No more free trade? EU brings back quotas on Ukraine for agriculture

Key questions:

• How does Ukraine sell its agricultural products to the EU during wartime?
• What role did the trade visa-free regime play in supporting Ukraine?
• What is the status of negotiations on new trade terms?
• What arguments does the Ukrainian delegation have in Brussels?
• What prevents Ukraine from conquering alternative markets?

Trade regimes with the EU

Since 2016, Ukraine and the European Union have been operating under the Deep and Comprehensive Free Trade Area (DCFTA). This regime had a number of serious restrictions - for example, the EU imposed quotas on the import of agricultural products from Ukraine in order to protect its own farmers and agribusinesses. For instance, the quota for Ukrainian wheat imports was 1 million tons per year until mid-2022.

The issue of agricultural exports became critical when, at the start of the full-scale war, Russia blocked the sea, which in 2021 had been used to export 95% of all agricultural products. To support Ukraine, the EU decided to introduce a new trade regime starting June 4, 2022, known as the Autonomous Trade Measures (ATMs or trade visa-free regime).

What did this change? Producers in Ukraine were able to supply agricultural products to the EU market without duties or quotas. This full liberalization regime operated from 2022 to 2023. However, amid protests from farmers in Poland, Slovakia, and Hungary, those countries in 2023 independently introduced restrictions against Ukraine. In response, in 2024 the European Commission introduced quotas on some products that were particularly concerning to EU producers. These sensitive products included eggs, poultry, sugar, honey, groats, corn, and oats. The trade visa-free regime was extended twice by the European Commission - on June 6, 2023, and again on June 6, 2024.

During the latest extension of the trade visa-free regime, European partners warned the Ukrainian side that it would be the last time, says Deputy Minister of Economy and Trade Representative of Ukraine Taras Kachka.

"A year ago, when we last extended the Autonomous Trade Measures, the European Commission warned that the 2024 extension would be the last. There will be no further continuation of the ATM. Instead, the European Commission will conduct a review with us under Article 29 of the Association Agreement (a new trade regime will be considered - ed.)," said Taras Kachka on May 20 during the Trade Wars - The Art of Protection conference.

Significance of trade visa-free regime

The trade visa-free regime for Ukrainian products ends on June 5, 2025. It must be acknowledged that it played an important role in supporting Ukraine's economy, especially in 2022–2023. The products that Ukraine traditionally exported by sea to Asian and African markets before the war were redirected to the EU market.

The Chairman of the Ukrtsukor National Association of Sugar Producers of Ukraine, Yana Kavushevska, told RBC-Ukraine that before 2022, a significant share of Ukrainian sugar was exported to Central Asian countries (Kazakhstan, Tajikistan, and Uzbekistan). The sugar was transported by rail through Russia. With the start of the full-scale invasion, this market was effectively lost. In 2018, 47% of sugar was exported to Uzbekistan, but by 2024, 40% of the product was being supplied to EU countries. A similar pattern applied to other agricultural products.

"What we physically couldn't export to third markets, we were able to redirect (to the EU market - ed.), and that really saved us," commented Oleksandra Avramenko, Head of the Eurointegration Committee of the Ukrainian Agribusiness Club, to RBC-Ukraine.

According to the business association, while in 2020–2021 the EU's share in the monetary structure of Ukrainian agricultural exports was up to 30%, in 2022–2023 it grew to about 55%, and last year it stood at 52%.

The fact that Ukraine was able to take full advantage of the trade-free regime is evidenced by the record-high export of bioethanol to the EU in 2024 - 100,000 tons, filling the entire available quota.

"Today, 17 bioethanol plants are operating in Ukraine. Last year, they produced about 180,000 tons of bioethanol, 100,000 of which were exported," said Taras Mykolaienko, Director of the Ukrainian Association of Bioethanol Producers, in a comment to RBC-Ukraine.

Transition period from June 6

Starting June 6, the trade visa-free regime between Ukraine and the EU ends. Back on May 22, the European Commission approved the introduction of a transitional regime, which will be in effect from June 6 until Ukraine and the EU hold negotiations and agree on new, long-term trade rules. The transitional decision provides Ukraine with export quotas for agricultural products to the EU at the level of 7/12 of the quotas that were in effect before the full-scale war, i.e., in 2021. This quota size is based on the assumption that the transitional regime may last for 7 months - from June to December 2025.

Deputy Prime Minister for European and Euro-Atlantic Integration Olha Stefanishyna stated that both sides agreed to determine a stable trade format by the end of July this year. "The next few weeks will be decisive in reaching a mutually beneficial and long-term solution," the press center of the Ministry of Agrarian Policy quoted Stefanishyna.

Prime Minister Denys Shmyhal, as reported by Interfax-Ukraine, said that the volumes of the transitional regime quotas are sufficient for Ukraine not to experience worsened conditions compared to the trade visa-free period.

However, the new quota rates suggest otherwise. For example, in 2024, the quota for poultry meat exports to the EU was 137,000 tons, while the 2021 quota was 90,000 tons, that is, 52,500 tons for 7 months; the corn export quota was 11.1 million tons last year, but only 379,000 tons for June-December this year. Limits are being introduced on products that had been supplied to Europeans without restrictions over the past three years, such as wheat, milk, and beef.

Yana Kavushevska also cited an example from the sugar industry: in 2024, the sugar export quota was 262,000 tons, but the quota for June-December this year is expected to be around 11,700 tons.

"In other words, the volume is more than modest," the expert said in a comment to RBC-Ukraine.

Responding to the question of whether sugar exports above the quota, that is, with the payment of duties are possible, the Chairman of the Ukrtsukor Association stated that the duty rate for sugar is 419 euros per ton, while the market price is around 520 euros per ton. "The duty eliminates any sense of exporting. It's a prohibitive tariff," Kavushevska explained.

Ukraine's arguments in negotiations with EU

One of the main arguments put forward by the Ukrainian side in favor of gaining greater access to the EU market is the fact that Ukrainian agricultural companies purchase a significant amount of plant seeds, crop protection products, equipment, fuel, and fertilizers from Europe. According to the Ukrtsukor Association, our companies buy 70% of their sugar beet seeds from the EU.

"You shouldn't forget that the European component makes up a significant share, over 60%, of the cost of growing beets because we buy sugar beet seeds in the EU," Yana Kavushevska told RBC-Ukraine.

Ukrainian poultry producers also buy chickens in Europe. "100% of chickens in Ukraine are of European origin. Hatching eggs and chickens come to Ukraine from the EU, and all the poultry meat we produce has German or Polish DNA," explained Taras Kachka.

Ukraine buys from the EU goods for growing sugar beets and producing sugar worth several times more than the sugar the EU allows to be imported from Ukraine, said Serhiy Kravchuk, CEO of the Hals Agro agricultural company.

Another important argument in the negotiations in Brussels is the fact that Ukrainian raw materials support the development of the European processing industry. Ukrainian raw materials are more affordable for EU food manufacturers compared to locally sourced ones. For example, the European confectionery industry uses Ukrainian sugar and honey. Much of the European production is competitive in third markets precisely because of Ukrainian raw materials.

"Spanish jamón - why is it competitive in third markets? Because Spanish jamón is partly raised on Ukrainian corn," Oleksandra Avramenko told RBC-Ukraine.

The association also gave an interesting example related to chicken meat. The thing is, the EU is a major producer and consumer of poultry. Last year, EU countries consumed 12.8 million tons of poultry in carcass weight (including bones), with domestic producers accounting for 95%, Oleksandra Avramenko said.

Among Europeans, there is a strong demand specifically for chicken fillet, while other parts of the chicken (wings, drumsticks, feet) are barely consumed and are exported to Africa and Asia. However, it is impossible to increase fillet production without producing the rest of the chicken, so Europeans import only the component they lack, chicken fillet, and these are not large volumes.

"Ukraine's share of poultry meat consumption in the EU in 2024 was 1.5%. Our volumes don't have an impact when you look at the entire EU," commented the representative of the Ukrainian Agribusiness Club.

Ukraine's share of the EU poultry meat market is quite small (Getty Images)

Unlike many distant countries, Ukrainian products are compatible with European ones. According to Yana Kavushevska, Ukraine produces sugar from sugar beets, which is more familiar to European consumers compared to competitors - Brazil, Guatemala, and Mauritius - which produce sugar from sugarcane. The Ukrtsukor Association emphasized that Ukraine shares similar geographical conditions for growing sugar beets with those in Europe itself.

According to Yana Kavushevska, our commonality with the EU is not limited to geography. It's important to remember that Ukraine is a candidate country for EU membership. Other candidate countries today include several Balkan states that also produce sugar and enjoy fairly substantial quotas for supplying this product to the EU.

Another important argument in favor of Ukraine is that starting in 2025, the government, sugar producers, and the relevant industry association introduced an export licensing mechanism. Within this framework, sugar export quotas are distributed in an organized manner among market participants, with licenses issued by the Ministry of Economy, which prevents exceeding the total quota and thus demonstrates Ukraine's responsibility as a trading partner.

Ukraine's deep integration into EU supply chains also strengthens its position. The war has only accelerated these processes.

Market participants are hoping for the swift and successful completion of the negotiations, so that the 2021 quota regime doesn't drag on until December and instead, by October, a more predictable trade regime is introduced. "The fact that we don't understand what we'll do next creates a large corridor of uncertainty. The sooner the negotiations are completed, the easier it will be for us to find buyers, understand pricing, and plan logistics," said Oleksandra Avramenko.

Alternative markets

Starting June 6, Ukraine's ability to export its agricultural products to the EU market will indeed become more limited. This means that attention needs to be paid to alternative markets. According to the PUSK agricultural company alliance, traders of Ukrainian wheat are already actively looking toward markets in Asia, particularly the Philippines, Vietnam, Bangladesh, and Indonesia.

Sugar producers are trying to export their goods in bulk carriers (ships for transporting loose cargo) to relatively nearby destinations - ports in Türkiye and Liberia. Sugar producers are also interested in the markets of European countries outside the EU, such as Albania, North Macedonia, Bosnia and Herzegovina, since sugar can be delivered there by land, which significantly reduces logistics costs.

Ukrainian companies are looking for new, distant markets for their agricultural products (Getty Images)

More expensive logistics due to the Russian threat in the Black Sea is the biggest problem for supplying products to alternative markets. According to Oleksandra Avramenko, because of this factor, many shipments, such as finished goods (e.g., tomato paste, eggs), must first be delivered to ports in Poland (Gdansk, Gdynia) or Romania (Constanta) and only then be loaded onto ships bound for the final destination.

Major competitors for Ukrainian agribusiness on the global market are South American countries and Russia, which sell their goods at more affordable prices. The Ukrainian Agribusiness Club explained that insuring vessels in Odesa is currently more expensive than insuring those leaving from Novorossiysk. This makes Ukrainian products less competitive and allows Russian companies to undercut prices.

"We are being pushed out of the Chinese market by Russian products. Sometimes our goods are more expensive than European ones. I won't even mention goods from South America, which are major agricultural producers," Oleksandra Avramenko told RBC-Ukraine.

Despite the alternatives, the EU market remains highly profitable and geographically closest to Ukraine. That's why it's crucial to conclude negotiations with the European Commission as soon as possible and establish a new, long-term, and mutually beneficial trade regime with the EU.