by Hans Wetzels and Hannes Lorenzen
Ukraine is on our screens every day. Still the countryside and its people mainly appear either as victims of war or as soldiers – not as citizens, workers or farmers. When it comes to its vast swaths of agricultural and rural areas, mostly the largest farming entities and their difficulties to export make it into the news.
But there is a surprising rural reality in Ukraine that should play a key role when taking a closer look at what a possible EU accession after the war would mean for Ukrainians and citizens of the EU alike.
It seems evident that in order to smoothly integrate Ukraine into the European Union a large overhaul of policies is unavoidable – specifically the Common Agricultural Policy (CAP). The question is whether EU officials planning reforms sufficiently realise this. If they do, how might they set a realistic framework of policies and measures taking into account the various challenges which farming, food production and trade face in the coming years?
Many agricultural economists think there are enough reasons to virtually drop hectare payments and qualify subsidies by setting ecological and social conditions for farmers in order to adapt farming practices to climate change and market developments. Plans for a swift accession of Ukraine for geopolitical reasons might exacerbate pressures to give the CAP the overhaul it needs to adapt to the new realities we live in.
Small, medium and enormous
Ukraine’s agriculture is a varied beast. Across the vast agricultural land mass an estimated 900,000 unregistered small-scale producers earn their living with subsistence farming and by selling grain, potatoes, fruit and dairy products at local markets or to middlemen. According to a 2020 report by the European Commission, such small farms generate the most jobs in rural areas and are crucial to domestic food security.
On the other side of the fence 70 huge conglomerates control a quarter of all fertile land in Ukraine to produce massive amounts of grain, soya, sunflower oil or poultry for domestic consumption as well as exports. In between are squeezed a wide variety of conventional family farms and dairy producers, but also well established ecological producers like berry and fruit growers oriented to western markets. According to the Commission such medium sized farms – cultivating anything between 200 to 2,000 hectares – number around 8,600 and are the real key players in the agriculture sector of Ukraine.
The biggest agribusinesses of Ukraine are represented by the Ukrainian Agribusiness Club (UCAB): a lobby organisation with offices in Kyiv and in Brussels. ‘We represent all agricultural sectors in Ukraine,’ EU director Nazar Bobitski explains. ‘Cereals, meat and dairy, to agricultural machinery. What sets us apart is that we only represent farmers and enterprises that run a large scale operation when it comes to landholdings. In Europe this always becomes a hot topic of debate. Europeans can get really surprised when they realise how big farms can get in Ukraine.’
Early bird lobby in Brussels
The Brussels office of UCAB is an early bird’s nest of Ukrainian agribusiness interests located at Schuman Square, smack bang in the middle of the European quarter. The headquarters of the European Commission is right across the street.
Besides having Ukrainian giants like Kernel or MHP as its members, UCAB also represents American tractor manufacturers New Holland and John Deere, food multinationals Danone and PepsiCo, and chemical giants Bayer-Monsanto and BASF. ‘Agriculture in Ukraine developed under a set of unique circumstances,’ Bobitski explains. ‘We have so much arable land that it’s quite natural to have very big farms. It makes sense economically to acquire large land plots, but we, Ukrainian farmers, have been subject to smear campaigns and disinformation from our European peers. Simply labelling large holdings as oligarchs misrepresents the unique character of our country in terms of farming.’
Once the breadbasket of the Soviet Union, Ukraine nowadays boasts about 41 million hectares of extremely fertile soil: black, humus-rich chernozem. After the country gained independence in 1991, Soviet-era consolidated farms were first split and divided up into small farm units. In the following years, shrewd oligarchs managed to merge those small plots into giant conglomerates by signing hundreds of thousands of lease agreements with small local farmers.
The parent companies of these conglomerates are often based in tax havens. Grain giant Kernel (operating 507,611 hectares of farmland in 2020) is registered in Luxembourg; Ukrlandfarming (531,306 hectares), American investment firm NCH Capital (350,400 hectares) and chicken magnate MHP (349,321 hectares) are all domiciled in Cyprus.
Handouts to billionaires
Were Ukraine to gain EU membership tomorrow, those giant companies would immediately become eligible for millions of euros in CAP funding. In an earlier calculation done by ARC2020 and with an unchanged CAP, this would lead to a massive transfer of money from western EU member states to the biggest Ukrainian conglomerates spanning hundreds of thousands of hectares.
Calculated by the official EU average from 2015 of €266 per hectare annually, Ukrainian market leader Kernel would become eligible for no less than €148 million a year in direct income support after Ukrainian EU accession. Direct competitor Ukrlandfarming could receive up to €125 million while chicken tycoon MHP would rake in a hefty €97.8 million each year.
This is in keeping with current CAP handouts to billionaires in the EU. According to a recently published analysis by the Guardian, among ultimate beneficiaries of hectare based subsidies were former Czech prime minister Babiš, the German meat giant Tönnies, and prior to Brexit, the British vacuum cleaner tycoon Sir James Dyson. These are the current oligarchs of the West, fishing off CAP payments at the expense of small farms who need it to survive.
This anomaly has been criticised for decades. The untenable nature of it also drove the recent Strategic Dialogue’s new orientation away from area-based payments. The accession of Ukraine, were it to happen, could well be the moment to stop it.
Geopolitical CAP reform
ARC2020 is not alone in seeing EU accession of Ukraine as an inevitable force for transformation of the CAP. The Financial Times reports Ukraine would become the bloc’s fifth largest member state measured by pre-conflict population – and its poorest by far. That implies many current member states would have to pour more money into the EU budget and receive less themselves – concludes a paper by the secretariat of the EU Council as quoted by the FT.
Agricultural economist Bettina Rudloff works at the Institute for International and Security Affairs (SWP – Stiftung Wissenschaft und Politik) in Berlin since 2008 and has studied Ukraine and the CAP. Its head office is based in the posh Charlottenburg part of west Berlin.
‘These figures ARC2020 calculated is a simplification because you take the existing structure of the CAP and multiply that by an average hectare payment,’ she explains. What’s not taken into account is the fact that with every enlargement the CAP has changed. The question now is whether or not EU policy makers realise how big the CAP overhaul has to be to allow Ukraine into the EU.
Rudloff: ‘The structure of the subsidies in the CAP does follow a certain logic and that is where the story starts. If you want to call the agricultural and budgetary impact of Ukrainian accession an elephant in the room, you are only talking about the highest political levels of the Commission in Brussels. Believe me that all agricultural experts know this elephant is there.’
In July 2022 the institute released an extensive assessment of what accession of Ukraine to the EU would mean in practice. On agriculture, Rudloff writes that ‘agricultural negotiations are among the most protracted in any accession process: They are directly linked to budget issues, and thus to the redistribution of funds within a new member state and between new and old members.’
Much of this has to do with size: in 2023 the EU had an agricultural land area of 161 million hectares – while Ukraine’s land bank totals about 25 percent of that. ‘It’s clear that if more Ukrainian agricultural producers come into the EU, they will potentially compete with the EU’s regional or domestic production,’ Rudloff explains.
‘Price pressure is normal in international trade. But Ukraine’s accession would also greatly strengthen the EU as a geostrategic agricultural and supply actor. After enlargement, its export shares in wheat alone would increase to 30 per cent globally. What’s also positive is that Ukraine would become a big market for all kinds of European farm products. My point is that not only budget concerns, but also an increase in prosperity should be taken into account here.’
Scrap the CAP – Leaked plans for new EU budget direction
Von der Leyen’s vision for a new Multiannual Financial Framework (MFF) was recently leaked and published by the FAZ and ARC2020.
What it reveals is a general direction framed by geopolitical developments. When it comes to accession of Ukraine to the EU, the President of the European Commission, Ursula von der Leyen, has major geostrategic trade goals and the money needed for new priorities well in view. These include a new Commissioner responsible for EU defence policy, increases in defence spending, increasingly demanded by the US, and exacerbated by the re-election of Donald Trump; and the recent demand of former ECB president Draghi to increase European competitiveness across all industries.
The idea would be to end specific funding programs like the CAP and Regional or Cohesion Policies merging them all into one funding stream: a European Competitiveness Fund comparable to the post pandemic European Recovery Fund. Following the model of national strategic plans for the implementation of the CAP, funding would then be allocated based on National Plans drawn up by member states based on their own economic and political needs and priorities. This would negatively impact regional power and rural cohesion that approaches and programmes from LIFE to LEADER, among many other initiatives, bring to the rural space.
Lessons from past enlargements
Further enlargement of the EU is primarily driven by geopolitical considerations and will require difficult and painstaking reforms in applicant countries as well as in the EU’s decision-making structures and policies. At its meeting in June 2024 the European Council asked the Commission to present by spring 2025 in-depth policy reviews covering the various strands identified in its March 2024 Communication on pre-enlargement reforms and policy reviews – including the CAP.
Alan Matthews is professor emeritus of European Agricultural Policy in the Department of Economics at Trinity College in Dublin. He was asked by the Swedish Institute of European Policy Studies to conduct a European Policy Analysis in which he tries to draw lessons from previous EU enlargements and past special arrangements to facilitate smoother integration of new member states into the CAP.
Matthews explains: ‘The actual debate tends to assume that the CAP budget is held constant at least in nominal terms. Many stakeholders call for an increased budget, also through new funds outside the CAP. You can make CAP rules like capping to ensure big holdings would not get income support, but that would not reduce the funds Ukraine would receive under current MFF rules.’
Assuming that the CAP budget won’t be increased during the next budgetary cycle, Matthews discusses several options. An obvious solution is phasing in of payments at lower percentages for new members – as was once applied to countries like Poland during their accession to the EU. Other options could be the capping of funds for bigger farms or targeted support measures for subsistence farmers.
Precise arrangements for extending EU agricultural policy support to new member states will have to be determined during detailed accession negotiations. He does not see any fundamental problems, but is worried about the effects EU accession of Ukraine could have on European farming as a whole.
‘Regarding land mass, my paper shows that the next enlargement, so not only Ukraine but also Western Balkans and other Eastern Partnership countries, is not unprecedented in size,’ he explains. ‘If we measure the additional agricultural area relative to the area of the existing EU at the time of the enlargement, it is very comparable both to the Iberian enlargement, which accounted for a 33% increase and the ‘big bang’ enlargement of 2004 and 2007, which was a 35% increase in area. What is different is that Ukraine is a major exporter in a way that new member states in the past were not.’
A land for sale
Western European farmers fear being completely obliterated by the Ukrainian conglomerates that dominate the market. In Ukraine itself small farmers sound the alarm about the growing influence of the biggest conglomerates and their access to finance.
Because Ukraine, after years of pressure from the EU and the International Monetary Fund (IMF), was forced to liberalise its land market from January 1, 2024. Therefore the concentration of agricultural land could increase rapidly in the coming years. Conglomerates that up until now were only allowed to lease plots from local farmers to concentrate them into larger holdings, can now directly buy land. The biggest companies are, according to research by investigative platform Follow the Money, the biggest recipients of support from development banks like the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).
While local farmers are obliged to join the army to fight against the Russian invasion, large companies are trying to acquire more farmland, Roman Makukhin, an organic fruit grower and sheep farmer in northern Ukraine, said in a restaurant near the central train station of Kyiv during a conversation earlier this year: ‘The myth that Ukraine feeds the world makes a small group of people extremely wealthy, while whole villages are destroyed. Producing meat on an industrial scale has nothing to do with food security and most Ukrainian corn ends up being used as cattle feed in Spain. People in Brussels should be more aware of the fact that small Ukrainian farms are the ones producing most of the food and that they receive almost no support.’
Bettina Rudloff of SWP acknowledges a pressing issue is making sure that small and medium sized Ukrainian farmers are sufficiently supported while the gigantic conglomerates that dominate the sector don’t become a death threat to their European peers just because the Ukrainian agricultural status quo wants to export more bulk commodities.
‘The oligarchical structure of agriculture in Ukraine remains a sensitive issue,’ she explains. ‘For the European Commission the disappearance of a market structure based on this oligopoly was a major condition to prepare Ukraine as a candidate country. Then Russia invaded and the candidate status was fast tracked, while the oligarch system in agriculture and the potential corruption coming with that remain problematic.’
One of the most important elements to ensure the EU does not support the oligarch owned conglomerates, allowing them to tighten their grip on the market, would be phasing out the current structure of direct CAP payments that would see millions of euros funnelled to them upon accession.
In a paper written for the Heinrich-Böll-Stiftung in July 2024, Phillip Brändle of the German farmers association Arbeitsgemeinschaft bäuerliche Landwirtschaft (AbL) writes that ‘the current CAP support system based on hectare size, is no longer feasible’ were Ukraine to become a EU member state.
To be able to give European family farms a future, AbL proposes a CAP model that couples subsidies to ecological activities and climate performance. Perhaps surprisingly the biggest Ukrainian farming conglomerates agree. ‘The message to our own farmers is that they need to adapt as well. We are not suggesting that the EU should accept Ukrainian agriculture as it is. That would cause problems,’ Ukrainian top trade negotiator Taras Kachka told Politico in an interview in March 2024.
Lobby organisation UCAB has estimated Ukraine would be eligible for a total of €10 billion in annual hectare based subsidies under current CAP rules – plus, based on Polish payments, an additional €3 to €4 billion for rural development.
‘Most large companies in Ukraine are very business oriented. The ones I met told me they were capitalist business actors and not interested in being subsidised,’ Rudloff comments. ‘Many agricultural economists think there are in itself enough reasons to get rid of current hectare payments in the CAP. The Ukrainian accession might create the external pressure we need to push through CAP reforms we need regardless.’
Vinnytsia: towards an urban green belt and a local food system
Many Ukrainians agree there are alternatives to an agricultural economy based only on the export of commodities.
Oleksanadar Zakorchennyi, advisor of the mayor of the City of Vinnytsia in Central Ukraine, responsible for urban-rural planning and administration, is responsible for a new local food strategy of the city. ARC2020 met him at a delegation to Low Saxony in 2023.
‘We try to mobilise our urban and rural inhabitants to work closer together to establish a food strategy for the city just like Amsterdam and Copenhagen do,’ he explains. ‘It needs communication and inclusion of the population and a better distribution of the land around the city.’ The total surface cultivated as part of the planned green belt plan is 10,000 ha – of which 7,000 ha are cultivated by 26 farming enterprises. The remaining 3,000 ha are owned by 80% of the population in the suburbs with an average of 1 to 3 hectares per owner.
‘Our intention, especially in times of war, is to encourage food production and food security near the city. We want fresh vegetables for the urban population and the establishment of food councils and cooperatives. Small gardeners and farmers around the city mainly use the land for subsistence production. But we also need food for a local market. We will establish small food processing facilities near the city as we need continuous supply, better organisation and cooperation of the gardeners and small farmers. We have 60 beekeepers and many vegetable producers who are interested in participating.’
Relations between the city of Vinnystia and the city of Karlsruhe in Germany have developed in 2024, and the regions of Baden-Würtemberg and Vinnytsia are preparing cooperation and partnership for the EU accession process. The EU and Ukrainian regions will have to make a choice: whether to prepare for an ecologically and socially resilient farming and food system, including an integrated rural development concept, or whether to hand the land over to agro-industrial giants like MHP, Cargill and Ukrlandfarming. Further sleepwalking with a CAP of the past is not an option once Ukraine enters the fray.
After CAP – A choice to be made
This then begs the question of how agricultural lobbies inside the EU relate to such reform proposals. During the most recent AGRIFISH Council in Brussels on 21 and 22 October 2024, discussions began about the new CAP that would come into effect after 2027. In a statement, the 27 agricultural ministers of the EU underline the importance of maintaining sufficient funds for direct payments.
The European Commission itself seems more open to an overhaul of CAP direct payments, confirming after questions from ARC2020 that Commissioner for Agriculture Christophe Hansen will work closely with the Commissioner for Enlargement on pre-enlargement policy reviews and EU member states to discuss the future of the CAP. ‘The budgetary pressure associated with enlargement rounds also promotes EU agricultural reforms. For example, the accession of agriculturally strong Ukraine could provide an incentive to abolish the current area-based agricultural subsidies in favour of defined nature and environmental services,’ a Commission spokesperson said. ‘It is premature at this stage to comprehensively assess the accession impact on EU policies prior to the political outcome of the accession negotiations with each candidate country.’
‘There is no necessity that a huge part of the budget now has to go to Ukraine and its biggest farms. The direction we’ll take from here depends more on politics than on policy,’ Bettina Rudloff of SWP concludes. ‘For agriculture experts the elephant is very visible in the room. At the same time many of us have been saying for a long time that more CAP money should go to public goods like environmental services. Now everything depends on whether European politicians in member states with diverging agricultural structures and interests are willing to do what is necessary to make that change.’
The result of the presidential elections in the United States may also have a major impact on the direction CAP reform and related trade agreements between the EU and the US will take. Much will depend on further developments in the war in Ukraine, and US and EU support for Ukraine’s defence and peace negotiations. A choice on the future of CAP will depend on the choice the US makes about the war.
This article will be also available in German at Der Kritische Agrarbericht, an annual critical appraisal of agricultural policies and practices in Germany.
This article is produced in cooperation with the
Heinrich Böll Stiftung European Union.
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