its grain exports, which will not only benefit the war-torn ones but also the EU and the countries that Ukraine traditionally supplies with inexpensive food in Africa and the Middle East.
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I am a senior fellow at the Atlantic Council and founding principal of International Market Analysis, a global risk advisory boutique based in Washington, DC. I advise law firms and corporations and once helped free a famous Russian oligarch from Putin's prison. I am also a Senior Fellow at the International Tax and Investment Center (ITIC), where I lead the Energy, Growth and Security (EGS) program. For 22 years, I was the Heritage Foundation's leading Russia/Eurasia and international energy expert. The focus of my consulting is on political risks, national security and energy policy, particularly in Russia/Europe/Eurasia and the Middle East. The company's interventions include international security, economics, law, politics, terrorism, and crime and corruption. In addition to advising both the public and private sectors, I regularly testify before the U.S. Congress and appear on Bloomberg, CNN, FOX, `, Al Jazeera and other television networks. In my free time I enjoy skiing, sailing, classical music and my two cats.
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