Can Ukraine’s grain deal ease the global food crisis?

London — A deal to allow vital grain exports from Ukraine expires on November 19 and intense negotiations over the next few days will determine whether it is extended and possibly even expanded to help ease concerns about global food security.

The agreement, reached in July, created a protected sea transit corridor and was designed to alleviate food shortages by allowing exports to resume from three ports in Ukraine, a major producer of grains and oilseeds.

Here are some of the issues:

What has been exported?

The pact created a safe shipping channel for exports from three ports in Ukraine. So far, some 10.1-million tonnes of agricultural products have been shipped, including 4.3-million tonnes of corn. Shipments of wheat have reached 2.9-million tonnes, or 28% of the total. Other commodities shipped include rapeseed, sunflower oil, sunflower meal and barley.

For a full breakdown of the countries and quantities exported, click here

How might the agreement change?

Ukraine wants the agreement expanded to include more ports. The three ports involved in the deal — Odesa, Chornomorsk and Pivdennyi — have the combined capacity to ship about 3-million tonnes a month.

Ukraine wants the agreement to include the ports of the southern Mykolaiv region, which provided 35% of Ukrainian food exports before Russia’s invasion. Mykolaiv was Ukraine’s second-largest grain terminal according to 2021 shipment data, so its addition would allow for a much larger volume of grains and oilseeds to be shipped.

Ukraine is also seeking a one-year extension of the deal and a streamlined inspection regime. Russia has said its consent to extend the Black Sea grain deal depends on support for its grain and fertiliser exports. Russia is a major agricultural producer and the world’s largest exporter of wheat.

Moscow given details of its demands publicly, but is believed to want the West to ease restrictions on state agriculture lender Rosselkhozbank, a move that should help facilitate more Russian exports.

Has the deal alleviated the food shortage?

A drop in shipments from Ukraine has played a role in this year's global food price crisis, but there are also other important drivers. They include the Covid-19 pandemic and the climate shocks that continue to challenge agricultural production, mostly recently droughts in Argentina and the US.

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.

Has the agreement driven global wheat prices lower?

Prices of wheat on the Chicago Board of Trade rose sharply in the aftermath of Russia’s invasion of Ukraine on February 24 but they are now around 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 Russia this year, the gloomy global economic outlook and a strong dollar.

Still, 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 that have raised costs such as transport and packaging.

What about mines in the sea?

Russia and Ukraine accuse each other of planting the many naval mines now in 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 vessel to pass through the corridor on August 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 comprises Turkish, Russian, Ukrainian and UN 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. They have since established clauses for providing cover, including provisos that ships need to remain in the corridor when transiting or risk invalidating their policies.

After 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 $50m cover per voyage. Nevertheless, the cost of overall insurance for ships sailing into Ukrainian ports — which includes separate segments of cover — is 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 manpower for Ukrainian grain exports and the wider global shipping industry.

At the start of the conflict there were about 2,000 seafarers from around the world stranded in Ukrainian ports. The International Chamber of Shipping association estimated that figure had fallen to about 346 on October 27.

Reuters