The 2014 agricultural season is open!

From May 15, 2014, the market of the European Union opened to Ukrainian goods and services—in particular, 98% of import duties were reduced to zero. What will this mean for Ukrainian agricultural producers?

It should be understood that this is only the first step toward liberalizing EU trade with Ukraine. By November, the signing of a free trade agreement with EU countries is expected, after which the experiment with abolishing duties will become a standard business practice.

It is expected that poultry producers, livestock farmers, as well as companies exporting sunflower oil and grain crops will most actively increase supplies to the European Union. “Until now, it was precisely the agricultural sector that faced the highest duties—up to 20–30%—so they will feel the changes more than others,” said Ihor Burakovskyi, Chairman of the Board of the Institute for Economic Research and Policy Consulting. Nevertheless, one should not expect an immediate result, that is, a sharp increase in agricultural exports; however, in the long term, Ukraine’s agricultural sector will undoubtedly benefit. According to statements by agricultural associations, solely due to duty-free grain exports to the EU within expanded quotas, farmers may additionally receive income growth of about 180 million euros annually. Overall, the potential benefit for farmers is estimated at around 500 million euros.

Companies producing alcohol, starch, and molasses will also be able to enter EU markets. Quite substantial quotas are предусмотрены for meat producers, but since there is a shortage of these products on the Ukrainian market, domestic producers are unlikely to be able to fully utilize them.

Export duties were also abolished for Ukrainian finished products. However, they can enter the EU market only after certification in the EU. At present, only a few domestic producers have passed this certification. As already mentioned, enterprises producing poultry meat and eggs—who have been seeking access to the European market for many years—will benefit the most. In the summer of last year, the two largest poultry producers—the Myronivskyi Khliboproduct holding and the Agromars Complex—already received the right to supply their products to the European market. The first shipments of Ukrainian poultry meat by MHP were made in the autumn of 2013. At the same time, in May, representatives of this enterprise stated that they are ready to supply 36 thousand tons of poultry meat to the EU market by the end of 2014, thus fully filling the quota for duty-free supplies of this product to the EU.

The certification process for Ukrainian egg producers is now nearing completion, so they may soon enter the European market. At present, dairy producers cannot sell anything to Europe, since their products have not yet passed the relevant certification. Only cheese producers will benefit from zero duties in this sector. Quotas apply to other products: whole milk products can be exported to the EU duty-free only up to 8 thousand tons per year, butter—1.5 thousand tons, and milk powder—1.5 thousand tons. However, there is room for maneuver even here—in 2013, only 25 tons of milk powder were imported into the EU from Ukraine, and butter—no more than 3 tons. Vadym Chagarovskyi, Chairman of the Board of Directors of the Union of Dairy Enterprises of Ukraine, stated that if the EU provides Ukrainian enterprises with the EU numbers necessary for trading on the Union market under a simplified procedure, they will be quite capable of filling this quota by November.

The Ukroliyaprom Association forecasts that exports of modified fats and margarines to EU countries will increase to 50 thousand tons by the end of the year, with supplies being made to Romania, Bulgaria, and Hungary.

Overall, experts note the difficulties of entering the European market even with the abolition of duties, since the level of competition, market density, and saturation there are completely different from those in Ukraine. Therefore, Ukrainian companies planning to bring their products to EU markets need to be prepared for substantial investments in advertising and distribution of their products.

In addition, the opening of the European market may further help Ukrainian farmers in the long term. The EU is currently negotiating free trade agreements with the United States, Japan, and South Korea. If they are successful, sooner or later this will open a window for Ukrainian products to the most regulated and most competitive markets in the world.

Nikolai Peshkov