Dalibor Rohac

Will the EU finally see sense over its Common Agricultural Policy?

Grain harvest in Ukraine (Credit: Getty images)

What should be done about Ukraine’s grain exports? Ongoing controversy in Poland over the country’s imports into the EU, which currently face zero tariffs, gives a flavour of the fights to come if Ukraine becomes a fully-fledged member of the bloc. It also presents an opportunity to start a much-overdue conversation about the EU’s worst, most damaging policy programme: the Common Agricultural Policy (CAP).

In a striking move, Poland’s agriculture minister Henryk Kowalczyk announced his resignation yesterday – the day of Ukrainian President Volodymyr Zelenskyy’s official visit to Warsaw on his third trip outside Ukraine since Russia’s invasion last year. The reason for Kowalcyk’s departure was his failure, together with several other Eastern European governments, to convince the European Commission to restrict imports of Ukrainian grain into the EU.

The EU’s response is an important test of how serious Europeans really are about helping Ukraine

Poland’s government has been trying to separate Poland’s commitment to helping Ukraine – which has been exemplary – from the dispute over Ukrainian grain exports, which have been arriving in the EU, tariff-free, since the beginning of the war. Although grain prices are above their long-term average, they have declined steeply since the early months of 2022. This has upset Polish farmers who form one of the key constituencies of the governing Law and Justice party, heading for re-election in the autumn.

Undercutting Ukrainian grain exports to the EU by reimposing tariffs or rolling out other barriers would both harm the Ukrainians and have adverse effects on global food security. After all, the increase in trade across the EU’s land border is not driven by the suspension of tariffs on Ukraine’s agricultural exports alone. It is also a result of Ukraine’s continuing difficulties in exporting grains to the wider world from the port of Odessa.

Ukraine’s agricultural sector is large. It is the world’s leading exporter of sunflower oil, fourth largest exporter of corn, and seventh largest exporter of wheat. If the average share of GDP for agriculture in the EU is about 2 per cent, Ukraine’s is close to 11 per cent. Before the war, 14 per cent of the Ukrainian labour force was employed in the sector (compared to, say, 3 per cent in France). 

It is true that compensating Polish and other European farmers through an ad hoc scheme administered by the EU such as CAP would be preferable to a reintroduction of explicit trade barriers. However, Ukraine’s comparative advantage in agriculture is not going to disappear after the war. If anything, it will be magnified once it joins the bloc and gains access to CAP too.

This current dispute should be seized as an opportunity to thoroughly rethink the EU’s agricultural policy. If Europeans want to bring Ukraine into the single market and the EU, they must learn to live with Ukraine’s agricultural sector, which will continue to exercise competitive pressures on producers in other EU countries, war or no war.

That means accepting that CAP – which accounts for almost €56 billion (£49 billion) or a third of the EU’s seven-year budget – will no longer be sustainable once Ukraine joins the bloc. The largest part of CAP’s income-support payments are allocated on the basis of land ownership (known also as ‘Pillar I’) and only a smaller fraction goes towards rural development schemes, including those with explicit environmental goals in mind. Ukraine’s arable land, however, is larger than the sum of France and Spain’s (the two largest EU countries by this metric). This would make Ukraine the largest recipient of agricultural subsidies in the EU by a wide margin.

That is not going to happen. Yet, rather than using CAP as an excuse not to let Ukraine in or to somehow limit its access to CAP payments after entry, it is time to eliminate CAP’s ‘Pillar I’ altogether. While there are legitimate grounds for agricultural subsidies, land ownership by itself should not be one of them. It is precisely this which has artificially increased land prices and imposed barriers to entry for new farmers. 

To make CAP fit for purpose, it must focus on delivering on explicitly stated policy goals. That is, providing support to farmers across the EU as well as Ukraine who will hold themselves to high standards of sustainability, environmental protection, and custodianship of the countryside.

The EU’s response to the pleas of Polish and other Eastern European farmers is an important test of how serious Europeans really are about helping Ukraine. If its first reaction is a jump to protectionism in some form, it is unlikely that Brussels will be willing to take a hard look at CAP in order to make way for Ukraine’s future in the EU. That would not only be terrible news for Ukraine but also the EU and the wider Western alliance.