Andrew Wilson: The numbers are staggering. More than six million Ukrainians have fled their country, escaping the violence of the Russian invasion. While many have scattered throughout the world, it’s been the neighboring countries that have seen the bulk of refugees. Poland has been essential in absorbing this population, but it’s also playing a major role in keeping Ukraine’s agricultural sector alive and making sure small and medium sized Ukrainian owned businesses stay afloat.
Marcin Nowacki: We see Ukraine lost about 40 percent of its GDP last year. 40 percent. Imagine other countries losing that significant part of the economy? So, companies urgently need to internationalize, and they can do it via Poland.
Andrew Wilson: Poland’s role in helping Ukraine’s businesses now and in the future. That’s just ahead.
Andrew Wilson: Hello and welcome to MOVA, the business language for the new Ukraine, a podcast from the Center for International Private Enterprise, where we’ll explore what’s happening with business and the economy in Ukraine. I’m Andrew Wilson, CIPE’s Executive Director, and joining us today is Marcin Nowacki, the Vice President of the Polish Union of Entrepreneurs and Employers. He’s here to give us a perspective from the Polish side of the border on how things are going in Ukraine’s agricultural supply chain with the challenges that are facing it. Especially now that we’re looking at a breakdown of the Russian-Ukrainian grain deal and the need to start moving shipments back through continental Europe.
So, what we’re going to talk about today are some of the short term and longer-term things that can be done to strengthen Ukraine’s agricultural supply chain. So, welcome to you, Marcin. Tell us a little bit about yourself.
Marcin Nowacki: Hi, I’m Marcin Nowacki. I represent one of Poland’s largest business organizations, ZPP, the Polish Union of Entrepreneurs and Employers. I’m also linked to one of the largest Polish think tanks, the Warsaw Enterprise Institute. And, at ZPP, we’re glad to have been partners with CIPE for, I think, two years now, with regards to the work in Ukraine.
Andrew Wilson: Prior to the war, agriculture accounted for 20 percent of Ukraine’s GDP and was its most valuable export. What impact has the war had on exports? And what’s the current state of Ukraine’s agricultural exports?
Marcin Nowacki: Let me refer to some numbers. Ukraine is a global supplier of grain. In 2022 the wheat production of Ukraine was 20 million tons, compared to 2021, when it was 32 million tons. The difference is one-third less than last year, and that’s only compared to 2021 before the large invasion started. It’s similar in corn production. In 2022, corn production was 21 million tons and before the war, it was twice as much – 41 million tons in 2021. The production is, of course, much smaller because of territories being invaded, but also because of financial limitations of some Ukrainian farmers.
Andrew Wilson: Since the beginning of the Russian invasion of Ukraine, the role of the Polish-Ukrainian border has changed significantly. I would imagine it’s going to continue to evolve unless a new shipment deal can be made to help move grain back through the Black Sea and the Bosphorus. Can you please tell us about some of the biggest changes that you’ve seen and what challenges you’re facing transporting agricultural products from Ukraine to Poland and maybe even across to the EU itself?
Marcin Nowacki: You’re right. Poland has become one of the leading suppliers and a fundamental logistics base for Ukraine. It’s a base for military equipment, humanitarian aid, the reception of refugees, but we’ve also become the main border for Ukraine’s exports, mostly in agriculture, but also other products. Of course, right now, grain is a critical asset to transport. The majority of this transportation is done by rail. The volume is so substantial that road transport alone cannot handle it. This makes it a complex operation.
It requires facilities in reloading terminals, container availability, and railway platforms. Ukraine’s railway tracks have a wider format called wide gauge. Loads must be reloaded at railway terminals onto narrower gauge platforms, called the European Gauge System. We help companies in their relations with terminal owners and support them in making cargo rotation for agricultural products more efficient. The good thing is that, in Poland, we still have the capacity to transport more grain from the Ukraine to third-party countries.
There are some difficulties in terms of business operations and processes because large Ukrainian farmers who used to transport their grain through Ukrainian harbors, are now asking to sell their grain on the Polish-Ukrainian land border, which causes trouble, because Poland itself is a net exporter of grain – especially corn and wheat. That’s why we are so focused on the transit of Ukrainian grain (mainly from Gdańsk) to other countries via Poland and via Polish harbors. But we are asking Ukrainians not to sell their grain on the [Polish-Ukranian] border because it doesn’t make sense in the long-term. We must have a final recipient of [Ukranian] grain at the time it leaves Ukraine.
Andrew Wilson: One issue I think we’re just starting to shed a little light on here is that the farming communities and the bordering countries that are receiving or might receive this grain are getting a little upset about this. Can you talk a little bit about the political questions around the movement of grain and how your solution will help resolve that?
Marcin Nowacki: Yeah, so we have five neighboring countries. Poland is the leader [in agriculture], then Slovakia, Hungary, Romania, and Bulgaria – although Bulgaria is not neighboring anymore – but they are all involved in the transit operations. They are all large producers of agricultural products, although not as large as Poland. We are, of course, one of the leading markets in the EU. However, all of them share the perspective that once Ukrainian farmers who lack agricultural holdings begin to sell their grain on their borders, this will cause tension and trouble with domestic markets.
Our market in Poland is very different from Ukraine’s. Our agricultural sector consists of a number of small farmers with average farms of about seven or eight hectares. Whereas in Ukraine, farmers have 50,000 hectares or even 500,000 hectares. So, the capacity is different, and the scale is different. That’s why Ukraine is a global supplier and Poland is just a net exporter to mostly European markets.
But if we don’t change the business model, tensions will increase and there won’t be any way to move forward. So, we are doing our best to work with our Ukrainian counterparts and Ukrainian business associations to make sure that before the grain is sent to the land border, there is a final client, and that the client is not located in neighboring countries. Then, the transit becomes easier. And again, Poland will have the capacity to transit more grain. As long as the border is for transit, not direct export to Poland.
Andrew Wilson: I know you’ve been advocating both organizational and infrastructural change at the border to help speed up the processing and the moving of this cargo. What specific actions are you and your colleagues proposing that would help the movement of this product faster?
Marcin Nowacki: Luckily, there have been some actions already undertaken in terms of organizational changes. For example, increasing the capacity for road cargo transport at the Dorohusk border has now been entirely dedicated to trucks. There are no individuals crossing this border, and new temporary border crossings have opened for handling refugees.
In terms of infrastructure, where the gaps are most significant, there’s a need for additional border crossings with the necessary infrastructure to accommodate the increased truck traffic and rail. Actions that have been taken include new road infrastructure, expansion, and reconstruction of border crossings. But these actions do require time and direct investments.
Nine years ago, Poland gave Ukraine a development loan of 100 million euros to invest in border crossings on Ukrainian territory. Unfortunately, this loan hasn’t been used much, so we still lack the necessary infrastructure for border crossings.
The third area of potential changes involves limitations arising from the fact that the Polish-Ukrainian border serves as both the EU border and the Schengen Zone border within the single market. This situation creates additional burdens. There are procedures that must be in place, but we’re committed to speeding up the pace of cargo transport.
Hopefully, both countries will choose a border crossing for a pilot project on joint customs controls, which is really important. We’re talking about activities that can be done collaboratively. We know that because of the Schengen Zone and the EU border, some activities and operations need to be separate, but there are definitely still ways to improve the efficiency of border crossings.
Andrew Wilson: Yeah, I would imagine there’s probably short-term things that you can do as well as more complex, longer-term things that must be done. It sounds like you’ve done the short-term things, such as building extra traffic lanes, clearing stations, that sort of thing, that give more space for cargo to move across the border. But I imagine that there are much more complex issues at play here to address, that, when we start talking about the actual flow of trade information between the customs agencies, for instance, because of the different information standards and requirements and things like that. For example, I would think digitization of the Polish frontier probably uses a higher and faster standard digitization of information than perhaps your Ukrainian counterparts might. And that seems to me to be a much longer-term exercise that must be undertaken to really facilitate the trade across the border.
Marcin Nowacki: That’s true. What we see now is increased openness on both sides. Even the Polish customs authorities are becoming more open to discussions, and more flexible, which is really needed. In the future, we would like to see the Polish-Ukrainian border as a very open one, where most processes are harmonized and conducted jointly.
We see limitations in terms of grain. Again, terminals must be involved, and these same terminals deal with different sorts of products, including military equipment. So, of course, there are limitations in terms of available slots. But again, we’ve been told that they have the capacity to transit much more than what is currently being processed, but the trouble is with business processing, I would say.
Andrew Wilson: I guess I’ve heard that recently. Last summer, ZPP opened an office in Kiev, and this might help facilitate some of these dialogues on the movement of goods across the frontier. Can you share with us some success stories, as well as any other upcoming expansion plans your organization might have?
Marcin Nowacki: You’re right. We opened the office last year, in July, and the aim right now is to assist Ukrainian companies entering the Polish and European market. Simultaneously, the office manages relations with the administration and government of Ukraine. As I said, our focus is on Ukrainian companies looking to trade their products or looking for new customers in Poland. Some companies enter both the Polish market and the single market, and we have a great success story of a large Ukrainian firm that handles parcels and logistics between Poland and Ukraine. They have more than 200 employees throughout Poland who they were able to hire over the course of a couple months. They provide services to about three million, mostly Ukrainian, customers in Poland. Currently, we have over three million Ukrainians living in Poland. This is nearing 10 percent of our total population, which is 38 million. It’s an exciting process.
Ukraine lost about 40 percent of its GDP last year. 40 percent. Imagine our countries losing such a significant percentage of the economy? As a result, companies need to internationalize, urgently, and they can do it via Poland. We’re glad to be at that venue, a physical venue. We have an open space dedicated to Ukrainian companies, that they can use for free, and we assist them with finding new clients and new business partners. Just between February and June of this year, we provided our services to more than 90 companies, allowing them to enter the Polish markets.
It’s a big process and the scope is really significant. To provide some specific numbers, last year, from the onset of the war to the year’s end, 17,000 Ukrainian companies were registered in Poland. 17,000. This year, from January to May, only 13,000 Ukrainian companies were registered in Poland.
Andrew Wilson: Are these companies that trade across the frontier, across the border?
Marcin Nowacki: Some of them trade. Some of them simply come here to register the EU entity and to trade from Poland. Some of them come here to open operations or provide services. Of course, we have lots of refugees – specifically female refugees – in Poland who enter the beauty sector and have been successful. Also, Ukranian transport companies are operating here, construction companies enter our markets, some of the producers are also entering and investing in their own sites. It’s a really vast, diversified process. Altogether we have over 30,000 Ukrainian companies that started here after the full-scale invasion.
Andrew Wilson: Yeah, that really speaks to the power and influence of the small and medium enterprise sector. And it’s a sector, frankly, that’s not getting enough attention in terms of reconstruction, and thought, and planning within Ukraine itself. It sounds to me like there’s a vast reservoir of possibilities there, when we think about Ukraine’s economic future, and linkages that will exist between Ukraine and Poland that will be very important.
Marcin, I also want to congratulate you on being elected to the head of the EU-Ukraine Civil Society Platform. Business associations, think tanks, chambers of commerce, our civil society groups, play an incredibly important role in the economic ecosystem from our perspective here at CIPE. Can you share some of the key goals and objectives of the platform and what it wants to carry forward in the coming years?
Marcin Nowacki: Yeah, sure. The EU Ukraine Civil Society Platform monitors the integration process of Ukraine with the EU. Currently, Ukraine’s status is candidate country, and we are waiting for negotiations to be begin soon. Once negotiations begin, the platform will become the EU-Ukraine joint consultative committee.
So, we’ll be directly monitoring and have access to negotiations. The platform itself is located in the European Economic and Social Committee. So, it’s an EU institution, consisting of social partners at the EU level. And we are doing our best to share Poland’s experience, and the experience of other countries in Central and Eastern Europe, of negotiation and integration with the EU.
Even now, my organization, ZPP, is preparing for a large project related to that. The project will target Ukrainian entrepreneurs and will focus on areas and sectors critical to future accession negotiations. Also, the agricultural sector.
Because Poland, joining the EU in 2004, had very specific experiences in negotiations; the agricultural sector, the transition periods – this is all very important for institutions, for the way the country faces the integration process and, also, for the EU to prepare for integration. So, it’s really essential right now to be active in the process. And again, we hope that later this year, negotiations between the EU and Ukraine will begin.
Andrew Wilson: Marcin, it’s been said out of crisis comes opportunity, and based on all the work that you’ve been describing about the war in Ukraine, this crisis in the Green Deal is driving people to be very creative and speed up some of these physical and bureaucratic integration efforts that, frankly, Ukraine’s neighbors have had problems in dealing with for years.
I’m really hopeful that this will help open the Ukrainian border faster to the EU and help harmonize its systems to make trade easier for the small and medium enterprise sectors, who really do have a key role to play in the economic growth of Ukraine. It’s really pleasing to hear that you and your colleagues are taking this leading role now with planning and actively working towards helping the SME sector and the agricultural sector in Ukraine begin its integration process into the EU, and I just want to thank you today for giving us a snapshot into that.
Marcin Nowacki: Thank you, Andrew. Thank you. We really hope that Ukraine will use the access to the single market, which has been given to Ukraine temporarily, for the development of companies, mainly SMEs. This is really important for diversifying the Ukrainian economy – not just looking at major players, but mainly at SMEs.
We must accept that in some sectors, during the accession process, there will be limitations, there will be quotas, and transition periods involved. But that’s okay. This is the way forward. But in number of sectors, I’m sure we can advocate for leaving the single market open for Ukrainian companies for good.
Andrew Wilson: Thank you, Marcin. And thank you for joining us on this episode of MOVA. To learn more about the Center for International Private Enterprise and our work, please visit our website at www.mova.org. If you found value in this episode, please show your support by liking and subscribing to Mova. Sharing this podcast with others also helps us expand the conversation. Thanks for listening.
