„Part of the farmers refused to sell last year, and the market turned against them / The European Commission took as a reference the cereal production in 2022, when there was drought, instead of the average of the last 5 years” – Interview with Cezar Gheorghe, expert of the Romanian Farmers’ Club

The scandal of Ukrainian grain reaching Eastern Europe has brought farmers in Poland, Hungary and Romania to the streets. Unhappy with lower-priced competition from the war-torn country, farmers have protested to government ministries demanding a ban on imports from Ukraine. While Poland and Hungary have decided to temporarily suspend imports from the neighboring country, Romania has remained the only gateway to Europe for grain from Kiev, on condition that trucks carrying the grains remain sealed.

How much has the import of Ukrainian grain really affected Romanian farmers? How much is the grain crisis being artificially inflamed? Why did some farmers refuse to sell their crops in the summer of 2022 and why did others buy very cheap Ukrainian wheat themselves? And, another facet of the scandal, why couldn’t Romanian farmers get higher compensation from the European Commission? What proof of losses should they have provided that they did not?

Cezar Gheorghe, an expert analyst in the grain trade (from 2020 at the Romanian Farmers’ Club) explained these issues in an interview for G4Media. „Some farmers refused to sell last year and the market turned against them,” he explains.

The consultant also points out that farmers who bought very cheap Ukrainian wheat themselves last year in order to resell it in 2023 at a substantial premium, but who did not achieve their goal, have absolutely no grounds for claiming compensation because they have assumed their transactions as a business.

The expert also believes that the EU „flawed the calculation from the start” in terms of financial aid for Romanian farmers because it took as a reference the cereal production in 2022, when there was a drought, instead of the average for the last 5 years.

Reporter: Do you think it is confirmed that many Romanian farmers refused to sell last summer, expecting grain prices to rise in spring 2023?

C.G.: Indeed. In the moments of tension that began with the Russian invasion of Ukraine, amidst the panic, as all goods remain blocked in the Black Sea basin, including Ukraine and Russia, prices started to soar. We have thus reached maximum values in May 2022 of 415 euros for wheat, 840 euros for rapeseed and about 378 euros for corn. Sunflower seeds also peaked at 1150USD/tonne. Some farmers refused to sell citing other substantial increases. But the market turned against them.

As solidarity lines were activated, the Odessa grain corridor was created, global exchanges started to gradually decline until August 2022. The declines continued fuelled also by the Fed’s actions in the fight against inflation, so that today we have price levels of 230 EUR for wheat, 430 EUR for rapeseed, 230 EUR for maize and 420 USD for sunflower seeds. It is no less true that the logistics cost started to rise due to the demand for Ukrainian goods, fleets of trucks and wagons plus barges shifted their interest to these goods because there were higher rates.

This has led to a 70% increase in the cost of logistics in Romania which means that it all ultimately ends up affecting the pocket of the Romanian farmer. And also, the availability of logistics and the very long waiting times generated reluctance on the part of farmers who thought that winter would be a good time to sell their goods. But, as I said, the market is made up of supply and demand, and if supply has come back through solidarity lines and the grain corridor plus Russia aggressively (in terms of price) selling wheat, the price has fallen to the values described above. In a way it was like an TV series, by segments and tiers, in which many Romanian farmers did not believe or did not understand the volatility in the markets.

Rep: It is also confirmed that some Romanian farmers bought very cheap Ukrainian wheat themselves last year to resell it in 2023 at a substantial premium and this is now one of the reasons for their discontent?

C.G.: Apart from traders, processors, there were of course also farmers who owned storage facilities and thought that by bundling the price of Ukrainian goods into the price of Romanian goods, they would generate an opportunity in terms of income. However, they cannot be unhappy because they considered and assumed this as a business and have absolutely no reason to claim compensation.

Rep.: How big do you think the impact of Ukrainian grain is on the Romanian market from the Romanian farmers’ point of view, how would you evaluate it? At the current prices Romanian farmers are selling at a loss or is it a matter of shrinking profit margin?

C.G.: The impact of Ukrainian goods on the Romanian market is difficult to define. First of all because of the price difference between the origins and we can say that 3.75 million tons of Ukrainian goods have taken the place of 3.75 million tons of Romanian goods in the domestic market. Here we have to say that the Romanian origin had a much higher price and so the Ukrainian origin was preferred. In general terms we can talk about an average, because it varied a lot, of 40-60EURO per ton calculated as a discount between the two origins, the Ukrainian one being naturally cheaper.

Then you add the logistics cost, which has increased by an average of 70%, which adds another 20-30 EURO/ton to the price difference. And of course the financial costs of storage, non-payment of debts on time (as they did not sell) from fertilizers, seeds and crop protection products, which generated another 15-20 euro/ton. Adding those figures together gives an average of 75-110EUR/ton financial impact. But we really can’t know the quantity affected by the above. It could be 40-50 or 70% of the Romanian harvest, which was estimated at 22 million tons last season.

If we talk about establishment costs, we should know that the 2021 autumn crops for the 2022 harvest, i.e. wheat, barley and oilseed rape, had a cost applied to that of the pre-war, which was so much lower. The spring crops established in spring 2022 also had a moderate cost of financing as the supply on 22 February 2022 was completed.

Rep: But from the Romanian consumer’s point of view, how do you assess the impact of Ukrainian grain on prices?

C.G.: The impact on prices was at the beginning of the conflict fueled by the shortage of sunflower oil, and then the direct influence was the cost of energy, which represented a very large share for the whole spectrum of processing and production. The Ukrainian discounted price should have mitigated these energy costs, but the distribution segments continued with high profit percentages thus remaining on a high price plateau. Even today when things are under control in terms of raw material and energy prices, distribution and retail keep price levels high for most commodities.

Rep: Why do you think Romanian farmers have not been able to get higher compensation from the European Commission? What evidence of losses should they have presented and didn’t?

C.G.: The European Commission’s calculation was flawed from the start. Whatever data they had, they took Romania’s stocks on 31.12.2022 as a benchmark against the average stocks over the last five years. And in 2022 we went through a terrible drought that brought the maize and sunflower harvest to its knees. In maize we were supposed to realise 14.5 million tonnes and we realised 8 million tonnes, and in sunflower seed we were supposed to have a harvest of 3.2 million tonnes and we only realised 2.2 million tonnes. And naturally, we had low stocks at 31.12.2022 compared to the average of previous years. And, knowing this, the Commission generated this flawed and untrue way of calculation by saying that we had low stocks so we exported a lot and the Ukrainian goods were of use to us. Totally untrue despite any figures presented.

Rep: The quality of the grain imported from Ukraine: How big are the problems, really?

C.G.: Problems may exist but because only about 5% of the quantity was tested, we have no clear relevance about their quality which can be both positive and negative in some cases. We should not generate working hypotheses without certainty. Mere accusations do not prove anything, they only incite.

Rep: What impact do you think a possible de facto ban on imports from Ukraine will have on the internal market?

C.G.: We don’t see sufficient motivation in a potential price increase, taking into account the reduction in the price of raw materials, energy and why not say potentially in demand. To put it bluntly, Ukrainian goods were brought into processing precisely because of the lower price but were mixed with higher priced Romanian goods, the cost at shelf and distribution was maintained, so the additional profit from a cheaper raw material supply remained in the primary processor’s balance sheet.