Agriculture – Europe’s dilemma – 2024-04-19 16:50:26

A heated dispute is currently raging within the European Union, particularly over how wide the gates should be opened to Ukrainian agricultural products.

The debate is divisive, and at the center is a question of existential importance – not only for Ukraine in the midst of the chaos of war, but also for European farmers. Hungary has taken a clear position: “As long as the EU does not restrict the import of Ukrainian grain, the Hungarian government will stick to closing the borders,” says Agriculture Minister István Nagy. How can this Hungarian position be justified and what consequences does it have for Hungary?

Trade liberalization for Ukraine under review

Since June 2022, the EU has decided to largely eliminate tariffs and import quotas for Ukrainian products, including agricultural products. These trade liberalizations were initially only valid for one year, but were extended for another year in June 2023. This was justified by the need to provide sales opportunities for the Ukrainian economy, which had come under pressure due to the Russian invasion.

But Ukraine exports primarily agricultural products, and its traditional customers are emerging countries such as China, Egypt and Indonesia. However, in 2023 Romania, Poland, Italy and Hungary were also among the most important export destinations. Meanwhile, with the opening of the Black Sea ports, the total amount exported also recovered. There were signs that Ukrainian exporters were opening up new, more purchasing-powerful sales markets.

When the EU discussed the continuation of liberalization in January 2024, the EU Commission initially presented a draft that only provided for minimal restrictions on relatively insignificant export products such as poultry. To the surprise of many, however, a colorful coalition formed in the EU Parliament across political divides and pushed through the inclusion of the most important export products (including grain and corn). It was also decided that exceeding pre-war export volumes would automatically trigger import tariffs from the EU.

A burned tree directly in front of the EU Parliament as a silent witness to the recent farmers’ protests. Photo: BZ/ Jan Mainka

This turn of events led to an immediate backlash as the promise to unconditionally support Ukraine was suddenly called into question. So the dispute moved to the Council of the EU, where the member states faced each other in several camps. However, at the end of March, a group of countries, including France, Poland and Hungary, managed to save at least some of the protective measures from being removed despite strong opposition.

At least corn and oats (but not wheat!) are now on the list of products to be monitored. The pre-war level is at least partially taken into account when triggering protective tariffs. Hungary is also one of those countries that is not just fighting the conflict at the Brussels level: the country also imposed unilateral import restrictions.

Agriculture – more than just a source of income

Hungary’s agriculture is a major source of income outside of Budapest. While on average in the EU only 4.5 percent of employees work in the agricultural sector, in southern and eastern Hungary the figure is approximately three times as high. The rate becomes even higher if one takes into account that agriculture is part of an agro-industrial complex. Agriculture itself sources capital goods such as buildings or machines from the secondary sector, the production and maintenance of which is a massive job factor for rural areas. There are also the follow-up activities of the food industry, including the transport of the goods produced. Overall, the agro-industrial complex represents around half of the total economy in many parts of rural Hungary.

Agriculture is also a central pillar of Hungarian society. It shapes the landscape, the settlement structure, the way people work, the cuisine and ultimately the culture and identity of Hungary. Without it, Hungary would lose more than just jobs: it ensures Hungary’s survival in several ways.

For a nation that has often served as a pawn for surrounding empires throughout history, agriculture is a very sensitive matter. This is all the more true because nowhere else did the Marxist-Leninist social experiment during the Soviet occupation leave as many painful scars that are still visible today as in rural areas.

Specific challenges for smaller companies

A more detailed look reveals a variety of farms, from large-scale agribusinesses to smaller family farms that grow and produce a wide range of products. This diversity is both a strength and a challenge, as different types of operations respond differently to market changes and political decisions. The opening of the market for Ukrainian agricultural products now has a direct impact on the pricing and availability of products on the Hungarian market, even if the exact dimensions are politically disputed.

As usual, however, small and medium-sized companies are the first to be affected by negative developments. They are often less able to invest in modern technologies or benefit from economies of scale. Trade liberalization with Ukraine therefore primarily threatens these smaller companies, as they are not productive enough to be able to successfully compete with significantly cheaper Ukrainian imports.

This is all the more true as Hungarian farmers have to comply with the full range of increasingly ambitious EU regulations on environmental, climate, animal and labor protection, while Ukraine is, as is well known, not yet a member of the Union and its farmers are therefore exempt from all of these requirements are spared. The unequal competition is particularly damaging to small and medium-sized companies in Hungary. However, they have a disproportionate number of jobs and they are particularly important for maintaining rural life.

Reactions and adaptation strategies

Hungary can now be accused of having made itself vulnerable by adopting an overly one-sided approach. However, the agricultural sector and the government are trying to face these challenges and position themselves for the long term without immediately falling into a political blockade.

The adaptation strategies of Hungarian farmers and the government to the new market conditions are diverse. They range from readjusting and increasing agricultural aid to opening up alternative markets and diversifying agricultural production. However, this structural change takes time and money, while the opening of the markets takes effect from one day to the next.

Therefore, Hungary’s only option is to decide on restrictions on this opening in order to preserve agricultural businesses that can carry out this structural change. This risk is not just a misperception caused by “ultra-right agitators”, the farm die-off is a well-documented phenomenon across Europe.

Hungary’s role in European agricultural policy

However, Hungarian farmers are far from alone with their problems. The farmers’ protests have now spread to all EU member states; their causes can essentially be traced back to two structural issues. On the one hand, the increasingly strict EU environmental regulations of all kinds, and on the other hand, the liberalization of the markets, which exposes farmers to unfair competition. Farmers are now networking across borders. So it was not surprising that the parliamentarian and president of the Hungarian Farmers’ Association, István Jakab, was able to identify a wealth of congruent positions during discussions with German industry colleagues in mid-March (the reported).

Hungarian farmers protesting against the Ukrainian product glut in mid-February. Photo: MTI/ Attila Balázs

This cross-border networking also led to the positive changes mentioned above in the EU institutions. Hungary’s government is far from isolated when it comes to these issues. Since November, the member states have been continuously increasing the pressure on the EU regarding farmers’ problems, because of course it is the local governments that feel the farmers’ discontent even earlier than distant Brussels.

But the farmers’ protests are making even EU parliamentarians increasingly nervous, as they are due to be re-elected in June. Therefore, for the first time, the EU was ready to break with the paradigm that Ukraine must be helped under all circumstances. Although the measures regarding trade restrictions do not go far, as they are, as usual, a compromise, they do mark a clear departure from previous trade policy.

But an even bigger construction site remains: What will happen next with EU agricultural policy in terms of environmental and climate protection, and how is Hungary positioning itself? This even larger and more important set of issues will not only be decided by the outcome of the European elections, but will also concern the Hungarian government during its upcoming Council Presidency and beyond.

The author is a Research Fellow of the Mathias Corvinus Collegium in Brussels (MCC Brussels).

#Agriculture #Europes #dilemma

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