World leaders are racing to save an international agreement to allow grain shipments to Ukraine by sea before it expires in less than two weeks.
They face an important problem: the agreement, which has already been extended three times, is almost gone.
The country’s Black Sea ports, full of ships last fall, are almost empty while the joint center tasked with approving them buckles into disrepair. The few ships left were inspected with a leak. Russian officials continue to rail against the pact’s extension, while Kyiv accuses Moscow of trying to sabotage it.
“It feels different this time,” said Tariel Khajishvili, director of shipping agent Novik LLC in Odesa. Ship traffic at the key grain hub of Chornomorsk is “completely dead.”
What’s Russia’s Problem with the Black Sea Grain Deal?
The United Nations and Turkey shared the grain initiative a year ago to allow a safe route for exports after the Russian invasion. Since then, the agreement has safeguarded nearly 33 million tons of crops on world markets, helping to lower food prices and stabilize a sector that is important to one of the world’s leading grain producers. world.
It is up for renewal again July 17, with the European Union, the US and the UN pushing for an extension. The negotiations took place against the backdrop of Ukraine’s counter-offensive, aided by Western governments, against the Russian opposition. The presidents of Ukraine and Turkey are scheduled to meet in Istanbul on Friday to discuss extending the agreement.
Russia’s foreign ministry this week said there were “no grounds” to continue the deal, citing five barriers to its own food exports that it wants to remove. Advocates argue that allowing it to lapse could raise costs for Ukrainian farmers and cut off what the UN calls a “lifeline for global food security.”
“We will see some parts of Ukraine decreasing production for 2024 if there is no change,” said Kateryna Rybachenko, vice chairman of the Ukrainian Agribusiness Club. The country’s grain production had already declined under the weight of the war, and its exports were set to fall to a decade low. The unrest has prevented farmers from making forward sales of this year’s crop, he added.
Gradual Progress
The export deal reduces large stockpiles built up in Ukraine after Russia’s invasion halted almost all seaborne trade. Combined with crops sold through the EU, Ukraine’s grain exports in the 2022-23 season were made even earlier, which were brought to Asia, Africa and Europe.
That progress is slowing as the next harvest begins: Fewer than two ships a day are being emptied in early June, well below export capacity. Moscow has blocked one of the three open ports, and no new ships have been approved since June 26, although the Ukrainian port authority has shown around 30 registered on the other three sides.
“The deal appears to be obsolete,” Rabobank analysts including Carlos Mera and Michael Magdovitz said in a report. “When new crop supplies arrive, port access will be critical for Ukrainian agriculture and the global balance.”
In an effort to save the deal, EU and UN officials are considering granting concessions to an authorized Russian bank. However, the Russian ministry rejected the compromise, saying it was not possible.
A shutdown would push more plants toward Ukraine’s Danube river ports, including rail and road travel through the EU border. Those routes have become an economic line: The tonnage now exceeds the volumes transferred in the Black Sea corridor, and the government intends to increase further.
It also comes at a price. Poland has banned grain imports from Ukraine due to the impact of a glut on local farmers. Some governments in eastern Europe have also imposed restrictions.
For Ukrainian exporters, the biggest challenge is cost, which increases as grain is transported over longer distances and on different-sized railroads. “With the cost of logistics that we have now, with the market price that we have now, all types of grain bring losses,” said Olena Vorona, chief operating officer of the agribusiness Agrotrade Group.
Some see a bright side if the corridor falls through: Black Sea shipments can accelerate if Ukraine chooses to keep the ports open, without hindrance to ship inspections ordered by the deal, said Andrey Novoselov, analyst of Barva Invest.
Kernel Holding SA, the country’s leading sunflower-oil exporter, said it is ready to continue the flow of shipments if approved by the ministry of military and infrastructure. The Ukrainian government last month created a $547 million insurance fund to compensate shipping companies going to Black Sea ports if the export deal collapses.
It is unclear whether shipping companies would want to cross a war zone without the support of an international agreement. Two Turkish officials, who spoke on condition of anonymity, said future Ukrainian shipments are unlikely if the agreement expires.
“The problem is which ship owners are willing to take the risk,” said Khajishvili of Novik in Odesa.
–With help from Selcan Hacaoglu, Volodymyr Verbyany, Daryna Krasnolutska and Kateryna Choursina.
Photo: The A-Line dry bulk cargo vessel, carrying Ukrainian wheat to Turkey, in the Bosporus Strait in Istanbul, Turkey, on Wednesday, Nov. 2, 2022. Photo credit: Nicole Tung/Bloomberg
Copyright 2023 Bloomberg.
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