Blockade Hits Wallets
The main consequence of the blockade by Polish carriers at the Ukranian border will be a surge in prices in German and Italian supermarkets. And Spanish, Danish, and French ones as well. Let's not forget that due to the war, Ukraine's harvest turned out to be lower than usual. It all adds up.
Even after a year and a half of a fully-fledged war resolved by Russia, Ukraine remains one of the main food suppliers to the European Union. As the resilience of the Ukrainian agricultural complex wanes, and logistical issues mount, the habit of European consumers to rely on their usual food basket may backfire.
Since the middle of autumn 2023, Ukrainian logistics—primarily agrarian—has found itself in a situation almost as challenging as in the first shocking days of the full-scale Russian invasion.
The reason? Several uniquely adverse factors have converged. The primary and almost routine problem remains the invasion by the Russian Federation. In June 2023, Russia unilaterally withdrew from the Istanbul Grain Agreement. That Agreement was allowing Ukraine to export agricultural products by sea. And for several months now, the aggressor country has been trying to disrupt trade that is happening without its participation through constant shelling.
From July to mid-November, 21 targeted attacks on maritime logistics occurred, damaging over 160 infrastructure objects and 122 vehicles.
Not surprisingly, shipment volumes from Odesa and Danube ports are decreasing. A recent attack on a trading vessel flying the Liberian flag, resulting in the death of a Ukrainian sea pilot and injuries to crew members, further reduced maritime transport activity. And winter is approaching, a natural constraint for maritime shipments due to adverse weather conditions.
All these factors were familiar or conditionally familiar to the Ukrainian business, which has learned to work with them over a year and a half of war.
However, in November 2023, another blockade was added to the described problems, this time on the western border of Ukraine by Polish carriers.
PHOTO: In total, over 20,000 trucks are stuck in queues on the Ukrainian-Polish border, and the waiting period reaches a week. And this term continues to grow. Source: Getty Images
Unexpected Blockade
At noon on November 6, Polish transport companies began physically blocking three out of the four largest border crossings on the Polish-Ukrainian border—"Korcheva - Krakovets," "Grebeni - Rava-Ruska," "Dorohusk - Yahodyn."
Organized by the "Committee for the Protection of Carriers and Employers in the Transport Sector" with the political support of the far-right Polish party "Confederation."
The blockade is supported by a minimal number of people and resources, using trucks on both sides of the checkpoint; the declared action period is until January 3, 2024.
Thus, Polish players have started a campaign to level the playing field for access to the international transport market for Ukrainian competitors. More precisely, Polish carriers are trying to nullify the liberalization of the transport market, which was carried out by the European Commission after the start of Russia's full-scale invasion of Ukraine. The access regime for Ukrainian transport was liberalized, including for the full operation of the Solidarity Ways—an alternative to the maritime route for the Ukrainian agrarian export.
A week after the start of the blockade, the queue on both sides of the border had already stretched to 50 km. In total, over 20,000 trucks are stuck in it, and the waiting period reaches a week. And this term continues to grow.
Trucks are actively used to transport Ukrainian grain, oil, and other food products through the territory of the European Union, including delivery to ports.
The initiated blockade jeopardizes not only the disruption but at least delays in the shipment of goods on time. And if the delay of the blockade threatens Ukraine with the non-receipt of up to 60% of imported goods delivered by trucks, for European consumers, what is happening threatens an increase in prices for basic food products, in the category of which Ukraine occupies leading positions in imports to the EU. And there are quite a few such products.
So far, the forecasts are gloomy. The demands of Polish carriers seem unattainable, as the "transport visa-free" has been introduced at the level of the European Commission, and the government of Poland cannot cancel these norms at the request of compatriots. Indeed the Polish government has not expressed a desire to cancel or somehow level the introduced "transport visa-free." Partly, the concern of Polish carriers is explained by the fact that transport volumes from Ukraine have increased from pre-war 650,000 cars in both directions to almost a million in 2023. This is easily explained by the consequences of the maritime blockade.
However, the Ukrainian agrarian export found itself caught in the vise of these complementary problems.
Vegetable Oil Price Tags to be Rewritten
Which products on the shelves of European supermarkets might see the most significant price hikes?
Primarily, sunflower oil is set to become considerably more expensive. Ukrainian sunflower oil, predominantly exported by sea, holds a massive share (37%) in the overall global oil export. Any fluctuations in its supply are immediately reflected in price tags. This season, the issue is compounded by a crisis in the olive oil market. Due to a drought-induced poor olive harvest in major producing countries, the exchange price of olive oil has surged to a historical maximum of $8,500 per ton, compared to $5,100 per ton exactly a year ago.
Sugar became bitter
Another item set to increase in price is sugar. Ukrainian sugar exports in September 2023 were only 25,000 tons. However, since the beginning of the current season (from October 2022), Ukraine has exported 427,000 tons of sugar. This marks one of the highest results in the country's history. The primary reasons include high sugar stocks at the beginning of the 2022/23 season and elevated global sugar prices throughout this season. In the new season, Ukraine could export about 600-650,000 tons of sugar, contingent on rhythmic logistics.
The orchards were bending under the weight of fruits and berries
Fruits and berries, whose export volumes Ukraine has significantly increased in the last year, are the third category to face price hikes. Successes in this category have been so remarkable that in June 2023, in the Lublin Voivodeship of Poland, local farmers staged a protest demanding a ban on the import of Ukrainian raspberries. A month earlier, the Association of Orchards in the Republic of Poland sent a letter to the Minister of Agriculture of Poland urging urgent measures to stop the import of strawberries from Ukraine.
This concerns frozen berries, the high season of which falls precisely in winter and early spring. Therefore, the disappearance of Ukrainian frozen berries from European supermarkets will painfully impact shoppers' wallets.
PHOTO: From July to mid-November, 21 targeted attacks on maritime logistics occurred in Ukraine, damaging over 160 infrastructure objects and 122 vehicles. Source: Getty Images
Will the problems extend into 2024 or not?
Supply problems of Ukrainian food products to the EU may worsen next year, even if the car and sea blockades can be quickly removed.
Prices within the country remain catastrophically low, causing many Ukrainian agrarians to incur losses for the first time in 10 years.
Despite the harvest received in 2023, which is 5-10% more than in 2022, the agricultural sector is ending the year with the worst financial results.
According to Taras Vysotsky, the First Deputy Minister of Agrarian Policy and Food of Ukraine, citing data from leading agrarian associations, the total losses of the Ukrainian agricultural sector in 2023 will reach $3.5 billion.
In Vysotsky's opinion, the only way to solve the problem is to improve logistics because optimizing export routes automatically means normal prices in the domestic market and an improvement in the financial condition of agribusinesses and farmers. Otherwise, a financially weakened agricultural sector will reduce the production of essential products—wheat, barley, corn, sunflower, soy, rapeseed, and more—in 2024.
And then, in the next season, prices in European supermarkets will undergo a second round of increase.