Highlight of the day | As Russia pulls out of the grain deal, Ukraine weighs its options
How can Ukraine export its grain now that Russia has terminated the Black Sea grain initiative?
Russia on Monday officially announced its withdrawal from the ‘grain deal’. The Russian foreign ministry said it means "the absence of guarantees of safety of navigation and the closure of the humanitarian corridor in the northwestern part of the Black Sea".
Following Russia’s announcement, global wheat prices immediately rose by almost seven percent.
"[It] will heighten reliance on alternate trade routes via the Danube River and Ukraine’s European Union neighbours, although those paths remain expensive and some countries have pushed back against the inflow," Bloomberg reports.
- Subscribe to LIGA.net in English on Twitter
In response, Ukraine’s president, Volodymyr Zelenskyy, said the Black Sea grain deal could still be operational.
"Even without Russia, we need to do everything so that we can use this Black Sea corridor. We are not afraid," he told African journalists.
What other routes can Ukraine use to export its agricultural products?
Largest importers
It is not yet clear how Türkiye will react to the Kremlin's announcement. This is the second time that Russia has withdrawn from the grain deal.
When Russia said in October 2022 it was withdrawing from the Black Sea grain initiative, Türkiye and the UN started inspecting ships carrying Ukrainian grain themselves – and Moscow had to rejoin the initiative a few days later.
Following Russia's recent announcement, Turkish leader Recep Tayyip Erdogan expressed hope that Vladimir Putin "still wants this humanitarian bridge [grain corridor] to continue".
Interestingly, Mr Erdogan stressed that, despite Moscow’s statement, the deal "has gone down in history" as a diplomatic success – and Russian media outlets quoted him as saying the deal "is a history", that is, gone forever.
According to the Ukraine-based Institute of Agrarian Economics, Ukraine in 2022 exported 38.5 million tonnes of grain worth USD 9.1 billion. The largest importers included Romania, China, Spain, and Türkiye.
Romania and Türkiye were, however, mainly transit hubs for further re-export.
In general, Ukraine has two ways to solve the problem of the closed grain corridor. The first is ensuring its operation without Russia’s participation, as Mr Zelenskyy said.
Since May, Ukraine has been working on enhanced insurance for shipowners who would risk exporting grain from Ukrainian ports via the Black Sea. In June, Ukrainian agriculture minister Mykola Solskyi said that an insurance fund worth USD 547 million had been set up for this purpose.
"Carriers can go through this corridor with guaranteed insurance from our government," Mr Solskyi said.
Black Sea corridor
This plan, however, has two weak links. First, the route needs reliable security, or it will turn into an analogue of the infamous Arctic convoys, used by the United States to deliver lend-lease in World War II.
Without the protection of grain carriers by NATO ships from Bulgaria, Romania, and Türkiye, it would take several months for pirates from the Russian navy to zero the Ukrainian insurance fund.
The maths goes like this: According to Hellenic Shipping News Worldwide, current market prices for 15-year-old medium-sized bulk carriers are around USD 15 to 20 million. Thus, the fund should be enough for 20 grain carriers – and, taking into account the cost of cargo and crew, even less. In addition, after the first disasters, insurance premiums will rise significantly, as the risks will become obvious.
It is doubtful that the navies of Bulgaria and Romania will be of any use.
Just the other day, Bulgarian president Rumen Radev again called for negotiations between Ukraine and Russia. "The whole of Europe is paying the price for the continuation of the war," he said.
For Romania, it simply doesn’t make economic sense to maintain a grain corridor bypassing its port of Constanta. Since last year, Ukrainian companies have increased grain transshipment through the Danube ports, meaning the port increased its grain transshipment revenue by a third.
In addition, not only the Romanian port but also the Sulina canal is turning a profit, as the Romanian operator receives income from the transshipment through it. If the grain corridor is blocked, Romanians are going to have a windfall this year.
Under such conditions, it is too optimistic to expect success for direct supplies from Ukrainian Black Sea ports.
Alternative routes
In addition to the Romanian route, Ukraine's grain might be more exported by land, with the goal of reaching the Baltic Sea ports – Poland's Gdansk, Szczecin, Świnoujście, and Lithuania's Klaipeda – and the ports of Spain.
To do so, Ukrzaliznytsia [Ukrainian Railways] last week opened a company in Poland, with Slovakia and Hungary next in line.
Another important aspect of this chain is the construction of transshipment points at the border – so-called ‘dry ports’. Two of them have already been set up in the Volyn region, in western Ukraine, and are expected to ensure the export of three million tonnes of grain a year.
As for Spain, its Ukrainian grain imports last year increased to 4.6 million tonnes, which is a quarter of total grain imports. In addition to trucks, some of this grain was delivered by rail in containers. For this purpose, the Spanish railway operator Renfe Mercancías formed a railway train from Barcelona via Duisburg, Germany, to Chełm, Poland.
More on those routes, including the sometimes extravagant ones, will follow.
Comments