Ukraine, one of the world’s top ten producers of soybeans and rapeseed and a key supplier to the European Union, has entered the new export season facing serious disruption, writes EU Today.
After the introduction of a 10% duty on soybean and rapeseed exports, shipments ground to a halt. The problem: while the law was passed, the necessary implementing rules for customs were never adopted, and the customs service responded by voiding all export applications.
The measure, analysts warn, threatens not only farm incomes but also Ukraine’s EU integration process and investor confidence – especially since the government has yet to treat the situation as a major problem.
Favouring the Processing Industry
Ukraine, which typically exports about 4 million tonnes of soybeans and up to 3 million tonnes of rapeseed annually, is facing a major export crisis. Since the beginning of September, traders and producers have effectively lost the ability to ship their goods abroad, breaking multimillion-dollar contracts and preparing to pay heavy penalties for idle vessels in ports.
The reason is a poorly designed policy: the government and parliament recently introduced a 10% duty on soybean and rapeseed exports to “stimulate domestic processing” but failed to provide exemptions for small farmers who should have been able to sell their crops independently without paying the levy.
In early June, a group of lobbyists in Ukraine’s parliament introduced, for the first time, amendments on soy and rapeseed into a draft law. The initiative was supported by the Ministry of Agrarian Policy and Food, which a month later was dissolved and its functions transferred to the Ministry of Economy. The lobbyists’ objective was to advance the interests of processing plant owners by ensuring their facilities ran at full capacity. The proposal was presented as a shift “from a raw-material economy to domestic processing.”
Experts quickly pointed to the real reason behind the move. During the blockade of Black Sea routes at the start of Russia’s full-scale invasion, when exports were minimal and raw material prices were low, some entrepreneurs decided to build a number of small oil-extraction plants, including those geared toward rapeseed and soy. But once the blockade was lifted and exports resumed, producers and traders still found it more profitable to sell abroad. Processors then pushed a plan to retain raw materials in Ukraine through export duties.
The first attempt to push the changes through in July failed, but parliament adopted the law in August. The duty was set to remain in place until 2030, after which it will be reduced by one percentage point annually until 2035. An exemption was granted for producers: farmers who export their crops directly, rather than through traders, would not have to pay the duty. The Cabinet of Ministers was instructed to establish a State Agricultural Business Support Fund to channel revenues from the levy.
The authors of the initiative were undeterred by the fact that a similar scheme was tried eight years ago, when processing lobbyists pushed through the cancellation of VAT refunds for soybean and rapeseed producers. Within two years, plantings fell by 20% as farmers found it unprofitable to grow crops that no longer qualified for tax rebates.
Experts warned the measure would be harmful. They dismissed the exemption as “illusory,” noting that small and medium farmers – who are focused almost entirely on cultivation – are unlikely to take on customs clearance, logistics and other formalities that traders normally handle. Economists also questioned the government’s projection of an additional $240 million in GDP, arguing that the losses borne by producers, traders and the state budget would more than offset any gains, turning the policy into a net negative.
The likely outcome, they said, is that farmers will again reduce plantings. Some have already announced plans to switch to other crops such as wheat, barley or corn, or to more predictable oilseeds like sunflower, even if margins are lower. Others warn they may leave part of their land uncultivated rather than operate at a loss.
As a result, tax revenues will fall, jobs will be lost, loan defaults will rise and land values will decline. Processing plants – the very facilities the duty was meant to support – will face an even greater shortage of raw materials. At the same time, Ukraine will lose ground in oilseed exports as competitors take its place in the EU market, while domestic producers lose profitable niche crops that previously accounted for up to 10% of agricultural exports. Foreign currency earnings, of which agriculture is one of the main sources, will shrink, increasing the risk of uncontrolled inflation. Falling farm incomes will also hit related industries, reducing demand for seeds, fertilizers and machinery.
Violating WTO and EU rules
From the start, the greatest concern was the clear violation of the EU Association Agreement and World Trade Organization principles. Article 31 of the Agreement explicitly prohibits Ukraine from introducing new permanent export duties.
Parliament formally labelled the levy ‘temporary,’ but set it for ten years, which in practice amounts to a permanent restriction. Unilateral export duties also contradict core WTO principles, including the predictability and transparency of trade policy.
The European Business Association has already stated that the measure breaches Ukraine’s commitments and undermines confidence in the country as a trading partner. Nibulon, in an open letter, stressed that breaching international norms and the rule of law carries reputational risks for the state. Sudden mid-year rule changes send one of the worst signals to foreign investors – not only in agriculture, but also in other sectors attractive for investment, from reconstruction to technology.
Agricultural associations also warn that if Kyiv does not repeal the duty, the European Union may respond by imposing import tariffs on Ukrainian goods. The possibility is already being discussed by European industry groups. Media reports say Europe is considering a 5.6% tariff on Ukrainian oil imports if the government maintains the export restrictions.
It is worth noting that all this is unfolding in the middle of negotiations on a new trade agreement with the EU, which is meant to replace the Autonomous Trade Measures (ATM) that were in force until June 2025. The agreement will be crucial: up to 60% of Ukraine’s exports go to the EU, while imports from Ukraine make up only a small share of the European market.
Rapeseed, however, holds a prominent place within that small share. Previously, trade between the sides was governed by the Deep and Comprehensive Free Trade Area (DCFTA 1), under which more than 90% of goods were exempt from duties, though tariff quotas still applied to certain agricultural products.
After Russia’s invasion, the EU introduced Autonomous Trade Measures – a full liberalisation of trade with Ukraine that helped save exports during the maritime blockade. Since June 2025, the DCFTA 1 regime has been reinstated, but negotiations are under way for a DCFTA 2, intended as an improved version of the agreement. In exchange for greater market access, Ukraine is expected to gradually adopt EU production standards on animal welfare, pesticides, GMOs, veterinary rules and environmental protection, with full harmonisation due by 2028.
Economists estimate that the end of the ATM regime has already cost Ukraine’s farm sector around $1.5 billion. The agricultural sector was therefore under strain even before the latest changes. Yet the government in Kyiv added further pressure by imposing additional export duties on key raw materials in the middle of a fragile situation.
Frozen exports
But even if one assumed the duties had merit, the government appeared not to have done its basic homework. In the weeks before the measure took effect, when it was already clear the law was about to be signed, traders began making arrangements with farmers so that the farmers themselves would act as exporters and thus save 10% by avoiding the duty.
However, when the shipments reached customs, it turned out there was no mechanism to distinguish between raw materials exported by traders (which should be subject to the duty) and those exported by producers (small or medium farmers, under the exemption). As a result, customs officials decided that everyone had to pay and blocked and cancelled all “duty-free” declarations.
This triggered chaos at customs posts, since farmers had not anticipated such a decision and had not budgeted for these taxes. In effect, the start of the export season was derailed: dozens of ships were left stuck in ports, producers were forced to pay penalties, and competitors on European and global markets stood ready to capitalise on Ukraine’s sudden withdrawal.
At least 400,000 tonnes of rapeseed contracted for September and another 200,000 tonnes for October are blocked pending resolution of the issue. In total, more than 3 million tonnes of harvested crops are waiting for export. This is exactly what experts had predicted – warnings the bill’s authors chose to ignore.
But the drama did not end there. Farmers raised the alarm and called on the government to intervene immediately. In an appeal to Prime Minister Yulia Svyrydenko, they demanded that exports be urgently unblocked by instructing the Ministry of Finance to draft and approve the necessary regulations allowing producers to export their own crops without paying the duty. “
The introduction of duties in this manner, and in bypass of established procedures, undermines the fundamental principles of the rule of law, casts doubt on the predictability of state policy, and creates risks for Ukraine’s economic stability and investment attractiveness,” Nibulon stressed in an open letter to the president.
Government fails to heed the warning
The government’s response, however, proved puzzling. On Monday, 10 September, officials held a special meeting with business representatives to address the collapse of oilseed exports. The farming community had expected clear guidance on how to proceed amid the suspension of shipments. But despite the urgency of the situation, the level of representation from state bodies was telling: only the Ministry of Economy, Environment and Agriculture was represented by Minister Oleksii Sobolev and his deputy Taras Vysotsky, while other agencies sent only department heads or deputies.
According to market participants, this approach underlined either a failure to grasp the seriousness of the crisis or a deliberate disregard of the problem by the Ministry of Finance, the Tax Service and Customs. In the end, no concrete decision was made. According to participants, officials from the agencies in question limited their contribution to ritual phrases such as “unfortunately, we cannot” and “unfortunately, we are not ready to take responsibility.” In effect, the responsible bodies openly acknowledged their inability to resolve a trade collapse of their own making.
This approach sent a clear signal to all stakeholders, including European ones, that the Ukrainian authorities are not prepared to resolve the problems facing farmers and will continue to create obstacles for investors already operating in the country or considering entry. Moreover, it showed that breaches of the EU Association Agreement and WTO norms – and with them the status of a violator of international commitments with a damaged business reputation due to broken contracts – do not greatly trouble the government. If, during negotiations on a new trade deal with the EU, officials fail to secure reasonable terms of mutual trade, the soybean and rapeseed dispute may well be seen as one of the triggers leading to such a failure.
Sudden protectionist steps, introduced without consultation with partners or the market, not only fail to solve existing problems but create new ones – legal, reputational and economic. The question now is whether the Ukrainian government is prepared to acknowledge its mistake, roll back the populist duties on soybean and rapeseed exports, and act with greater predictability.
This is a test of maturity and of readiness to uphold European principles: strict adherence to rules and a partnership-based approach to business. Otherwise, prospects for rapid EU integration, preferential conditions for agricultural exports and new investment in Ukraine’s post-war recovery will have to be set aside.
Main image: https://ukragroconsult.com/
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