Explainer: Obstacles to overcome before Ukraine grain deal eases global food crisis
09/08/2022 16:38
By Nigel Hunt and Jonathan Saul
LONDON, Aug 9 (Reuters) - Two more grain-carrying ships left
Ukraine's Chornomorsk port on Tuesday as part of a deal brokered
by the United Nations and Turkey to unblock the country's ports.
urn:newsml:reuters.com:*:nL1N2ZL08H
The agreement, which has created a protected corridor, was
designed to alleviate global food shortages, with Ukraine's
customers including some of the world's poorest countries, such
as Eritrea in Africa.
So far, however, the bulk of exports has been corn, which is
generally used for animal feed or to produce biofuel ethanol.
Here are some of the issues:
WHAT HAS BEEN EXPORTED?
The pact created a safe shipping channel for exports from
three ports in Ukraine and the early focus has been paving the
way for ships that had been trapped in the war torn country
since Russia's invasion in February to leave.
So far, about 370,000 tonnes of agricultural products have
been shipped, predominately corn, but also small volumes of
soybeans, sunflower oil and sunflower meal. There have not yet
been any shipments of wheat.
This partly reflects the timing of Russia's invasion as much
of last year's wheat crop had already been exported in February,
as it is harvested several months before corn and so tends to
be shipped earlier.
There is an estimated three million tonnes of grain in ports
that needs to be moved first, which will probably take until
around mid-September to clear.
WILL IT ALLEVIATE THE FOOD CRISIS?
Much larger volumes will need to be shipped to have a
substantial impact on global supplies.
Ukraine has around 20 million tonnes of grain left over from
last year's crop piled up across the country, as well as this
year's wheat harvest, which is estimated at about a further 20
million tonnes.
The three ports involved in the deal - Odesa, Chornomorsk
and Pivdennyi - have the combined capacity to ship around three
million tonnes a month and some expect this level of exports
could potentially be achieved in October.
It will, however, need a huge number of ships to transport
such a large volume of grain and some shipowners may be wary to
enter a war zone, particularly with the threat posed by mines
and the high cost of insurance.
WHAT ABOUT THE 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 by one crew member on the
first ship, the Sierra Leone-flagged Razoni, on Monday as the
one thing he feared. urn:newsml:reuters.com:*:nL4N2ZD2A8
The mines have drifted far from Ukraine's shores, with
Romanian, Bulgarian and Turkish military diving teams defusing
those 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, on Monday published long-awaited procedures on the
shipping channel, which aims to alleviate concerns that insurers
and shipowners have. urn:newsml:reuters.com:*:nL1N2ZK1GZ
Insurers had previously said they were willing to provide
cover if there were arrangements for international navy escorts
and a clear strategy to deal with sea mines. urn:newsml:reuters.com:*:nL8N2Z12SB
In one of the first steps following the July 22 agreement,
Lloyd's of London insurer Ascot and broker Marsh MMC.N set up
a marine cargo and war insurance for grain and food products
moving out of Ukrainian Black Sea ports with $50 million cover
for every voyage. urn:newsml:reuters.com:*:nL8N2ZF55B
The cost of overall insurance for ships - which includes
separate segments of cover - sailing into Ukrainian ports,
however, is likely to remain steep.
WHAT ABOUT CREWS?
Finding enough seafarers willing to sail ships stuck inside
Ukraine's ports and also crew vessels calling at Ukrainian ports
is set to pose another challenge. urn:newsml:reuters.com:*:nL8N2Z652Z
At the start of the conflict there were around 2,000
seafarers from all over the world stranded in Ukrainian ports
and that number is now below 450.
WHAT'S AT STAKE?
U.N. Secretary-General Antonio Guterres said the deal would
bring relief to developing countries "on the edge of bankruptcy
and the most vulnerable people on the edge of famine".
Ukraine can move up to two million tonnes of grain a month
by truck and rail, around half the four million tonnes it
shipped through its sea ports before the conflict.
The sharp decline in shipments from Ukraine played a role in
driving up global food prices at a time when world hunger is on
the rise. The COVID-19 pandemic and climate shocks have also
contributed to food price inflation.
HOW MIGHT THE DEAL SLOW GLOBAL FOOD INFLATION?
Russia's invasion of Ukraine has spurred food price
inflation by driving up prices of both grains and energy. Russia
has slowed its natural gas exports to Europe, blaming Western
sanctions on pipeline equipment. Western leaders have accused
Moscow of blackmail. More expensive fuel drives up the cost of
farming, transporting, processing and packaging food.
If the grain export plan succeeds, a decline in global
prices of grains and oilseeds is widely anticipated. Supplies
are still tight, though, and Ukraine's harvest this year will be
lower than last because the conflict has disrupted farming.
The World Food Programme has warned food prices will remain
elevated even if the deal holds. urn:newsml:reuters.com:*:nL1N2Z6182
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WRAPUP 8-'Glimmer of hope' as Ukraine grain ship leaves Odesa
urn:newsml:reuters.com:*:nL1N2ZD04Y
UPDATE 2-Shipping arrangements into Ukraine still not ready,
Lloyd's official says urn:newsml:reuters.com:*:nL1N2ZD1E5
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(Reporting by Nigel Hunt and Jonathan Saul
Editing by Veronica Brown and Mark Potter)
((nigel.hunt@thomsonreuters.com; +44 (0) 7990 561421; Reuters
Messaging: nigel.hunt.thomsonreuters.com@reuters.net))