Two views on the grain dispute: what arguments do Ukraine and Poland use to defend their positions?

Poland and a number of other neighbouring countries announced in August their intention to extend the embargo on Ukrainian grain imports. Although the ban is due to expire on September 15, at least two countries – Poland and Hungary – are threatening to extend the ban at the national level.

Below is an analysis of the arguments of opponents and supporters of the embargo extension. Which of them will prove to be more compelling for Brussels?

Open international trade has a number of positive effects that are captured by the final consumer: a wider choice of goods and lower prices due to higher levels of competition and the benefits of specialisation.

However, the belief that free trade is a win-win situation would be surprisingly wrong.

Less competitive industries usually find themselves in a difficult position, at least in the short term. This is what happened to Polish farmers after the opening of the EU market to Ukraine.

But if Ukrainian farmers can produce cheaper grain, why should their advantage be artificially destroyed by import restrictions?

Perhaps Polish farmers should recognise this and not interfere with natural economic processes?

Below we will try to look at the situation from the Polish (as well as Hungarian, Slovak, Bulgarian and Romanian) and Ukrainian perspectives.

The Polish (and its allies’) perspective

Food security. The agricultural sector is of strategic importance for national security. Total dependence on foreign products undermines this security and creates significant risks.

Therefore, Polish farmers, who have fewer competitive advantages over Ukrainian farmers, cannot migrate to new industries, leaving everything to Ukrainian farmers.

Ukraine’s grain exports to Poland have increased many times since the start of the large-scale invasion, but Ukraine is at war, so who can guarantee that Ukrainian farmers will be able to supply sufficient grain?

Unfair European integration. The higher cost of Polish grain is not a consequence of low productivity, but a payment for compliance with EU norms (whose leadership supports Ukraine and opposes the embargo).

Poland became a member of the European Union in 2004 and since then has made significant steps towards integration with the EU’s Internal Market and implementation of the Common Agricultural Policy.

In addition, the labour mobility in the EU has affected wages in Poland, which have significantly risen to EU averages over the past twenty years. In this respect, the well-known formula “survival of the fittest in a free market” does not work, as the higher grain price is the price of compliance with EU safety and regulatory standards.

According to this view, Polish farmers had to suffer in the past because of the Polish government’s strong steps towards integration in order to now give up the market to a cheaper Ukrainian producer (and that does not sound good).

Voices of farmers. 12% of the Polish population is engaged in agriculture (compared to 14% in Ukraine). Thus, the jobs and welfare of a significant proportion of Poles depend on whether the Polish agricultural sector survives the competition with Ukrainian (much cheaper) grain.

The argument of banning free international trade in order to “protect our workers” is a common one among populist politicians, so it should not surprise us to hear it in Poland on the eve of the elections.

Ukraine’s (and European institutions’) perspective

Disproportionate distribution of benefits from free trade. Globally, international trade in manufactured goods is much more liberalised than in the agricultural sector. In this regard, there is a perception that the current system of international exchange is more favourable to developed countries than to developing countries. While the former group exports capital-intensive industrial goods, the latter group specialises in labour-intensive agricultural goods. Consequently, the export industries of more developed countries benefit more.

Under the current restrictions, Ukrainian exporters stand to gain rather little, unlike European (including Polish) export industries.

Rule of law. EU membership leaves a lot of room for independent policy, but not in terms of international relations and bilateral agreements.

Separate embargoes on Ukrainian grain directly violate the principles of the internal market.

Conflicting signals from European partners. It is certain that Ukraine’s membership in the EU will be a shock to the Ukrainian (and European) economy. Nevertheless, free international trade facilitates the exchange of technology and the international equalisation (at least partial) of wages and rents, in other words, the necessary adaptive changes on both sides. Thus, the free trade stage is designed to make the transition to higher levels of integration as painless as possible.

This raises the question of the programme objective of the EU-Ukraine Association Agreement. If the main goal is to create the conditions necessary for Ukraine’s membership, the ban on the import of Ukrainian goods clearly contradicts it.

Slowing consumer inflation in Poland. Inflation in the EU has accelerated significantly since spring 2022. Disinflationary policies are usually quite painful for the population, as they are accompanied by cuts in public spending (or higher taxes) and higher lending rates. On the other hand, imports of relatively cheap Ukrainian grain can help to reduce food prices without resorting to more drastic measures. Thus, Polish consumers will benefit.

Supporting the Ukrainian economy during the war. The abolition of duties on Ukrainian products was supposed to be a lifeline for the economy during the war. And admittedly, it worked: thanks to the support of export industries, the Ukrainian economy is performing better than one might expect. However, the war is costly and still far from being over.

Economic change is painful but inevitable. History is full of examples of social change resulting from economic transformation. As a rule, every major change in economic policy, technological innovation, etc. leads to a temporary imbalance. Not everyone benefits in the short term. For example, a significant portion of the low-skilled workforce lost their jobs as offshoring grew in the 1970s. However, over time, most blue-collar workers have successfully retrained as white-collar workers.

Perhaps the Polish economy could benefit more from potential economic diversification (which Ukrainian agricultural exports offer) than from trade protectionism.

* * * * *

As we can see, the Ukrainian arguments look more convincing. However, the current debate allows us to look at the prospects of Ukraine’s integration into the European community from a slightly different angle.

Ukraine’s membership in the EU depends not so much on fulfilling formal requirements as on ensuring the most mutually beneficial and painless economic and political integration.

This cannot be done without changes – in fact, the necessary changes are the main goal. Both Ukraine and the EU member states have to minimise risks, but not slow down the process.

Otherwise, what was the point of starting?

The article was published on European Pravda.