Can Ukraine’s grain deal ease the global food crisis?

By Nigel Hunt and Jonathan Saul

LONDON, Sept 8 (Reuters) – Russian President Vladimir Putin on Wednesday discussed reopening a UN-brokered deal for Ukrainian grain exports via the Black Sea, saying Moscow and the developing world had been “cheated “.

The agreement reached in July, creating a protected maritime transit corridor, was designed to ease global food shortages, with Ukraine’s customers including some of the world’s poorest countries.

UN Secretary-General Antonio Guterres said the deal would bring relief to developing countries “on the brink of bankruptcy and the most vulnerable people on the brink of starvation”.

Nevertheless, the agreement from the outset was based on the facilitation of commercial shipments.

In the beginning, the focus was also inevitably on moving ships that had been stuck in Ukrainian ports for months, most of which were loaded with corn and booked by developed countries like Spain to be used for animal feed or biofuels.

Most of Ukraine’s wheat crop last year, which is harvested earlier than corn, had already been shipped when Russian troops entered the country.

Developing countries such as Somalia and Eritrea are heavily dependent on wheat imports from Russia and Ukraine.

Here are some of the problems:

WHAT WAS EXPORTED?

The pact created a safe shipping lane for exports from three Ukrainian ports and the original aim was to allow ships trapped in the war-torn country since the Russian invasion in February to leave.

So far, some 2.07 million tonnes of agricultural products have been shipped, mainly corn, but also volumes of soybeans, sunflower oil, sunflower meal and barley. Wheat shipments reached just over 500,000 tonnes.

This partly reflects the timing of the Russian invasion, as much of last year’s wheat crop had already been exported in February, as it is harvested several months before corn and therefore tends to be shipped more early.

There are about three million tonnes of grain at the ports that need to move first, which will likely take until mid-September to clear.

For a full breakdown of countries and quantities exported:

https://www.un.org/en/black-sea-grain-initiative/vessel-movements

Ukrainian Agriculture Minister Mykola Solsky told Reuters last week that agricultural exports could reach 6-6.5 million tonnes in October, double the volume recorded in July.

However, there are still too few large ships arriving to maintain the required volume rate.

The exclusion of Mykolaiv, the country’s second-largest grain terminal according to 2021 shipment data, also makes such an export surge difficult.

WILL IT ALLEVIATE THE FOOD CRISIS?

The sharp decline in shipments from Ukraine has played a role in driving up global food prices at a time when world hunger is on the rise. The COVID-19 pandemic and weather shocks have also contributed to food price inflation.

However, much larger volumes will need to be shipped through the corridor to have a substantial impact on global supplies.

Ukraine has around 20 million tonnes of grain left over from last year’s harvest piled up across the country, as well as this year’s wheat crop, which is estimated to be around 20 million tonnes more.

The three ports involved in the deal – Odessa, Chornomorsk and Pivdennyi – have the combined capacity to ship around three million tonnes a month and some expect that level of exports could be reached in October.

However, a large number of ships will be needed to transport such a volume of grain and some shipowners may be reluctant to enter a war zone, particularly with the threat posed by mines and the high cost of insurance.

DID IT LOWER WORLD WHEAT PRICES?

Wheat prices at the Chicago Board of Trade rose sharply following the Russian invasion of Ukraine, but had already returned to pre-invasion levels in early July, weeks before the maritime corridor deal .

Some of the key factors pushing Chicago wheat prices down include a record crop in the major Russian exporter this year, a bleak global economic outlook and a strong dollar.

The potential for additional exports from Ukraine, however, has been cited by analysts as a bearish market factor, although only around 500,000 tonnes of wheat have so far been shipped through the corridor. Ukraine has exported about 18 million tons per year in recent seasons.

Prices of wheat-based staples such as bread and noodles remain well above pre-invasion levels in many developing countries despite Chicago futures falling due to weak local currencies and rising energy prices which have increased costs such as transport and packaging.

WHAT ABOUT MARINE MINES?

Russia and Ukraine accuse each other of laying the many naval mines that now float around the Black Sea. These pose a significant threat and were cited by a crew member of the first ship, the Sierra Leone-flagged Razoni, as the only thing he feared.

The mines drifted away from Ukrainian shores, with Romanian, Bulgarian and Turkish military diver teams defusing any that ended up in their waters.

It could take months to eliminate them and there was not enough time to do so before the grain pact came into effect.

WHAT ABOUT INSURANCE?

The Istanbul-based Joint Coordination Center, which oversees the deal and is made up of Turkish, Russian, Ukrainian and UN officials, released long-awaited procedures on the sea route last month, which aim to allay concerns insurers and shipowners.

Insurers had previously said they were willing to provide cover if there were arrangements for international naval escorts and a clear strategy to counter sea mines.

In one of the first steps following the July 22 agreement, insurer Lloyd’s of London Ascot and broker Marsh have set up marine and war cargo insurance for grain and foodstuffs leaving Ukrainian ports of the Black Sea with coverage of $50 million for each trip.

However, the cost of comprehensive insurance for vessels – which includes separate coverage segments – sailing in Ukrainian ports is expected to remain high.

WHAT ABOUT THE CREWS?

In September, Ukraine implemented a decree allowing its sailors to leave the country despite wartime restrictions in a bid to free up vital labor for Ukraine’s grain exports and global shipping industry. at large.

At the start of the conflict, around 2,000 sailors from around the world were stranded in Ukrainian ports and the International Chamber of Shipping association estimates that this fell to around 420 sailors.

(Reporting by Nigel Hunt and Jonathan Saul, Editing by Veronica Brown and David Evans)

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