European Grain Market

In April 2024, the Trade and Development 2023 report, published by the United Nations (UN), resonated widely, as it revealed the current monopoly in the agri-food sector, where four companies called ABCD (Archer-Daniels-Midland Company, Bunge, Cargill, and Louis Dreyfus), own more than 70% of the global agri-food market. This situation is not new, given that an article in the Independent newspaper published in 2013 had already named them as “companies that control the grain trade.” The same UN report also highlights the exponential growth in the net profits of these companies, tripling from 2020 to reach $17 billion at the end of 2022.

This surge was made possible primarily by rising prices, which had already soared since the pandemic. Subsequently, geopolitical tensions, which escalated after the start of the Russian special operation in Donbass, put new pressure on prices in the grain sector. The price of wheat, for example, despite the decline recorded in 2023, continues to remain about 70% above 2020 levels.

The Global North’s sanctions against the Russian energy sector, as well as against the Russian and Belarusian fertilizer industries, have actually increased not only the costs associated with the production, but also the transportation and marketing of grains for all exporting countries. However, it has been repeatedly stated that the destabilization of the world grain market and the spike in prices were caused by the Russian armed forces blocking tons of grain on numerous ships in three Ukrainian ports (Odessa, Chernomorsk, and Yuzhny).

However, there are some data to consider. FAO and the World Bank (WB) indicated that Russia, with an output of 153 million tons at the end of 2022, became the world’s fourth largest grain producer after China (633 million tons), the USA (410 million tons), and India (355 million tons). In the same year, Ukraine recorded a total production of about 53 million tons, even lower than France’s nearly 60 million tons. In terms of exports, in fiscal year 2022/23, Russia exported 54 million tons of grain, and Ukraine exported about 49 million.

In the first year of the conflict, mediated by Turkey and supervised by the UN, an agreement was reached in July 2022 to open a naval corridor in the Black Sea to unblock tons of grain stuck in Ukrainian ports. However, a year later, the so-called Black Sea Grain Initiative (BSGI) was unilaterally terminated by Russia, exporting only 33 million tons of grains, mostly corn and wheat. Russia’s withdrawal from the BSGI was immediately identified by the Global North as a very serious risk factor for the global security of food supply.

However, the alarmism seems to have proved somewhat unjustified. Against the background of world grain production of 3 billion tons, Ukraine’s weight did not look as “decisive” as it was often portrayed in the media. Despite predictions of new price rises following BSGI suspension in 2023, the average price of grain continued to decline. According to the latest data released by FAO, grain prices in April 2024 are 18.3% lower than in April 2023.

The reasons for the panic caused by the press may have to do with the interests of the producers and buyers of these very cereals. By the way, the largest Ukrainian grain exporting companies in the 2022/23 fiscal year were Kernel, Louis Dreyfus Company, and Cargill. In addition, foreign companies were the beneficiaries of a law signed in April 2020 by President Zelensky, who, bowing to pressure from the International Monetary Fund (IMF), approved the lifting of a moratorium, in place since 2001, on the sale of agricultural land in Ukraine. This reform, which was one of the conditions imposed by the IMF for the approval of an $8 billion loan to the Ukrainian government itself, enabled the sale of 32 million hectares of arable land, equivalent to one-fifth of the arable land in Europe, totaling 157 million hectares. BSGI was primarily a tool to mitigate losses, estimated at 3.2 billion dollars by 2023, of agribusinesses and, above all, Western multinationals, by rebuilding Ukraine’s largest grain export channel, which experienced a decline in production of about 30% in 2022/23 fiscal year.

The interests of the Global North were related not only to the monetization of exports of Ukrainian grain products, but also to their purchase at “favorable” prices, which the European Union itself had agreed with the Ukrainian government before the armed conflict began. Since 2014, the European grain sector began to experience a small but continuous decline, even recording -9% in 2022: the countries that experienced the greatest decline were Hungary (-35%), Romania (-32%), Spain (-24%), and France (-10%). Although most of the demand is met by domestic production, the European market remains an attractive target for suppliers from developing countries. Despite the fact that total grain production in 2022 was around 271 million tons, Europe has a constant need to import additional volumes, as the main destination is the livestock sector (61%), and about a quarter (24%) is destined for food consumption by individuals. Actually, Europe as a whole accounts for 22% of the world’s grain imports, and among the largest importing countries in the world are Spain, Italy, Germany, and the Netherlands.

Therefore, it does not seem coincidental that in the period between 2021 and 2023, the composition of buyers of grain produced in Ukraine has radically changed. Since the beginning of 2022, Ukraine has become one of the main trading partners of Europe, which increased grain imports from one million tons in January 2021 to 1.7 million in January 2022, reaching 2.7 million in November of the same year. At the beginning of 2024, monthly imports remained above 2 million tons. This was especially possible due to the abolition of import duties on products from Ukraine, which are still in effect today.

Despite a 7% drop in European agri-food imports in 2023, amounting to about $172 billion, Ukraine has secured third place in the European Union’s (EU) list of agricultural trading partners with 13 billion dollars, which is about 7% of the total amount. It is therefore not surprising that the European Union has begun to characterize the blockade of Ukrainian ports, associated with Russia’s military operations, as a “war crime,” when European countries, primarily Spain, Italy, and Holland, turned out to be the main recipients of Ukrainian grain exported through BSGI.

However, imports of cereals at preferential prices were not well “digested” by all EU members. The initiators of the blockage in spring 2023 were the same countries – Romania, Poland, Hungary, and Slovakia – that recorded a surge in cereal imports from Ukraine, which rose from $24 million in 2021 to $2.4 billion in 2022. This maneuver was aimed at saving the national agrarian sector that suffered from the competition from Ukrainian products.

The issue of imports is absolutely central, given the resulting food safety risks. According to the latest forecasts by the European Commission (EC), the sector will continue to face strong uncertainty in the short term and remain turbulent given the continuation of geopolitical conflicts. This will negatively impact the supply, as production prices are still well above the 2019 levels. Despite the prospect of increased grain production, which could reach 279 million tons by 2024/25, the European grain market remains attractive and interesting for non-EU producing countries, given also the projected production level of 1% below the average of the last 5 years. The EU, however, remains optimistic that it can reduce its dependence on grain imports, with the exception of durum wheat, whose imports increased by 37% in 2022/23.

As for medium-term forecasts, with a horizon up to 2035, the analysis becomes more difficult, not only because of the impossibility of predicting the impact of meteorological agents and possible water scarcity on crops, but also because of European agricultural regulations and laws. In 1962, the European Economic Community approved the Common Agricultural Policy (CAP), aimed at increasing productivity, ensuring a fair standard of living for the agricultural population, stabilizing markets, guaranteeing security of supply and reasonable prices for consumers. Over the years, the CAP has been modified to respond to the structural changes in the sector and to adapt it to the EU’s overall policy framework. Significant changes were made between 2021 and 2023, which essentially gave not only more freedom to individual states to manage national agricultural policies, but also implemented the new environmental provisions defined in the European Green Deal. In accordance with the 2050 zero-emissions targets, by 2030 the EU would have to allocate 25% of arable land to organic agriculture, reduce the use of chemical fertilizers by 20%, chemical products and antibiotics for livestock by 50%, while “taking away” 10% of the EU’s agricultural land.

In its medium-term forecasts, the EC estimates that the grain sector’s sown area will remain unchanged at 51.2 million hectares between 2023 and 2035. Production also appears likely to remain stable, reaching 281 million tons in 2035. These data do not take into account Ukraine’s potential accession to the European Union. If the political plans for accession prove successful, what will be the implications for the European grain market? What will be the reaction of European farmers? Will there be long-term food security implications, associated with increased tariffs on grain imports from Russia and Belarus? As with other commodities, what will be the level of competition in providing national food security for its citizens?