Explainer: Can Ukraine's grain deal ease the global food crisis?
17/11/2022 09:17
(Updates after deal extended)
By Nigel Hunt and Jonathan Saul
LONDON, Nov 17 (Reuters) - A deal to free up vital grain
exports from Ukraine's southern Black Sea ports - which had been
due to expire on Nov. 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 corn.
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.
For a full breakdown of the countries and quantities
exported:
https://www.un.org/en/black-sea-grain-initiative/vessel-movements
HOW MIGHT THE AGREEMENT CHANGE?
Ukraine sought to have the agreement expanded to include
more ports, although 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 around three
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 more 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 the climate shocks
which continue to challenge agricultural production, mostly
recently droughts in both Argentina and the United States.
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 IT DRIVEN DOWN GLOBAL WHEAT PRICES?
Prices of wheat on the Chicago Board of Trade Wv1 rose
sharply in the aftermath of Russia's Feb. 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 major exporter 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 Aug. 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 is made up of Turkish, Russian, Ukrainian and U.N.
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.
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 MMC.N set up a marine cargo and war
insurance facility for grain and food products moving out of
Ukrainian Black Sea ports with $50 million 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 both Ukrainian grain
exports and the wider global shipping industry.
At the start of the conflict there were around 2,000
seafarers from all over the world stranded in Ukrainian ports.
The International Chamber of Shipping association estimated that
figure had fallen to some 346 mariners as of Oct. 27.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
INSIGHT-Even with UN deal, Ukraine faces long haul to shift
urn:newsml:reuters.com:*:nL4N30E2LD
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Nigel Hunt and Jonathan Saul in London and Pavel
Polityuk in Kyiv, Editing by Angus MacSwan and Alex Richardson)
((jonathan.saul@thomsonreuters.com; + 44 207 542 4357 ; Reuters
Messaging: jonathan.saul.thomsonreuters.com@reuters.net))