Analysis: Unfair advantage?

By Rachael Porter

EU producers claim they are being undermined by Ukrainian breast meat imports that meet the letter but not the spirit of the law. 

Ukraine’s main poultry processor, MHP, has made no secret of the fact that it’s pushing hard to increase exports to the EU.

The capacity increase at the company’s Vinnytsia poultry complex is expected to be a key driver during the next three to five years, resulting in more than 930,000 tonnes of total poultry production by 2023. That compares to 617,943 tonnes in 2018.

But, in 2018, concerns regarging the Deep and Comprehensive Free Trade Agreement (DCFTA) by the Ukrainian poultry sector came to light. It emerged MHP had been producing a cut which had not been used in commercial trade before, known as the ‘batman’ cut (breast with part of the wing attached). Producing this cut allowed the firm to exploit a loophole and export duty-free to the European Union.

Ukraine has, at all times, acted fully in accordance with the EU legislation. A spokesperson for MHP said Ukrainian exporters of all poultry meats (falling under the different quota regimes) have received a confirmation of legality of their actions from European institutions. 

“Given the fact that chicken breast was considered sensitive in the negotiations, this duty-free access clearly went against the spirit of the agreement,” says NFU’s chief poultry adviser Gary Ford.

He explains that the trade agreement was put in place 2014 and established the duty-free tariff rate quota (trq) of 16,000 tonnes, increasing to 20,000 tonnes during a five-year period, of meat and edible offal – fresh, chilled or frozen. It also included a 20,000 trq per annum of meat and edible offal not cut in pieces, frozen only. This is separate to the category of ‘fresh chilled, frozen’.

Total Ukraine exports to the EU, to date are: 48,000 tonnes in 2016, 80,000 tonnes in 2017, and 123,000 tonnes in 2018.

When complaints from EU producers about the ‘batman’ cut first emerged, the Commission told Ukraine to stop. But at the same time it increased the trq from 20,000 tonnes to 70,000 per annum, plus 20,000 tonnes of frozen product. The loophole was around 5,000 tonnes per month duty free, under ‘other cuts’, which was fully trade liberal.

“In effect, what has been achieved is that the EU has given the Ukraine three and a half times the original quota,” says Ford. “While this closes the loophole and gives certainty – which is absolutely welcome – the outcome undermines EU poultry production.

‘Baffling’ outcome

“The outcome is baffling and is not what we were asking for. It has, basically, legitimised a loophole that runs the risk of encouraging others to do the same,” he adds.

AVEC, the association that represents the interests of poultry producers and traders in the EU, is disappointed, even though the loophole has, technically, been closed. It is calling for a watertight agreement to be drawn up.

In April 2018, AVEC officially requested rapid action from the Commission following growing imports from Ukraine.

The reopening of negotiations with Ukraine has led to a formal agreement comprising an increase, of 50,000 tonnes, to the existing trq of poultry meat, in order to compensate for closing this loophole.

“This agreement will now require the consent from the EU Council and the European Parliament, as well as the Ukrainian Parliament. And, should the 50,000-tonne increase be confirmed, we believe and regret that Ukrainian companies, that have circumvented the provisions of the DCFTA and used a mechanism going against the spirit of this agreement, will be rewarded with significant extra quantities,” a spokesperson for AVEC told Poultry Business.

Legal complexity

“We deplore that our sector will have to pay for the Commission’s ‘mistake’, while the same mistake has not been made in the negotiations with Ukraine for other EU meat sectors, such as beef or pork.

“Nevertheless, we understand the legal and geopolitical complexity of these negotiations and the sector will act responsibly in order to make sure that a solution to close that loophole will be found as soon as possible.

“We also urge the Commission to bring in guarantees that similar situations will not repeat in future free-trade agreement negotiations.”

AVEC is also highlighting the right of consumers to be informed when they consume Ukraine products and called for the labelling EU/Non-EU with the name of the third countries to be introduced for all products and particularly for meat consumed in food service and catering sectors. 

A spokesperson for MHP said the company fully adhered to EU country of origin labelling requirements, which allows consumers to see where the food has come from and, in case of meat, even where it was reared.

The British Poultry Council’s concerns mirror those of AVEC. It says it is dismayed about the exploitation of the loophole – and the somewhat ‘compromised’ way in which the Commission is attempting to close it. And the BPC also echoes AVEC’s concerns regarding labelling.

Transparent labelling

“The BPC has serious concerns about the loophole, which puts UK and EU producers at risk of being flooded by potentially ‘cheaper’ poultry meat products,” says BPC’s Shraddha Kaul. 

Ford agrees that it is unacceptable that the UK poultry meat sector, which has invested millions into the strictest and highest animal welfare standards, has to compete against a significant influx of Ukrainian poultry meat into the EU market. 

“Under no circumstances can we accept that EU or UK standards be lowered, or that any producer be penalised in the market for following these high standards,” he adds.

A spokesperson for MHP said: “All poultry exported from Ukraine to the European Union is fully compliant with EU legislation and is audited by the DG SANTE. MHP undergoes the same checks as EU operators to ensure compliance. Procedures for accessing the EU market for animal products are designed to identify even slight cases of non-compliance with EU standards and, as a consequence, national requirements and standards for food safety are often higher than those for establishments located in the EU. In regard to production costs, MHP is able to compete with European producers because of our highly-efficient business model, based on vertical integration.”

Investment funding

Ford is also concerned by events in Slovenia. “The European Bank for Reconstruction and Development (EBRD), which was set up to help the eastern bloc, has received a request from a major Ukrainian poultry company to invest in a Slovenian poultry meat processor. The outcome of this is pending, but it’s in the region of 100 million euros.  

A spokesperson for MHP said it was aiming for a ‘sensible compromise’ over the issues raised. MHP is one of Europe’s fastest-growing poultry suppliers, exporting to more than 80 countries in three continents across the world. Its reputation for quality, innovation and adherence to high standards has created a growing demand for its products and Europe remains an important market. As a certified exporter to the EU, we are fully compliant with all the relevant food standards and animal welfare legislation. 

“Poultry quotas are a matter for the Ukraine Government and the European Union and we will continue to respect whatever is agreed. We look forward to a sensible compromise which creates a level playing field and give producers certainty in the future.”

All about MHP

MHP is the leading producer of poultry products in Ukraine, with the greatest market share and highest brand recognition for its products. The company owns and operates each of the key stages of chicken production processes, from feed grains and fodder production to egg hatching and grow out to processing, marketing, distribution and sales (including through MHP’s franchise outlets).

Its latest financial results make impressive reading. Headline grabbers include the launch of the next phase of the Vinnytsia Poultry Complex, now the largest poultry farm in Europe, which taken production above 600,000 tonnes – an increase of 9%.

The number of countries MHP exports to is now more than 80, up from around 60 the previous year. And poultry export sales now make up 48% of total sales. Revenues have increased by 21% to £1.2 billion.

 

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