EU increases tariffs on Russian grain to hamper its war effort – but it’s European consumers who could feel the pinch

Imagine there was a food tax that increased your grocery bills by nearly 20%. That’s essentially what the Common Agricultural Policy does to food prices in the EU

EU increases tariffs on Russian grain to hamper its war effort – but it’s European consumers who could feel the pinch

Estimated reading time: 8 minutes

Kirill Shakhnov, University of Surrey

Now picture that tax going up even more, to 50%. That’s exactly what the EU’s recent decision to slap hefty tariffs on Russian grain imports is all about.

The EU has a longstanding policy of protecting its own farmers, even if they’re not the most efficient. But farmers have been protesting all over Europe because they’re worried about cuts to the direct support they receive from the government. The EU wants to reduce subsidies, which account for 28% of farm revenues in the bloc, in particular for diesel fuel.

Some people think the decision to impose higher tariffs is just an excuse used by the EU to keep protecting its own farmers. High tariffs on Russian grains, coupled with restrictions on imports of Ukrainian grain — two significant producers in close proximity to the EU — would enable European farmers to offset the impact of rising energy and fertiliser prices by passing these costs on to EU consumers.

The president of the European Commission, Ursula von der Leyen, has done little to convince people that this is not the case. She said: “We propose the imposition of tariffs on these Russian imports to mitigate the growing risk to our markets and our farmers.”

Russian grain already faces import tariffs, just like any other non-EU product. So why make them even higher and what effect could it have?

The impact will be minimal

The increased tariffs will apply to imports of cereals, oilseeds and derived products from Russia and Belarus. Depending on the product, the tariffs will rise to either €95 (US$103) per tonne, or to a duty of 50%.

The European Commission claim that the proposal intends to stop Russian imports from destabilising the EU market. But the facts tell the story. Imports from Russia aren’t nearly enough to rock the boat of the EU grain market. In fact, they’re just a small fraction of what the EU produces and exports itself.

In 2023, Russia exported just 1.5 million tonnes of grain to the EU from the country’s total export of 45 million tonnes. While that might sound like a lot, the EU exported 28.4 million tonnes of soft wheat between 2022 and 2023. So, it is very unlikely that imports from Russia could destabilise the EU market.

The European Commission has also said that its decision to raise tariffs is intended to limit Russia’s ability to fund its war effort, and to ensure that it cannot sell grain “stolen” from occupied Ukrainian territories. However, the imposition of higher tariffs will not have much of an effect on the Russian war effort at all.

When Russia invaded Ukraine, its navy blockaded Ukrainian ports in the Black Sea and trapped 20 million of tonnes of grain meant for export. So in 2022, the EU waived import duties on various Ukrainian goods, including steel, fruits, vegetables and other agricultural products, to support the country’s struggling economy.

However, this goodwill didn’t last long. Farmers in neighbouring European countries began protesting, saying cheap Ukrainian imports were hurting their markets, and the EU reverted to its usual protectionist stance by imposing a ban on Ukrainian grain imports in 2023. It has since tightened the screws on Ukraine even further, and now it’s doing the same for Russia.

Russia, like Ukraine, is a major grain producer and exporter, and it is a competitor to the EU. However, Russia exports most of its grain to countries like Turkey, China and India, and not so much to the EU. So, imposing higher tariffs on Russian grain might not hit Russia as hard as intended as they can just sell to other markets. And, even then, grain accounts for a mere 1% of Russia’s exports.

Worsening the cost of living crisis

Who gets hurt then? These tariffs could worsen the cost of living crisis by making food prices even higher.

In the late 1970s and early 1980s, EU intervention in the dairy market led to infamous “butter mountains” and “milk lakes”. A guaranteed minimum price for dairy products caused production to surge, resulting in a glut. Stockpiles of surplus produce were costly to maintain and contributed to rising prices.

The return of protectionism, whether against Ukrainian or Russian grain, spells trouble for everyone. When the EU imposes tariffs on imports, prices can shoot up, especially for products we use every day like food.

Playing the protectionism game can also sour relationships with other countries and mess up any plans for working together on global issues. In 2023, Russia withdrew from the grain deal amid discontent over perceived restrictions that limited the full dispatch of its grain and fertiliser exports. The collapse of the grain deal, which allowed the export of Ukrainian grain across the Black Sea, led to a rise in food prices, increasing poverty and hunger in vulnerable countries.

The EU might think it’s helping its own, but it could end up causing more harm than good.The Conversation

Kirill Shakhnov, Lecturer in Economics, University of Surrey

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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