Experts are predicting that the agricultural sector will be among the most disputable issues in the negotiation process on Ukraine’s EU accession, involving a multiplicity of outstanding challenges, delayed decisions, and yet-to-be-implemented standards. But the number-one challenge is that a lot of mistrust remains concerning farm exports from Ukraine, as seen from recent farmers’ protests in Europe, fearful of the coming of a "Ukrainian agrarian monster", as some politicians branded it.
Overcoming this distrust and convincing the Europeans that we are not so much direct competitors as partners who will strengthen each other in the struggle for a "position of advantage" on global markets is the key task to be tackled by the Ukrainian negotiating team.
Our correspondent spoke to interim Ukrainian Minister for Agrarian Policy and Food, Taras Vysotsky about this and other issues in an interview for Ukrinform.
NEGOTIATING POSITIONS: PARTNERSHIP IN PLACE OF COMPETITION
- Mr. Taras, what are the main challenges facing the "agrarian vector" of negotiations on Ukraine's accession to the EU? Where are the biggest challenges and obstacles laying, and what are Ukrainian advantages and disadvantages?
- The European Union has historically developed solid rules of the game in agriculture, enshrined in the Common Agricultural Policy. In Europe, this industry is distinctive in that production is built mostly on small-scale farming.
In Ukraine, the agricultural sector is distinctive for its unique structure. We have small farms that account for ten per cent of overall farm production, there is a medium-size sector with some 65 per cent of the market, and there is a big-size sector that takes about 25 per cent of the domestic farm produce market. At the same time, our agricultural sector has in recent years demonstrated efficiency and a substantial degree of sustainability and endurance, and this in the extreme conditions of war.
That being said, one of the main challenge facing us in the negotiation process is to find a new, compromise-oriented model for cooperation. We well understand that it is impossible and probably unnecessary to just get all of the agricultural sector in Ukraine adapted to EU’s requirements by getting it reshaped in line with the patterns as exist in the European Union. Because where something works effectively and efficiently, this tool needs to be employed to the full extent. The discussion will therefore be more about how to find a model that would allow combining the strengths of the Ukrainian agricultural sector with the already developed institutional ties and the historically formed model existing in the European Union, and then move forward together and complement each other within this new, compromise-oriented model in place.
Another aspect of importance relates to the implementation of the best European practices in terms of animal welfare, a number of ecological aspects, and the development of rural areas. It is a matter of time and effort. And we will get it done, gradually and going through transitional periods. For that matter, it is worth noting that there is a lively debate going on within the EU (as evidenced, among other things, by this year’s farmers' protests) about whether such environmental requirements are reasonable. So it can be assumed that they will have to be changed and will be changing within the Union. But key product safety standards will definitely remain unchangeable.
- And where to look for a compromise in the negotiation process – on issues related to the duration of transitional periods for adaptation and unification in various sectors, self-imposed restrictions by Ukraine, the introduction of temporary exceptions? At the same time, how to tackle attempts to introduce non-market restrictions against our farming industry, for which some European government officials and politicians are calling, up to the point of getting the EU agricultural market closed for Ukraine for decades after its accession to the EU?
- There are several aspects here. First, in the European Union itself, the introduction of new requirements for one or another production sector is accompanied, in particular, by investment incentives, new technologies, etc. Therefore, we should be frank here: talk should be about our readiness and willingness to implement EU’s best practices, but this should be on an equal footing, including financial and economic support provided for this where appropriate. After all, it is going to be a hard challenge for us to implement these practices by ourselves, at our own expense.
Hence, it is quite obvious: if the requisite resource is provided immediately, we can do it faster. If the resource is provided according to a certain schedule, then the adaptation period should be extended accordingly.
Another aspect is that the agricultural sector in Ukraine has been and will be oriented to export markets, particularly non-EU markets like the Middle East, Turkey, North Africa, Southeast Asia... This can be seen from statistics. There was a short period when Russia was blockading Black Sea transit routes, and the lion's share of our agricultural exports were going to the European Union. After the opening of the Black Sea corridor, the practice of multi-vector export was renewed.
That said, it is possible to make the Europeans convinced that there will be no expansion of Ukrainian agricultural exports to the European market in the future, when security risks for sea transportation will all disappear, and no related additional threats to the common European market will arise. Because it is more profitable for us to export large volumes of products by sea to third markets from central, eastern, northern, and southern parts of Ukraine, rather than transporting millions of tons by roads or rail to the EU - to Poland or Germany.
So, a constructive discussion concerning our willingness to comply, but with the same amount of support as other countries had while joining the EU, will allow us to find an ultimate solution that will satisfy all parties.
- But the Europeans will obviously demand some kind of assurances. They understand that Ukraine, when selling agricultural products, focuses not only on the European Union market, but also on the export to elsewhere across the world. But what will happen if production volumes increase, given quite a significant potential for increasing the yield of many crops in Ukraine? Maybe the Europeans are apprehensive that when our grain and oilseed stock exceeds, say, 120-130 million tons, the surpluses would go to their markets, because Africa will not have the resources to absorb that large amount of grain?
- First of all, we all understand that the world population continues to grow, and this trend is going to continue into at least the middle of the current century, and the food market will grow accordingly.
Secondly, the European Union, too, is an exporter. Basically, if the market is growing faster than the potential for production growth (including due to limited cultivation of new soils around the world), then, purely mathematically, from the point of view of the balance, the shortage will be greater. If even a certain proportion of Ukrainian exports goes to the European Union, this will mean that more products could be exported from the EU - from the Mediterranean countries - to markets in North Africa, because it is more profitable logistically. In international trade, everything is interconnected.
Then, again, we must appreciate (and prove to those Europeans who do not fully understand it yet) that we are not competitors to each other, but partners. In the world, there are large export-oriented countries, in South America, North America... We have to join forces and plan for logistics and export supplies in such a way as to be able to successfully compete with major players on the global food markets as one European family. To this end, we should not confront but join together, count the benefits and figure out what should come from Marseille, from Amsterdam, and what from Odesa, so that we are more competitive in the markets in the Middle East, North Africa, Southeast Asia against exporters from North or South Americas.
We are proving to our European partners that this is possible if we have shared long-term plans, as well as a clear delineation of "responsibilities" and specializations.
PROCESSING AND ADDED VALUE: FILLING IN NEW NICHES IN GLOBAL MARKETS
- But agree that, in the future, Ukraine itself will obviously be unsatisfied with a situation where we flood Europe (or third markets) with raw farm produce, with the added value produced elsewhere. What can we commit to our partners, and most importantly, what is already being done and will be done as long as the negotiations continue, to ensure a shift in focus towards deep processing and increasing exports of processed foods to neighboring and far-away markets?
- This is certainly important. Because it is quite logical, for example, to produce goods involving a large amount of raw materials directly in the locations where they are grown, rather than to spend a lot of money on transportation, then back transportation of finished products. If, for example, we are talking about deep processing of grain, then it is logical to do it in wheat or corn growing areas; if we are talking about animal husbandry, the same is with fodder. What’s needed for this are favorable conditions, a favorable taxation environment. We have a unified tax rate for Group IV enterprises. It is critical to ensure that all other taxation systems are working as appropriate, and be transparent and understandable.
Next, it is necessary to practically implement the potentialities for shared taxation provided by industrial parks. Our legislation provides for pretty significant tax benefits for them, amounting to 20-50 percent. This just needs to be promoted, clearly explained, showcased. Most processing industries – excepting perhaps primary livestock production – can be located in industrial parks. The relevant legislation is already in place; there are dozens of industrial parks in the country. Next, we have to use these opportunities in practice.
The same relates to support for significant investments. Provision of preferential conditions to foster and solicit capital investments is a common practice worldwide. The mechanisms necessary for this have already been set up in terms of concepts and legislation. Now is the time to put into practice and into the market the relevant opportunities for potential international investors.
- And what directions of the domestic processing industry transformation do you consider to be most promising - the production of traditional processed products or of something relatively new - biofuel, vegetable protein, casein etc...
- When analyzing the domains in which not only can we compete with Europeans, but benefit from each other, the first thing that comes to mind is a product such as biofuel. Ukraine has a potential capacity to produce up to 10 billion cubic meters of biogas per year using available (hypothetically) waste - manure, straw, food scraps. In this way, by producing a resource to meet our own needs, we can contribute to energy security of Ukraine and European countries. But this will require a pretty significant "start-up" investment amounting to USD 20 billion or more.
Furthermore, the consumption of amino acids, yeast, and various vegetable proteins is growing rapidly across the world - by 3-5 percent a year. And this market is much greater than supply. By moving forward in this direction, we are not going to push European counterparts out of the market, but just to meet the global market requirement. In the European Union, it takes seven to ten years to have the procedures for this deep processing agreed upon and authorized for use. On top of that, in Europe, there are very few vacant, fully suitable locations available for accommodating industries like that. We, for our part, are ready and willing to prove that Ukraine, first of all, is well-positioned for developing an industry like this. And the latest regulatory simplifications have made it possible to shorten the time of permit issuance to months, if not weeks, instead of stretching it for years. In other words, we are eager to welcome investments that will help meet this ever rapidly growing market demand.
The same applies to organic farm produce. In order to grow it, large areas are needed to accommodate protective zones, limit outside access, etc. This is very difficult to do in Europe, where the concentration of farms is dense, each cultivating 20 hectares. Ukraine, instead, has the potential for this. At the same time, there is a huge market for organic foods in Europe itself. We are already among the top three exporters of organic farm produce to the EU. But we have a great potential for growth, including in terms of the export of such farm produce to third markets.
- Will the issue of agricultural machinery production localization be on the agenda for upcoming negotiations, or will it all be bracketed for further deliberation (on the ground that the degree of production localization is a matter for each country to decide)?
- On the one hand, each country has and will have the right to solicit and foster investments in the domestic production development, particularly by way of providing benefits, preferences, grants. These rights and opportunities will be available to Ukraine as well. But from the perspective of the money spent, it is necessary to understand: if we become part of the European Union, and where there is talk about the EU budget in its entirety, then this talk can also be about localization at the European level, not only national localization.
At the same time, no one should impose limitations on the right to implement individual local programs at own expense to ensure that local people have jobs, and national and regional economies can develop.
That said, there is no one simple solution here, no matter whether or not production localization requirements are implementable. Various, sometimes quite complex models and mechanisms are used everywhere for this purpose. But in general, it is a legitimate right for a EU country to pursue for an increase in the domestic GDP.
POTENTIAL BOTTLENECKS: WILL UKRAINE APPLY FOR AGRICULTURAL SUBSIDIES FROM THE EU
- Is it necessary that the issue of European subsidies to farmers be raised immediately after the start of negotiations or after the fundamental agreements have been reached? After all, this issue is very painful for lots of European politicians (too populist) as it affects the interests of farmers as an influential electoral force. Somewhere I saw figures indicating that, if the currently effective EU regulations and subsidizing standards are unconditionally applied to new members, Ukraine can be entitled to EUR 186 billion in funding from the European budget over seven years...
- Our position is that most disputable issues should be negotiated from the very beginning. Subsidies is a challenging issue for negotiations. Everything will depend here on what model for communication will be ultimately agreed upon. If we are saying that there are such and such requirements that make Ukrainian products less competitive, then we must honestly say: give us the same subsidies as what everyone else are receiving. If certain transitional periods are foreseen, when increased requirements will not be applied to us, then we could agree that subsidies will not be provided. But it is better to talk it over right away.
It is obvious to everyone that this issue will be among the most controversial ones. It makes sense to raise difficult issues right away, so that later it does not delay our integration into the European Union. We are ready to discuss different models, but it matters that the principle of justice be applied. If there is a mandatory requirement, there must also be aid from the European budget; if a requirement is postponed for a certain time, subsidies will not be provided during that time; where there are partial requirements, there will be smaller financial support. As a result, there will be no violation of the rule of equal conditions for all participants in market competition.
- Is there an understanding of all these issues among the Ukrainian agrarians, that Ukraine will have to make concessions during negotiations? Articles emerge in the media from time to time saying that there are certain doubts not only among the owners of individual farm holdings, but even within individual agrarian associations, as to whether we need to speed up the process of joining the EU. Like, many are satisfied with the present status quo, with familiar conditions for production and earnings.
- We have entered a process of lengthy negotiations in order to meticulously discuss each issue - including those that are sensitive for specific sectors or industries. From our point of view, for the domestic producer, it is important that the ultimate decision is fair and allows everyone to develop further.
I therefore think that this is no longer about doubts as to the expediency of integration into the EU, but about a warning from farming associations that we should not agree too quickly to any conditions that may ultimately turn out to be disadvantageous for Ukraine and its domestic producers. Negotiations are held precisely in order to find a compromise, so that everything is fair, to discuss requirements and conditions in advance - including with our domestic producers, so that they have time to adapt and for further effective competition.
- What lessons have we learned from the recent events surrounding Ukrainian agricultural exports and relations with some of our European neighbors? Had they hardened us and will make us stronger, better prepared for defending our position during upcoming negotiations, or maybe they prompted us to be cautious, or, as folks say, twice bitten, twice shy.
- That experience was valuable despite everything. First of all, it revealed that it is really important that all disputable issues be negotiated, including with the involvement of businesses and business associations, not emotionally, but based on facts. After all, once we had moved from emotions to facts, our partners had to accept our argument that Ukraine has, over the past year, exported almost nothing from the list of products that are most sensitive to them.
Secondly, we were demonstrating readiness to settle any issues, often initiating relevant discussions by ourselves, going to negotiations already with proposed solutions. The value of this experience is precisely in the awareness that one should come to negotiations with worked out options and proposals, with the maximum number of stakeholders involved, and, most importantly, speak with facts and figures, rather than respond to emotions with emotions.
- It may sound undiplomatic, but with which of the European partners do you think agriculture related negotiations will be the most difficult? We must seek compromises with those who are not happy about the future competition from Ukraine (for sugar and chicken - with France, for grain and several other products - with Poland) on the one hand, and, on the other, encourage those who find it difficult to do without Ukrainian products (take, for example, Spain with its dependence on animal feed imports) to lobby for our interests?
- We are aware that there are groups of countries that take a neutral position on these issues. They are not large exporters or importers of agricultural products and, most likely, this part of the negotiations is not fundamentally important for them.
But there are also countries that really see our agricultural sector as a competitor. These are major agricultural producers in the European Union. But our goal, as I’ve mentioned above, is to make the Europeans see that Ukrainians shouldn’t be considered as competitors, but as international partners in competing with other global market players, to prove to them the advantages of such cooperation.
And there are also countries that already consider us as valuable, lasting partners-suppliers of various agricultural products for their needs. It is obvious that we must continue using their support to foster the formation of a future unified European position. After all, this must be a decision made by consensus in the European Union.
To this end, we will consistently work individually with each of the countries from these three hypothetical groups.
INTERNAL REFORMS: LEGISLATIONS TO BE PASSED AND NEW INSTITUTIONS TO BE ESTABLISHED
- Let's get back to the internal tasks that Ukraine has already completed or still needs to complete for a successful negotiation process. What about the harmonization of legislations, standardization and technical regulations, regulatory compatibility and our institutional readiness?
- We have made significant progress in the field of sanitary and phytosanitary control. More than 80 percent of relevant tasks have been completed within the framework of the Association Agreement with the EU. In two other areas - fishing and rural development - we are, let’s say it so, making up for what we did not have time to do before. With rural development, it is most difficult, because we will have to build a completely different system involving the creation of a payment agency, introduction of the European FADN macroeconomic database, transformation of the support system for small-size farm businesses, prescribing all processes, providing for payments, and more.
That is, active work is being carried out in all directions: somewhere we have made more progress, but somewhere we are still at the beginning of the path. But the very fact that a large number of Ukrainian products have been recognized in the European Union, let in and being consumed, reveals that the lion’s share of Ukrainian standards for products’ quality and safety are consistent with respective European standards. Because had it been otherwise, believe me, the European Union would not have imported or allowed them for consumption.
We have just a few products left that are yet to be allowed into the European market. Among such products are pork (restrictions are primarily due to African swine fever) and beef (bovine spongiform encephalopathy). All the others - eggs, poultry meat, dairy products, crop products, fruits, berries, organic products – have been allowed. This is a confirmation that our certification systems pertaining to the use of plant protection products and product safety standards are compatible with European requirements. Samples are taken, analyzes are taken, residual substance contents are measured and evaluated... We have already done a lot to this end, and the very fact that Ukrainian agricultural products are exported actively to Europe is a confirmation to this.
Let’s sum it up about what is laying ahead of us, particularly with respect to the agriculture-related part of negotiations with the EU and how long will it take?
- In practical terms, we are required to adopt a new legislation on the State Agrarian Registry online platform. The SAR is the single digital hub for agricultural producers in Ukraine. It works similarly to Farm Registers, as they exist in all EU Member States. Eligible farmers registered in the SAR will be able to apply for state subsidies as well as loans, within the framework of the Common Agricultural Policy and using the mechanisms of the State Payment Agency. The draft legislation has already been approved in a first-reading vote in the relevant committee in parliament.
Additionally, we are obliged to update the legislation addressing plant protection. The document is very large, containing some one hundred articles in total -- on phytosanitary, plant protection, traceability, plant passports... It should be finalized throughout this year.
In the final phase, we will have to update the legislation on viticulture and wine production. Since this is also an important sector in the European Union, permanent rules have been formed to be used in this sector; we have to get closer to their standards. There are three groups of tasks we’ll have to complete by the end of this year.
In the medium term, we need to launch a fully-fledged system for training and compliance with animal welfare regulations. Accordingly, it is necessary to bring legislations pertaining to veterinary medicine and veterinary drugs into compliance with the European standards. The European Union is currently updating its legislation regulating organic agricultural production. We too have to do so. Plus legislations on control in the fields of fodder production, phytosanitary, veterinary medicine, food product safety.
And, as I’ve mentioned above, we have been tasked to launch, in the medium term, a payment agency as a new institution that will be in charge of all programs addressing support for and communication with farmers. This is the minimum plan.
On a parallel track, we are participating in the process to revise the Association Agreement between the European Union and Ukraine, including a Deep and Comprehensive Free Trade Area. In June, the EU extended trade preferences for Ukraine until June 5, 2025. We understand that farm produce is the core issue in negotiations, and it needs to be ensured that everyone has in place clear and predictable medium-term rules of the game and terms of trade by the end of this year.
- Does that mean an extension of trade preferences for Ukraine?
- Our plan, with which our European colleagues agree, is not just to have the preferences extended into another year, but to have them subjected to a mid-term review. This is about revising the Association Agreement so that the rules of the game remain valid until our accession to the EU, so that everyone can plan activities not for that year, but for the future. Because if I start up a production line for bioethanol or cereals, for example, and see these products go freely to the European Union, I plan for 5 years without the need to look at decisions that may change frequently.
- But as a compromise, are we ready for the extension of restrictions on particular products?
- It is clear that the goal is to ensure that both sides have free access to each other’s markets. But before Ukraine becomes a member of the EU, when this requirement becomes mandatory, we are ready to have individual quotas kept in place as a compromise. But such quotas need to be fair and justified.
Interviewed by Vladyslav Obukh, Kyiv
Photo via Yevhen Kotenko