Content ID

335589

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

(Retops and updates figures following Russia's decision to rejoin pact)

By Nigel Hunt and Jonathan Saul

LONDON, Nov 2 (Reuters) - 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 food shortages, with Ukraine's customers including some of the world'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 from three 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 products have been shipped, predominately corn, but also volumes of soybeans, 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 quantities exported:

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, Chornomorsk and Pivdennyi - have the combined capacity to ship around three million 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 to keep 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-largest grain 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 rose sharply 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 and noodles 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 many naval mines that now float around the Black Sea. These pose a significant 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, with Romanian, Bulgarian and Turkish military diving teams defusing some that have ended up in their waters.

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

WHAT ABOUT INSURANCE?

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

Insurers initially said they were willing to provide cover if there were arrangements for international navy escorts and 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 its seafarers to leave the country despite wartime restrictions, a move aimed at freeing up vital manpower for both Ukrainian grain exports and the wider global shipping industry.

At the start of the conflict there were around 2,000 seafarers 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)

© Copyright Thomson Reuters 2022. Click For Restrictions - http://about.reuters.com/fulllegal.asp

Read more about
Loading...

Tip of the Day

1-inch impact dolly cart

Socket caddy By welding lengths of angle iron with evenly spaced upright rods onto an old two-wheel dolly, I made a cart that holds my impact wrench... read more

Talk in Marketing

Most Recent Poll

Will you have enough on-farm storage for harvest?

I just want to see the responses
46% (26 votes)
Yes
39% (22 votes)
No, it’s going to be a bin-buster
7% (4 votes)
Maybe, depending on yields
5% (3 votes)
No, I am looking at new bins or temporary storage
4% (2 votes)
Total votes: 57
Thank you for voting.