The threat of Russian aggression toward Ukraine’s Black Sea ports and shipping will force the country to export much of its grain by river, road and rail — all of which are fraught with challenges.
After pulling out of the Black Sea grain export deal earlier this week, Russia announced that all ships bound for Ukrainian ports would now be considered military vessels. When harvests arrive, that means Ukrainian farmers can no longer rely on the route that was used to move about half of last season’s crops.
That increased pressure on world food markets, and dealt a severe blow to one of Ukraine’s biggest sources of income.
The Black Sea has historically carried most of Ukraine’s grain exports abroad and helped the country become one of the world’s leading suppliers. Cutting ports will reduce Ukraine’s monthly export capacity from about 7-8 million tons to a maximum of about 4 million tons, estimated Alexandre Marie, chief analyst at Agritel, the agriculture analytics arm of Argus Media.
It also adds to the many logistical problems. The news has sparked new fears of global food inflation and will put more financial pressure on Ukrainian farmers. But a heatwave sweeping across southern Europe is lowering river levels and crimping export capacity, making it harder to ship grain.
Overland routes are also challenged by the fact that Eastern European countries continue to push back against the flow of crops from Ukraine for local farmers who protest that the imports threaten their livelihoods.
Of these options, the Danube River ports in particular are “very confident,” Michael Magdovitz, senior analyst at Rabobank, said by phone. The amount of plants transported along the river increased from about 1.4 million tons to 2 million tons per month last year. In May and June, those cargoes even overtook the Black Sea corridor, where inspections slowed down the flow of ships.
From the Danube, grain can be transported directly to nearby buyers or sent to hubs such as Constanta in Romania, where it is loaded onto larger ships for longer trips. One difficulty, however, is that because large ships can’t travel up the river, “you squeeze logistics through this very small channel,” Magdovitz said.
The heatwave gripping southern Europe is compounding the issue.
In Romania, the Danube is almost 40% lower than the average level in July due to high temperatures, according to the Romanian water management institution. It remains above the two-decade low reached last year, but could drop further next week.
“The problem is also that the water level of the Danube is decreasing day by day because of the drought, so you cannot load the barges with wheat at full capacity,” said Constanta-based grain trader Andrei Balasoiu.
Rail and road routes will also be key. Although Eastern European countries continue to push back against buying Ukrainian grain, the countries still allow crops to pass through their borders to make deliveries. However, the amount of grain transported by rail and road has decreased since March, when political tensions began to heat up.
Traders are already using alternative routes. The question now is when they will be the only option and if a new deal in the Black Sea can be arranged, said Sergey Feofilov, head of the research company UkrAgroConsult.
Russia has said it is ready to return to the deal if its conditions are met. For months it demanded that one of its agricultural banks be reconnected to the international payment system SWIFT, and made additional logistical and insurance needs. Russian banks were cut off from SWIFT after the full invasion of Ukraine.
Ukraine has said it plans to increase its export capacity through alternative routes, although it may take time. The country’s infrastructure minister estimated that the Danube alone could handle 23 million to 25 million tons of food exports this year, about half of the annual grain exports before the war. USAID also pledged to assist in capacity building.
While the river and roads are already a lifeline of the economy, they now have a greater influence on the global grain supply and will be key in helping to reduce the rising cost of food. The routes “may not be enough, but will cover a large part of the demand,” said Roman Slaston, head of the Ukrainian Agribusiness Club.
–With help from Andra Timu, Jasmine Ng and Irina Vilcu.
Top photo: Bulk carrier in the Black Sea. Photo credit: Andrei Pungovschi/Bloomberg
Copyright 2023 Bloomberg.
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