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Black Sea Grain Initiative extended, but myriad problems still abound in Ukraine

On Nov. 19, the so-called "Black Sea Grain Initiative" signed by Ukraine, Turkey, and the United Nations was set to expire. Until recently, Russian President Vladimir Putin has threatened not to extend this initiative. However, on Nov. 17, the agreement was extended for another 120 days.

On the same day, like what occurred at the beginning of the "Grain Initiative", Russia shelled the territory of Ukraine, including Odesa, where the main grain export takes place. Until now, Russia has been hampering the implementation of the agreement, inhibiting the movement of ships in every possible way, including delaying inspections of ships because weapons or cargo not provided for in the agreement were present.

Electricity Shortage

Regular shelling of Ukrainian energy facilities, primarily energy generating and distribution facilities, transformers, and power lines, has led to a shortage of electricity throughout the country. According to government statements, about 50% of Ukraine's energy infrastructure (primarily power distribution facilities) was damaged by Russian missile attacks. As a result, power distributing companies are forced to introduce blackouts all over Ukraine or significantly limit users’ consumption which, depending on the region, can last several hours to several days, to balance the energy system. During shelling, Ukrainian enterprises and transport stop, and personnel hide in bomb shelters. Due to this, the processing of grain in the ports is significantly slowed down.

Corruption, Dishonesty Hampers Exports

The logistics chains also have their own specific problems related to both the corruption of officials and the dishonesty of exporters themselves. For example, the State Bureau of Investigation reports that in the Odesa region, law enforcement officers uncovered a large-scale extortion scheme by officials of the regional department of the State Service of Ukraine on Food Safety and Consumer Protection.

It was established that the officials took bribes from grain exporters through the Odesa seaports along the grain corridor. Grain exporters who wanted to obtain a phytosanitary certificate and other permit documents without hindrance had to pay a certain amount through companies, under the guise of consulting and fumigation services for grain exporters, acting as intermediaries in receiving an illegal benefit.

The state railway, too, had a problem with grain exporters. Valery Tkachov, Deputy Director of the Department of Commercial Work of JSC "Ukrzaliznytsia,"  points to the systematic non-fulfillment by grain exporters of agreed plans and orders for grain shipment in the direction of the western borders.

In October 2022, grain transportation through the western borders of Ukraine was only 51% of the planned amount because grain scheduled to be exported by rail was canceled. Because of this, Ukrzaliznytsia refuses to coordinate orders with other exporters and, in turn, does not fulfill agreements with foreign carriers.

Thus, the border crossings operate without full loads. Over the past three months, the total volume of wagons transferred at the border has decreased from 1,940 wagons per day to 1,630 wagons per day. Exporters who want to ship products are unable to do so, because the transit throughput is already booked by exporters who do not fulfill their requests. As a result, the overall network throughput is reduced. Thus, Ukrzaliznytsia is considering the possibility of returning to planning the distribution and allocation of wagons.

Yet another issue is the fact that some exporters are selling their place in the queue without coordinating with Ukrzaliznytsia and foreign operators. As a result, conflicts arise where the volume of grain exports of those who sell their places in the queue differ from those who bought a place in the queue.

Despite all the above-mentioned problems, Ukraine can export all the grain intended for export in the 2022-2023 marketing year.

The 2022 grain harvest in Ukraine may be 54.1 to 55.7 million tons compared to the record 86 million tons due to the Russian invasion, according to the Ukrainian information and analytical agency APK-Inform.

"This year's harvest may consist of 19 million tons of wheat, 30 million tons of corn, and 5.5 million tons of barley,” notes APK-Inform analysts. “A smaller harvest and logistical difficulties may reduce exports in the 2022-2023 marketing year to 22.6 to 38.8 million tons.”‎

Analysts also say the production of sunflower oil in Ukraine may be from 3.5 to 4.9 million tons in the 2022-2023 season compared to 5 million tons in the 2021/22 season. It is forecast that the export of sunflower oil may be 3.0 to 4.6 million tons in 2022-2023, depending on the sunflower seed harvest and the logistics situation.

The Ministry of Agriculture predicts the harvest of grain and oil crops in 2022 to be about 67 million tons. Ukraine will be able to export at least 45 million tons of grain from this year's harvest using all types of transportation (e.g., by sea, railway, and roads).

Iurii.jpg
About the Author: Iurii Mykhaylov is an agricultural journalist in Ukraine.

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