Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Reuters
Reuters
Business
By Nigel Hunt and Jonathan Saul

Explainer-Can Ukraine's grain deal ease the global food crisis?

Cargo ship Despina V, carrying Ukrainian grain, is seen in the Black Sea off Kilyos near Istanbul, Turkey November 2, 2022. REUTERS/Umit Bektas

Russia said on Wednesday it would resume participation in a deal to free up vital grain exports from war-torn Ukraine after suspending its involvement over the weekend in a move that had threatened to exacerbate hunger across the world.

The agreement, reached in July, created a protected sea transit corridor and was designed to alleviate global foodshortages, with Ukraine's customers including some of theworld's poorest countries. Developing nations such as Somalia and Eritrea also rely heavily on imports of wheat from Russia.

The agreement from the outset was based on facilitating commercial shipments.

Here are some of the issues:

WHAT HAS BEEN EXPORTED?

The pact created a safe shipping channel for exports fromthree ports in Ukraine and the early focus was enabling some of the ships that had been trapped in the war torn country since Russia's invasion in February to leave.

So far, some 9.76 million tonnes of agricultural productshave been shipped, predominately corn, but also volumes ofsoybeans, sunflower oil, sunflower meal and barley.

Shipments of wheat have reached 2.8 million tonnes, or nearly 30% of the total.

This partly reflects the timing of Russia's invasion, as much of last year's wheat crop had already been exported in February. Wheat is harvested several months before corn and so tends to be shipped earlier.

For a full breakdown of the countries and quantitiesexported:

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

HAS IT ALLEVIATED THE FOOD CRISIS?

A drop in shipments from major exporter Ukraine has played a role in this year's global food price crisis, but there are also other important drivers.

These include the COVID-19 pandemic and the climate shocks which continue to challenge agricultural production, mostly recently droughts in both Argentina and the United States.

The corridor has led to a partial recovery in shipments from Ukraine but they remain well below pre-invasion levels and will not fully recover for the foreseeable future.

Transporting grains to ports there remains challenging and expensive, while Ukrainian farmers have reduced sowings of crops such as wheat after in many cases selling last year's crops at a loss, with domestic prices remaining very low.

The three ports involved in the deal - Odesa, Chornomorskand Pivdennyi - have the combined capacity to ship around threemillion tonnes a month.

According to estimates from consultants APK-Inform Ukraine could export between 23.9 to 40 million tonnes of grains in 2022/23 depending on the situation with the three seaports.

As of Nov. 2 it had exported 13.4 million tonnes, including 5.1 million tonnes of wheat and 7.1 million tonnes of corn, according to agriculture ministry data that includes shipments via smaller Danube ports and by land.

However, there have been too few large ships coming in tokeep up the pace and volumes needed.

Many bigger shipowners have remained wary of entering a war zone, particularly with the threat posed by mines and the high cost of insurance.

The exclusion of Mykolaiv, Ukraine's second-largestgrain terminal according to 2021 shipment data, has made a bigger export push challenging.

HAS IT DRIVEN DOWN GLOBAL WHEAT PRICES?

Prices of wheat on the Chicago Board of Trade rosesharply in the aftermath of Russia's Feb. 24 invasion of Ukraine but are now only slightly above pre-conflict levels.

Ukraine's ability to export millions of tonnes of wheat through the corridor has been one element driving down prices.

Other factors include a record crop in major exporter Russia this year, the gloomy global economic outlook and a strong dollar.

But prices for wheat-based food staples such as bread andnoodles remain well above pre-invasion levels in many developing countries despite the decline in Chicago futures, due to weak local currencies and higher energy prices which have raised costs such as transport and packaging.

WHAT ABOUT THE SEA MINES?

Russia and Ukraine accuse each other of planting the manynaval mines that now float around the Black Sea. These pose asignificant threat and were cited as the one thing feared by a crew member on the Sierra Leone-flagged Razoni, the first ship to pass through the corridor on Aug. 1.

The mines have drifted far from Ukraine's shores, withRomanian, Bulgarian and Turkish military diving teams defusingsome that have ended up in their waters.

It could take months to clear them and there was not enoughtime to do so before the grains pact came into effect.

WHAT ABOUT INSURANCE?

The Istanbul based Joint Coordination Centre, which overseesthe deal and is made up of Turkish, Russian, Ukrainian and U.N.officials, in August published procedures on theshipping channel, which aims to alleviate concerns of insurersand shipowners.

Insurers initially said they were willing to provide cover if there were arrangements for international navy escortsand a clear strategy to deal with sea mines.

Since then, they have created clauses for providing cover, including provisos that ships need to stay inside the corridor when transiting or risk invalidating their policies.

Following the July 22 agreement, Lloyd's of London insurer Ascot and broker Marsh set up a marine cargo and war insurance facility for grain and food products moving out of Ukrainian Black Sea ports with $50 million cover per voyage.

The cost of overall insurance for ships sailing into Ukrainian ports - which includes separate segments of cover - is nevertheless likely to remain steep.

WHAT ABOUT CREWS?

In September, Ukraine implemented a decree allowing itsseafarers to leave the country despite wartime restrictions, amove aimed at freeing up vital manpower for both Ukrainian grainexports and the wider global shipping industry.

At the start of the conflict there were around 2,000seafarers from all over the world stranded in Ukrainian ports. The International Chamber of Shipping association estimated that figure had fallen to some 346 mariners as of Oct. 27.

(Reporting by Nigel Hunt and Jonathan Saul in London and Pavel Polityuk in Kyiv, Editing by Catherine Evans)

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.