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Poland overtakes Russia to become Ukraine’s biggest trade partner in February

Poland overtakes Russia to become Ukraine’s biggest trade partner in February

Poland displaced Russia as the top buyer of Ukrainian goods in February according to the latest data available from Ukrstat.

Russia has long been Ukraine’s main trade partner as the two economies remain intimately intertwined. However, relations have crumbled since the annexation of the Crimea in 2014 and trade has fallen thanks to numerous embargoes as the two countries are fighting an undeclared war.

Ukraine’s trade with Russia dropped 11% q/q in the first three months of this year to $2.4bn. Between January and March Ukraine sold $818mn worth of goods to Poland, compared to $759mn to Russia, according to a press release from the Customs Service.

And Ukraine’s trade with Russia is expected to drop further after Russia announced a new set of embargoes on oil and coal exports on April 24.

The measures imposed by a government resolution will take effect on June 1. The restrictions mean that the country’s exporters will have to apply for special permission from the Russian Ministry of Economic Development.

Evgeniya Akhtyrko at Kyiv-based brokerage Concorde Capital believes that this latest spiral in the trade war between Ukraine and Russia will further harm Ukraine’s foreign trade, with imports of oil products likely to be the most negatively affected.

In 2018, Ukraine’s imports of petrol and petrol products (including gasoline) from Russia amounted to $2.1bn, or 37% of total exports in this group. This means that Ukrainian oil importers will need to find other supplies within a very short period of time. The domestic economic situation will also be harmed, with shortages on the retail gasoline market to be very likely, as well as price fluctuations, the expert believes.

The breakdown of trade statistics show that Ukraine has built up a well diversified trade portfolio. After Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) with the EU, Ukraine’s trade with the EU has expanded, up 10% in the first quarter compared to the previous quarter to $9.5bn. The EU accounts for 38% of Ukraine’s foreign trade.

However, the export quotas for Ukrainian goods headed to the EU remain very small, and cap further growth of Ukraine’s trade. The title of Ukraine’s trade deal with the EU is decpetive as it is neither “deep” nor “free”, but actually shallow and restrictive, forcing Ukraine to look elsewhere for customers for its goods and services.

Ukraine used up its entire 2018 duty free quotas for wheat, maize, honey, grape and apple juice supplies to the EU by the middle of January. After the quotas are used up normal higher duties apply. Ukraine is not a member of any of the EU’s other trade deal clubs that come with preferential duties.

Agricultural products are the main export product to the European Union and grew by 24.4% to $1.88bn in the first quarter, while imports grew by 9.9%, according to acting Minister of Agrarian Policy and Food of Ukraine Olga Trofimtseva.

Farm produce imports in the first quarter totalled $734.6mn, having increased by 9.9% y/y. With a bit more than one month left to go in the current agricultural marketing year, Ukraine has already exported more grain than in all of 2018.

Ukraine has exported 42.4mn tonnes of grain and leguminous crops since the beginning of the current marketing year, which is 25% up from the previous marketing year when 40mn tonnes of grain was exported. Ukraine is now a top three global grain exporting country.