Ukraine plans to boost food processing as preferential EU trade ends

By Pavel Polityuk

KYIV (Reuters) - Ukraine plans to change its policy on agricultural exports to adapt to the expected end of free access to the lucrative EU market, potentially reducing raw material exports while stepping up domestic food processing, its farm minister told Reuters.

Agricultural goods accounted for about 60% of Ukraine's total exports of $41.6 billion last year, with the European Union buying around 60% of those goods, worth about $15 billion.

The EU temporarily waived duties and quotas on Ukrainian agriculture after Russia's full-scale invasion in 2022, but that arrangement is due to expire on June 5.

With EU farmers lobbying hard for restrictions to be placed on cheap Ukrainian competition, the free trade regime is set to be replaced by quotas, the final volume of which should be agreed between Ukraine and the EU by the end of July.

A senior Ukrainian lawmaker said last month that the end of EU preferential trade could deprive Kyiv of 3.5 billion euros in annual revenue, a hole other markets will be unable to fill.

Asked how Kyiv would cope, farm minister Vitaliy Koval said in an interview: "There will definitely be changes in export policy, and they will be driven by cold calculation, as we understand that we will suffer losses if the trade regime (with the EU) changes."

He did not specify what measures might be taken, but said domestic production was a "matter of national interest" and the government's strategy.

Currently, Ukrainian farm exports are not taxed, but oilseed processors have already proposed that the government limit the export of oilseeds in order to increase domestic production of vegetable oil. That could boost exports of processed oils, which are more profitable than raw material oilseeds.

Koval said Ukrainian oilseed processing plants were working at only about 65% of capacity and his ministry was "exploring all ways to utilise our Ukrainian processing plants in order to create additional value and processing products".

Ukraine traditionally exports about half of its soybean harvest and the major part of its rapeseed harvest.

Koval said Ukraine needed to do more to take advantage of its own raw materials.

"If someone thinks that we can be forced by certain methods into becoming a natural resource-supplying colony, which will supply the raw materials that are favourable to someone - that will not happen," he said.

Koval added that Ukraine was pushing for an agreement with the EU on better terms than it had before the war.

"There will definitely be quotas, we hope there will be an expansion of quotas compared to 2021," he said.

($1 = 0.8780 euros)

(Reporting by Pavel Polityuk; Editing by Mark Potter)