Can the Ukrainian Grain Deal Alleviate the World Food Crisis?

Developing countries such as Somalia and Eritrea also rely heavily on wheat imports from Russia.

The agreement from the beginning was based on expediting commercial shipments.

Here are some issues:

what was exported?

The deal created a secure transit route for exports from three Ukrainian ports, with an initial focus on some of the ships that had been trapped in the war-torn country since Russia’s invasion in February. was to be able to leave the country.

To date, about 9.76 million tons of agricultural products have been shipped, mainly corn, but also soybeans, sunflower oil, sunflower meal and barley.

Wheat shipments reached 2.8 million tons, nearly 30% of the total.

This partly reflects the timing of the Russian invasion, with much of last year’s wheat harvest already being exported in February. Wheat is harvested several months earlier than corn, so it tends to be shipped earlier.

Has it alleviated the food crisis?

Declining shipments from Ukraine, a major exporter, have contributed to this year’s global food price crisis, but there are other important factors.

These include the COVID-19 pandemic and climate shocks that continue to challenge agricultural production. Mostly recently, both Argentina and the United States have experienced droughts.

While this corridor has partially recovered shipments from Ukraine, they are well below pre-invasion levels and will not fully recover for the foreseeable future.

While transporting grain to ports remains difficult and costly, Ukrainian farmers are forced to sow crops such as wheat after selling last year’s crops, often at a loss, while domestic prices remain very low. reduced.

The three ports involved in the contract – Odessa, Chornomorsk and Pivdeny – have a combined shipping capacity of about 3 million tonnes per month.

According to consultants’ estimates, APK-Inform Ukraine could export between 23.9 million and 40 million tons of grain in 2022/23, depending on the conditions of the three ports.

As of Nov. 2, 13.4 million tonnes were exported, including 5.1 million tonnes of wheat and 7.1 million tonnes of corn, according to Ministry of Agriculture data, including shipments by small Danube ports and overland routes. was done.

However, there are too few large ships to maintain the required pace and volume.

Many large shipowners remain wary of entering conflict zones, especially due to the threat of mines and high insurance premiums.

The exclusion of Mykolaiv, Ukraine’s second largest grain terminal, has made it difficult to push for larger exports, according to 2021 shipment data.

Did it push global wheat prices down?

Wheat prices at the Chicago Board of Trade surged in the aftermath of Russia’s invasion of Ukraine on February 24, but are now only slightly above pre-conflict levels.

Ukraine’s ability to export millions of tons of wheat through the corridor was one factor driving down prices.

Other factors include this year’s record crop from Russia, the leading exporter, a bleak global economic outlook and a strong dollar.

But prices for wheat-based staples such as bread and noodles are still well above pre-invasion levels in many developing countries, despite falling Chicago futures prices. This is because the weakening local currency and rising energy prices have increased costs such as transportation and packaging.

What about sea mines?

Russia and Ukraine now accuse each other of laying many mines in the Black Sea. These posed a significant threat, and he was listed as one of those feared by the crew of her Razoni, the first ship to pass the corridor on 1 August, under the flag of Sierra Leone.

The mines have drifted far from the Ukrainian coast, clearing some of what the Romanian, Bulgarian and Turkish military diving teams ended up in those waters.

It could take months to clear them, and there just wasn’t enough time to do so before the grain agreement took effect.

What about insurance?

The Istanbul-based Joint Coordination Center, which oversees contracts and is made up of officials from Turkey, Russia, Ukraine and the United Nations, announced in August procedures on shipping channels aimed at alleviating concerns for insurers and shipowners. published on

The insurer initially said it would be happy to provide insurance if there was an international naval escort arrangement and a clear strategy for dealing with mines.

They have since made a clause to provide cover. This includes conditions where ships must remain within the corridor as they pass, or at the risk of voiding the policy.

Following the July 22 agreement, Lloyd’s of London insurer Ascot and broker Marsh set up a sea freight and war insurance facility for grain and food moving from Ukrainian Black Sea ports.

Nevertheless, the overall cost of insurance for vessels calling Ukrainian ports, including individual coverage, is likely to remain high.

What about the crew?

In September, Ukraine implemented an order allowing sailors to leave the country despite wartime restrictions. The move is aimed at freeing up key personnel for both Ukraine’s grain exports and the wider global shipping industry.

About 2,000 sailors from around the world were stranded in Ukrainian ports when the conflict began. The Association of International Chambers of Shipping estimates that number has fallen to about 346 seafarers as of 27 October.