Deal for grain exports from Ukraine extended by four months

London — A deal to free up vital grain exports from Ukraine’s southern Black Sea ports — which had been due to expire on November 19 — was extended on Thursday for 120 days.

The agreement, originally reached in July, created a protected sea transit corridor and was designed to alleviate global 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 11.08-million tonnes of agricultural products have been shipped, including 4.5-million tonnes of maize. Shipments of wheat have reached 3.2-million tonnes, or 29% of the total. Other commodities shipped include rapeseed, sunflower oil, sunflower meal and barley.

How might the agreement change?

Ukraine sought to have the agreement expanded to include more ports, though it was not immediately clear if the extension, announced by the UN and Kyiv, has addressed this. The three ports involved in the deal — Odesa, Chornomorsk and Pivdennyi — have the combined capacity to ship about 3-million tonnes a month.

Ukraine wanted 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 had separately sought a one-year extension of the deal and a streamlined inspection regime.

Russia has previously said its consent to extend the Black Sea grain deal depended on support for its own grain and fertiliser exports. Russia is a major agricultural producer and the world’s largest exporter of wheat. Among its demands, Russia is believed to want the West to ease restrictions on state agriculture lender Rosselkhozbank, a move that should help facilitate Russian exports.

Has it alleviated the food crisis?

A drop in shipments from major exporter Ukraine has played a role in this year’s global food price crisis, but there are also other important drivers. These include the Covid-19 pandemic and climate shocks, which 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 in the country 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 it driven down global wheat prices?

Prices of wheat on the Chicago Board of Trade rose sharply in the aftermath of Russia’s February 24 invasion of Ukraine but 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.

But 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, which have raised costs such as transport and packaging.

What about sea mines?

Russia and Ukraine accuse each other of planting the many naval mines that now float around the 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 ship 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 Co-ordination Centre, which oversees the deal and is made up of Turkish, Russian, Ukrainian and UN officials, in August published procedures on the shipping channel, which aims to alleviate the 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. Since then, they have created clauses for providing cover, including provisos that ships need to stay inside the corridor when transiting or risk invalidating their policies.

Following 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.

The cost of overall insurance for ships sailing into Ukrainian ports — which includes separate segments of cover — is nevertheless 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 vital manpower for Ukrainian grain exports and the wider global shipping industry.

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

Reuters