Planet

Ukraine in EU, what possible impact on CAP?

February 2, 2025

The possible inclusion of Ukraine in the EU raises a big question mark with respect to the future of the Common Agricultural Policy (PAC). The European Union has so far been committed to supporting this country, in the ongoing conflict with Russia since February 2022. And it has raised the possibility of its entry into the Union itself, (1) without however considering either the implications that the conflict has had on the economy and society of the country, nor the impact on the Common Agricultural Policy (CAP).

Many agricultural economists argue that there are sufficient reasons to virtually eliminate per-hectare payments and apply subsidies to farmers on the sole basis of ecological and social conditions, to adapt agricultural practices to climate change and market developments. (2) Geopolitical priorities could thus exacerbate pressures to revise the CAP in a direction whose possible impact deserves further investigation, which is still not known.

Table of Contents

1) Agriculture in Ukraine

Agriculture in Ukraine, once the breadbasket of the Soviet Union, sits on some 41 million hectares of extremely fertile land. (3) After the country gained independence in 1991, consolidated Soviet-era farms were first converted into small-scale agricultural units. Oligarchs then created giant conglomerates through leases with hundreds of thousands of local small farmers. (4)

The agricultural production fabric remains very varied, as partly described also by the European Commission, in a 2020 report:

approximately 900.000 unregistered small producers are said to have earned their living through subsistence agriculture, selling grain, potatoes, fruit and dairy products in local markets or to intermediaries. (5) Until a few years ago these small farms would have generated most of the jobs in rural areas and guaranteed ‘food security’. (5) Since then, however, it is worth adding, there have been forced recruitment and subsequent emigration, in addition to hundreds of thousands of men of working age who have died or been disabled at work;
8.600 agricultural companies of intermediate size compared to the Ukrainian average (but large compared to the European one), with an extension between 200 and 2.000 hectares, would have been the real key players in the Ukrainian agricultural sector. (6) Again, these would have been mainly family-run businesses, in some sectors (i.e. organic berries and fruit) also active in exports;
70 huge conglomerates, at the same time, control a quarter of all fertile land in Ukraine to produce huge quantities of wheat, soybeans, sunflower oil or poultry for domestic consumption and export. (7)

2) Agro-industrial financial oligarchies

Ukrainian Agro-Industrial Corporations – Kernel or MHP, UCAB, in primis – sit together with the national subsidiaries of the agrochemical giants (e.g. Bayer-Monsanto, BASF) and other large groups, including the US tractor industries (e.g. New Holland, John Deere) at the Ukrainian Agribusiness Club (UCAB), an organization with offices in Kiev and Brussels. (8)

The parent companies of Ukrainian conglomerates, among other things, are often based in tax havens. For example, the cereal giant Kernel (which managed 507,611 hectares of agricultural land in Ukraine in 2020) is registered in Luxembourg; Ukrlandfarming (531,306 ha), the American investment company NCH Capital (350,400 ha) and the chicken magnate MHP (349,321 ha) are all domiciled in Cyprus. (9)

3) CAP funding

Ukraine’s accession to the EU would involve the transfer of hundreds of millions of euros of Common Agricultural Policy contributions from its current beneficiaries to its agro-industrial giants. Based on the official average of EU funding over the last decade, which is €266 per hectare per year, Ukrainian market leader Kernel would be entitled to at least €148 million per year in direct income support if Ukraine joined the EU. Its direct competitor Ukrlandfarming could receive up to €125 million, while chicken magnate MHP would rake in a whopping €97,8 million per year. (10)

A recent investigation published in The Guardian, for that matter, reveals that the top final beneficiaries of per-hectare subsidies include former Czech Prime Minister Andrej Babiš, German meat giant Tönnies and, before Brexit, British vacuum cleaner magnate Sir James Dyson. (11) Already the current oligarchs of the West are thus draining Common Agricultural Policy resources distributed on the basis of acreage, at the expense of the small farms that need them to survive. This anomaly, which has been criticized for decades, was finally challenged in the recent strategic dialogue on the future of agriculture in the EU. And it should be discontinued, should Ukraine join the EU. (12)

4) Hypothesis of Ukraine’s entry into the EU

Financial Times, notes that Ukraine would become the fifth most populous member state (based on pre-conflict demographics), should it join the EU, and by far the poorest. (13) It follows that:

– many of the current member states should pay more money into the EU budget and receive less in return, concludes a paper from the secretariat of the Council of the EU cited by the Financial Times. And yet

– these simulations obviously do not take into account a necessary structural change in the CAP, which, it is worth noting, has in fact undergone substantial modifications in each previous enlargement.

5) CAP, reform hypothesis

Any change in the CAP requires complex and exhausting negotiations. Agricultural negotiations are among the most difficult in any accession process, as they have a significant impact on the EU budget and involve the redistribution of significant resources between old and new Member States. It should be noted that the current agricultural area of the 27 EU countries is 161 million hectares (2023 data) and that of Ukraine alone represents a share of more than 25%, with 41 million hectares.

Ukraine’s possible entry into the EU must therefore be assessed, from the perspective of farmers and agri-food processing companies in the current Member States, under both aspects of:

– redistribution of Common Agricultural Policy contributions;

– competition on production volumes and values.

The European Union, certainly, would assume a geostrategic role in the agricultural sector. Up to exceeding 30% of global wheat production. But at what cost?

6) PAC, scrapping hypothesis

The current Commission led by Ursula von der Leyen, in the proposal for a new multiannual financial framework, (14) gives priority to geopolitical objectives – which, if we look closely, go beyond its mandate, such as the establishment of a European Commissioner for Defence, and the increase in military spending – and to ‘competitiveness’ in all sectors, according to the recommendations of Mario Draghi.

A European competitiveness fund, along the lines of the ‘Next Generation EU Fund’ could then channel specific programmes such as the Common Agricultural Policy and regional or cohesion policies into a single funding stream. Following the model of the national strategic plans for the implementation of the CAP, funding would then be allocated on the basis of national plans drawn up by Member States according to their own economic and political needs and priorities. With a negative impact on regional power and the cohesion that approaches and programmes from LIFE (15) to LEADER (16), among many other initiatives, bring to rural space.

7) Experiences and geopolitical unknowns

Further enlargement of the EU is mainly driven by geopolitical considerations and will require difficult and thorough reforms both in candidate countries and in EU policy and decision-making structures. At its meeting in June 2024, the European Council asked the Commission to present, by spring 2025, in-depth policy reviews covering the various aspects identified in the March 2024 Communication on pre-enlargement reforms and policy reviews, including the CAP. (17) Assuming that the CAP budget will not be increased during the next budgetary cycle, several options are on the table:

– an obvious solution is the gradual introduction of payments at lower rates for new member countries, as already happened in countries such as Poland, at the time of their accession to the European Community;

– other options could include limiting funding for larger farms, which has been called for years by the European Coordination Via Campesina (18), as well as targeted support measures for subsistence farmers.

Accession negotiations will in any case have to include specific provisions to extend the support of the Common Agricultural Policy to the new Member States, with two limitations that are already evident:

– in primis, farmers in the current 27 EU member states fear being completely wiped out of the competition of Ukrainian giant conglomerates that dominate the market. In Ukraine itself, small farmers are raising the alarm about the growing influence of agribusiness oligarchies and their priority access to finance;

– secondly, the outcome of the U.S. presidential elections could also have a major impact on the direction of the CAP reform and the related trade agreements between the EU, its individual Member States and the U.S. Much will depend on the further developments of the war and on the support of the US and the EU for the peace negotiations. The choices on the future of the CAP will therefore be conditioned, once again (as already happened in the previous reform that led to the decoupling of aid from agri-food production) by US policies.

Stefania Tatti and Dario Dongo PhD

Footnotes

(1) Ukraine. Membership status: candidate country. European Commission. Enlargement and Eastern Neighborhood https://tinyurl.com/y3xvn3nw

(2) The EU’s Common Agricultural Policy Could Be Spent Much More Efficiently to Address Challenges for Farmers, Climate, and Biodiversity. Pe’er, Guy et al. One earth, Volume 3, Issue 2, 173 -175 https://tinyurl.com/4njnw5r9

(3) Ukrainian agriculture: From Russian invasion to EU integration. European Parliamentary Research Service (EPRS). 15.4.24 https://tinyurl.com/ycksptzx

(4) Elsa Régnier, Aurélie Catallo. The Ukrainian agricultural sector: an overview and challenges in light of possible European Union enlargement. IDDRI. June 2024 https://tinyurl.com/4p22akas

(5) ANNEX 2 of the Commission Implementing Decision on the financing of the Annual Action Programme, part 1, in favor of Ukraine for 2020 to be financed under the general budget of the Union Action Document for EU support to agriculture and small farm development in Ukraine https://tinyurl.com/5586ssjb

(6) AGRI-FOOD TRADE STATISTICAL FACTSHEET European Union – Ukraine. European Commission. Directorate General for Agriculture and Rural Development. 15.4.24 https://tinyurl.com/44cz2zh6

(7) TOP 10 UKRAINE’S LARGEST AGRICULTURAL LANDHOLDERS 2018. LaScalA – International Competence Center on Large Scale Agriculture. Leibniz Institute of Agricultural Development in Transition Economies (IAMO). 28.5.18 https://tinyurl.com/y43trsnf

(8) UCAB. Ukrainian agribusiness club. https://ucab.ua/en/

(9) MHP SE. Company Information. FAIRR. https://tinyurl.com/bdfrfms6

(10) Calculations based on CAP Regulations: https://tinyurl.com/3jtf69vu

(11) Ajit Niranjan. Revealed: billionaires are ‘ultimate beneficiaries’ linked to €3bn of EU agriculture subsidies. The Guardian. 3.11.24 https://tinyurl.com/mw3cuhn7

(12) Strategic Dialogue on the Future of EU Agriculture. September 2024 https://tinyurl.com/2u8ruhbw

(13) EU estimates Ukraine entitled to €186bn after accession. Financial Times https://tinyurl.com/54zkcyvm

(14) An EU Compass to regain competitiveness and secure sustainable prosperity. Press release. European Commission. 29.1.25 https://tinyurl.com/4srwjkx8

(15) LIFE Programme. European Commission https://tinyurl.com/5xhtkp64

(16) LEADERS. European network for rural development https://tinyurl.com/bdf2fpza

(17) European Council meeting (27 June 2024) – Conclusions. 27.6.24 https://tinyurl.com/38xw43xs

(18) Dario Dongo. Via Campesina, farmers’ priorities in the European elections. GIFT (Great Italian Food Trade). 24.4.24