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. Last Updated: 07/27/2016

EU Snubs Russian, Ukrainian Grain

The European Union clearly aims to close its markets to cheap Russian and Ukrainian grain imports, forcing the two countries to look for other markets, analysts said Thursday.

But some Russian analysts believe that Moscow may seek a political compromise with the 15-nation trade bloc or could retaliate by banning some European imports.

"Whichever protective measures the European Union adopts, it will in any case mean a sharp reduction of Russian and Ukrainian supplies," said Andrei Sizov, of leading Russian agricultural analyst SovEcon.

"Therefore Russia will have to fight to reinforce its positions on its main markets -- Northern Africa and the Middle East," he added.

"Ukraine will forget about European markets next season. This trade will be unprofitable and local companies will focus on traditional markets -- Africa, South Korea, Asia," said Mykola Vernytsky, an analyst from Ukraine's ProAgro company.

The French grain office ONIC proposed on Wednesday that the European Commission set up a new price reference for grains coming from Black Sea ports, to lift import tariffs and to halt massive imports chiefly from Russia and Ukraine.

The new reference price, called Odessa, will be established each week on the basis of prices from between six and 10 "independent sources," and will be on a FOB basis in U.S. dollars, ONIC said.

"I don't think the ONIC scheme will be adopted," SovEcon's Sizov said. "It is unlikely that the European Commission will be willing to lose face by dropping its own plan.

"What I think is that the main idea of the ONIC proposal is to stimulate the EU to rapidly adopt additional protective measures against supplies from Black Sea ports," he added.

The European Commission announced earlier this month a scheme to create fixed-rate wheat quotas that would favor traditional suppliers but would be less accommodating to new suppliers like Ukraine and Russia.

ONIC has said that EU imports were seen surging 224 percent in 2001-02 to 7.1 million tons, making the 15-member block the world's biggest wheat importer this season.

"Europe is in panic, but Ukraine has almost completed its grain export this season and only between 300,000 and 400,000 tons of grain could arrive to Europe soon under old contracts," said Serhiy Feofilov from Ukraine's leading UkrAgroConsult agriculture consultancy.

Andrei Tseshinsky, food analyst at the industrial and banking group Alfa's trading arm, Alfa-Eko, said he believed that a political solution to the dispute could be found.

"What we face is a clear conflict of interests," Tseshinsky said. "So, steps should be taken at high political level to find a compromise acceptable to both sides."

He declined to say how Russia could dissuade the EU from adopting protective measures, but Sizov said Russia could retaliate by banning some foodstuffs imported from Europe.

"I don't rule out that our veterinarians discover that European pork or butter do not correspond to our food safety standards and impose a temporary ban on their imports," Sizov said.

Russia slapped a ban on U.S. poultry imports from March 10 quoting safety worries and partially lifted it from April 15, following intensive top-level negotiations.

U.S. officials denied the United States was in breach of Russian sanitary standards, and some said the ban was designed to protect domestic producers at the cost of U.S importers.