A free trade agreement between Ukraine and the European Union: potential effects on agricultural markets and farmers' revenues

Abstract

Ukraine and the EU are currently negotiating a deep and comprehensive free trade agreement (FTA). Such a FTA can be expected to comprise opportunities as well as challenges for both the EU and Ukraine and to have an impact on agricultural markets. This article provides a model-based quantitative assessment of the potential impact of a FTA on agricultural commodity markets and farmers' revenues in the EU and Ukraine. For the quantitative analysis the dynamic, partial equilibrium model AGLINK–COSIMO has been adapted and applied. The analysis focuses on the bilateral trade positions and not on the effect on other countries. The simulation of a FTA between the EU and Ukraine was done through the elimination of import tariffs for the main agricultural commodities. The results of the simulation indicate a positive change in producer revenue of EUR 393 million (+2.6%) in Ukraine and EUR 860 million (+0.4%) in the EU. So this FTA entails benefits for the agricultural sectors of both trading partners. However, gains from a FTA are not distributed homogeneously and vary significantly among commodities. Ukrainian agricultural producers should also be prepared to meet the challenges involved in the necessity to comply with the quality and sanitary standards of the EU.

Acknowledgements

The authors acknowledge helpful comments from EAAE conference participants in Zurich. The authors are solely responsible for the content of the article. This paper was written when all three authors were employed by the JRC-IPTS, European Commission. The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

Notes

1. Coarse grains comprise mainly maize and barley, but also oats, sorghum, rye, millet, triticale and other cereals.

2. It has to be noted that this study does not reflect any concrete political decision on modalities regarding the potential FTA between the EU and Ukraine, i.e. it does not represent a forecast or an expectation of how a potential FTA would be structured.

3. The results of any analysis based on the use of the AGLINK–COSIMO model by parties outside the OECD are outside the responsibility of the OECD Secretariat. Conclusions derived by third-party users of AGLINK–COSIMO should not be attributed to the OECD or its member governments.

4. The year 2010 was chosen for technical reasons in order to allow the analytical model used in this study enough time to adjust to the change in trade policy within its 10-year projection horizon.

5. Tables with complete information are available upon request.