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Amidst the ongoing conflict and uncertainty caused by the Russian occupation of key Ukrainian agrarian regions, the world has been closely monitoring the state of agriculture in Ukraine and its implications for the global market. This article will closely examine the impact of the conflict on Ukrainian organic exports and its repercussions on the EU organic markets.
2022 harvest: EU buyer solidarity and steady exportation growth
In 2022, Ukraine solidified its position as the EU's 3rd most significant organic product supplier, primarily driven by increased shipments of organic soybeans, wheat, and maize. Ukraine managed to export an impressive 225,814 tons of organic products to the EU and Switzerland, marking a 13% increase compared to 2021. Despite the challenging circumstances, the Ukrainian government remains steadfast in its commitment to promoting organic production within its borders.
In a significant development last year, the European Union took steps to support Ukraine's organic industry by abolishing tariffs and quotas on Ukrainian organic exports and suspended additional official controls on organic products which had been applied to the products from Ukraine since 2015. The UK, Canada, and Australia followed suit, eliminating import tariffs and duties on Ukrainian agricultural products, opening up new avenues for organic producers to expand their reach and export processed organic goods.
According to a Ukrainian trade specialist working at FibL “ No one expected such an increase in exports in 2022. Many EU buyers turned to Ukrainian products due to their low cost and the need to replenish their stock. EU importers went out of their way to support Ukrainian sellers as a solidarity gesture, supporting the farmers in their financial liquidity in these difficult times”.
2023 harvest: Transportation issues, declined in acreage and oversupply in EU
After enduring two harvest seasons under siege, Ukrainian organic production is showing signs of strain in 2023. This year has been marked by significant supply chain disruptions, bans on Ukrainian imports in several neighboring countries, and an oversupply in the EU organic market, alongside decreasing demand. All of these challenges coincide with Ukrainian organic farmers seeking much-needed liquidity while organic acreages decline compared to 2022.
Supply Chain Disruption: Ukrainian agricultural supply chains have been significantly affected since the start of the summer. In July 2023, Russia's decision to halt its participation in the U.N.-brokered deal, which previously allowed Ukraine to export grain through the Black Sea, was a major blow. This decision coincided with a series of Russian drone attacks on Ukrainian ports and grain handling facilities, aimed at crippling Ukraine's ability to export agricultural products. In early September 2023, the most recent disturbance occurred as Russian forces initiated bombardments on Ukrainian ports located just across the Danube River from Romania, a NATO-member nation.
EU Bans on Ukrainian Imports: In June 2023, the EU allowed five Ukrainian neighboring countries (Bulgaria, Hungary, Poland, Romania, and Slovakia) to ban domestic sales of Ukrainian wheat, maize, rapeseed, and sunflower seeds, while permitting transit for exports to other destinations, including other EU countries. The EU ban officially ended on September 15, but Poland, Hungary, and Slovakia decided to extend the ban within their borders, mainly citing "excessive pressure on local markets from the overflow of Ukrainian supply" and "protecting the interests of local farmers" as their main arguments for the extended ban. Oversupply of Ukrainian commodities in the EU is an issue that affects both conventional and organic products.
The EU Organic Market- The increase in Ukrainian organic exports to the EU in 2022 appears to have had consequences for the price point of certain commodities. According to insights from Ukrainian trade experts, there is currently an oversupply of certain organic commodities in the EU, such as soybeans and maize, attributed in part to an oversupply of grain from Ukraine during the 2022 growing season. Additionally, we have observed a decrease in organic consumption early in 2023 in the EU countries due to inflation that drove the price of food upward. Furthermore, in the last five years, the EU has significantly increased its organic acreage and aims for self-sufficiency (see our article about the EU for more details).
In 2022, 85% of the Ukrainian organic exports was to the EU. During these difficult times, supply chain disruption makes it more challenging for Ukrainians to try to diversify their export towards other major organic markets, like North America which represented only 4% of Ukraine overall organic export in 2022.
The Ukrainian organic Outlook for 2023 "Ukrainians are struggling to find buyers for some of their grains now. They are in a waiting period, with grains stored in bins, hoping for a resolution to the situation. At the same time, they need liquidity and are willing to sell their products at a low price point," said the trade specialist.
The oversupply issue might not persist for long. Many agrarian regions either fall within occupied areas or remain inaccessible for auditing due to security concerns. Consequently, the certified organic area has seen a substantial drop in the country, 38% from 2021 to 2022, which is poised to significantly reduce the availability of Ukrainian grain products in the near future.
As the conflict continues to unfold, market dynamics are bound to be affected, and predictions for future organic production and export in 2023 remain uncertain. It might be that with the lower 2023 supply, Ukrainian exports to the EU will stabilize and the price point will increase later in 2024. The potential inclusion of Ukraine to the EU in the next year(s), might also affect the market dynamic and the overall volume of commodities imported to this territory.
Impact for Canadian Growers
Canadian commodity exports to the EU have been either in flux or declining in the past 5 years. We have seen a decline in the volume of wheat, oilseed and some vegetable oils. We have seen our overall organic export to the EU declining by 30% from 2021 to 2022.
Although the supply of Canadian organic commodities to the EU has decreased significantly in the past five years Canadian organic farmers should remain vigilant about developments in Ukraine's organic industry and its export capacity. As the ongoing war continues to play a pivotal role in influencing market prices and availability, it is essential to closely monitor how events unfold and how they may shape the landscape of demand for organic grains.