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Ukraine: Obstacles to global grain shipments remain

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Kyiv, Aug 22: Over two dozen ships have left the largest Ukrainian ports in the Black Sea since July 22, when Russia and Ukraine signed an agreement brokered by the United Nations and Turkey to allow grain exports from Ukraine to restart. After months of exports being blocked by Russian warships and Ukrainian sea mines, one of the first vessels to leave was chartered by the UN and carried 23,000 tons of wheat for the World Food Program to help avert famine in Ethiopia and other parts of Africa.

So far, according to an interim report by the Ukrainian Sea Ports Authority, some 600,000 tons have arrived on the global market. The authority hopes eventually for 100 ships to be leaving ports in Odesa, Pivdennyi and Chornomorsk every month. But this is not happening yet.

Ukraine: Obstacles to global grain shipments remain

Shipping companies reluctant to dock in a war zone

Apart from the UN-chartered ship that left for Ethiopia, only four vessels entered the ports of the Odesa region in accordance with new contracts. The other ships had already been waiting in port for months.

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"The situation is very slow with new contracts," Pavlo Martyshev from the Kyiv School of Economics (KSE) told DW. "The participants on the market don't really trust the Russians and expect surprises," he added, alluding to a Russian missile strike on the port of Odesa just one day after the grain corridor agreement was signed.

At the beginning of August, Martyshev had optimistically estimated in an analysis for the KSE that revenues of over $5 billion (€5 billion) would be generated by the additional export potential — an important sum in foreign currency for war-torn Ukraine and its farmers. But the reality currently looks different.

"Freight costs vary widely, often within a day. The market is nervous. Sometimes there are reports of Russian missile fire on the Odesa region, sometimes on the port of Mykolaiv, sometimes Russian fighter planes fly over the demilitarized sea corridor intended for the safe passage of ships," Martyshev explained.

Risk premiums are high

Odesa resident Gennediy Ivanov, the managing director of the logistics company BPG Shipping, is familiar with transporting goods to war zones: His company organized shipments to Yemen for over 10 years. Now, he is struggling to convince shipping companies to dock in his hometown.

"There are few shipping companies that systematically work in potentially dangerous regions such as West Africa or Yemen and are also willing to serve Ukraine because they know there are risk premiums," he told DW. "This ultimately means that shipping costs are much higher than in neighboring, 'peaceful' countries like Romania and Bulgaria."

But he was confident that the longer the grain corridor functioned without incident, the more ships would enter Ukrainian ports. "When the grain agreement was signed, insurance companies expected premiums of 4 to 5% of the ships' market value for a seven-day period. Today, they are at 1 to 1.5%, which still costs an average of $200,000 to $270,000 per week," he said.

Ukraine: Obstacles to global grain shipments remain

Advantage for Russia

Ivanov explained that it costs roughly $10,000 more per day to hire a ship to export grain from Ukraine than from Romania. Also, the time-consuming inspections in Istanbul meant shipowners charged Ukrainian clients for seven to nine days extra. A Russian condition of the agreement was that all ships entering and leaving Istanbul should be inspected by the Turkish military in order to prevent any weapons from arriving in Ukraine by ship.

"All this means that a ton of cargo leaving from ports in Ukraine costs $25 to $35 more than from Romania," Ivanov said.

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The rising costs are reducing the exporters' returns and leading to decreased purchasing prices for Ukrainian farmers — this means an advantage for Russia, Ukraine's main rival on the grain market, even if risk premiums for Russian ports have also increased since the war broke out.

"Russia expects a record wheat harvest of over 90 million tons this year," Martyshev told DW. "Under these circumstances, Russian wheat will dominate the market. The Russians can give discounts and they have already managed to rid certain significant markets, such as Turkey or Egypt, of Ukrainian wheat."

The same was true for sunflower oil, he added: "Many factories have been at a standstill since the beginning of the war, and instead of sunflower oil, Ukraine is now exporting unprocessed sunflower seeds, which brings in much less foreign currency."

Potential disaster for food security

Experts estimate that around 18 million tons of grain are still stuck in Ukrainian silos. This is a tight situation for corn farmers, in particular, warned Martyshev.

"In September/October, the new harvest will be here, and if exports do not step up drastically, there will be a shortage of storage capacity for around 10 million tons of corn."

He called for international support, including loans that could help small farms build temporary silos ahead of the next sowing season.

Heinz Strubenhoff, a consultant who worked for many years in Ukraine for the World Bank, said he believes the Istanbul grain agreement will only produce tangible results when Ukraine's main international partners help shoulder the risk premiums of insuring cargo. "Russia has an interest in continued uncertainty and keeping insurance premiums high," he said. "The EU and the US must have an interest in helping Ukraine with the cost of reinsurance, which would make exports competitive again," he said.

He said more farmers in Ukraine might otherwise be tempted to grow rapeseed and sunflowers and this would do nothing to improve food security in the medium term, which was initially one of the main reasons for the grain corridor agreement.

Source: DW

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