Can Ukrainian cereals alleviate the global food crisis?

Russia has proposed that the United Nations-backed initiative, which enables the export of cereals from Ukraine's Black Sea ports, be extended for only 60 days.

The deal expires later this month and was initially extended for 120 days. Now there are concerns that a shorter period of extension of the agreement could cause logistical problems.

Reached last July, the deal has created a secure shipping corridor, and the pact was designed to alleviate global food shortages by allowing exports to resume from the three ports of Ukraine, a country that is a major producer of cereals and oil seeds.

Here you can learn what some of the problems are:

What was exported?

The deal created a secure channel for transport, and so far some 24.6 million tonnes of agricultural products have been transported, including 12.2 million tonnes of corn.

The grain shipments have reached 6.7 million tonnes. Other products that have been exported include oil from black seeds, sunflower oil, and barley.

The main destination of these shipments has been China with 5.4 million tonnes of products, followed by Spain with 4.3 million and Turkey with 2.7 million tonnes.

How can the agreement change?

The biggest possible change in the deal is cutting the extension deadline to 60 days from 120 as it was earlier. This change has been supported by Russia, but has been rejected by Ukraine.

The cut of the period is significant as there is slow-down of remittances as the date for the series of extensions of the agreement approaches, due to the possible risk the deal could be derailed.

If the deal collapses, more ships could be blocked in the region.

There are about 60 commercial ships that were stranded around Ukrainian ports, from over 90 ships, mostly carrying cargo aboard board, which were in February 2022, when Russia began the invasion of Ukraine.

Therefore, it is likely that if the deal is extended for a shorter period, it will affect the volume of cargoloads of cereals and oils exported from Ukraine through the corridor, as companies will also consider the possibility of their cargo being blocked.

Transport companies are only reluctant to send their ships through the corridor before knowing the outcome of the current talks, sources said.
Ukraine has said it would like the deal to last for at least one day and the port of Mikolajiv included.

The three ports involved in the Odessa, Cornomorsk and Pivdenj combined have the capacity to export about 3 million tonnes of goods per month.

According to 2021 shipping data, Mikolajivi was Ukraine's second largest grain - transport terminal. Hence, the introduction of this port into the agreement would enable the amount of grain and oils to be exported.

Russia has said it opposes expanding the deal until concrete steps are taken to unblock its agriculture exports.

Agriculture exports have not been effectively targeted by sanctions, but Moscow has argued that the blockades in payments, logistics and in the security industry are barriers to its exports of cereals and artificial waste.

Among its demands, Russia is believed to want the West to ease restrictions on the state bank lending to the agriculture sector, Roselkhozbank. Relief to this bank would help Russian exports.

Has the food crisis eased?

The reduction of remittances from Ukraine, which is a major exporter, has played a role in the global food price crisis.

Other factors include the COVID-19 pandemic and climate changes that continue to present challenges to agricultural products, including droughts in both Argentina and the United States.

The security corridor has led to partial recovery of remittances from Ukraine, but they continue to be below the first levels to start the invasion and cannot be fully recovered into a predictable future.

Transporting cereals to and from ports in Ukraine is challenging and expensive, and Ukrainian farmers have reduced the planting of cultures like wheat and corn. This, for in many cases they sold last year's harvest for the loss of prices within Ukraine.

Have global wheat prices dropped?

The grain prices on the Chicago Trade Board rose significantly after the launch of Ukraine's Russian occupation on February 24th, 2022.

Now prices are roughly as they were before the invasion began, as Ukraine's ability to export millions of tonnes of wheat through the corridor helped drop prices.

Other factors include record production last year of Russia's leading exporter, the bleak global economic prospect, and the strengthening of the dollar.

The grain-based food prices, such as bread and pasta, are still much higher than the first levels of occupation in many developing countries, despite the fall of prices on the Chicago Board. This is due to the poor value of local currencies and high energy prices, which have increased transport and packing costs.

What about goods security?

The Centre for Joint Co-ordination in Istanbul, which oversees the agreement, consists of Russian, Turkish, Ukrainian and UN officials. This centre in August last year published procedures that apply to the transportation channel in order to address the concerns of insurance companies and ship owners.

Insurance companies initially said they were willing to offer goods insurance if there were agreements to escort ships from international navys and if there were clear strategies to address mines located on shipping routes.

Since then, these companies have created clauses to provide security for cargo, including conditions that ships need to stay inside the corridor when passing through or risk depreciating the supply of products they transport.

After the July 22nd deal, the insurance company Lloyds of London, Arscot and Marsh built a maritime safety facility for cereals and food products exported from Ukrainian Black Sea ports, offering $50m in insurance for every ship transport.

The total cost of insurance for ships sailing the Ukrainian ports, which includes specific security segments, however, is likely to remain high.

Ships sailing toward one of three Ukrainian ports, according to the agreement, are obliged to pay additional security for the war, which must be paid every seven days. This extra payment costs thousands of dollars.

If the extension of the agreement is limited to 60 days, it could lead many ship owners to hesitate to transport goods, given the enormous costs and the possibility of their ships being blocked. / REL