Ukraine’s grain supplies to Asia shrink as ‘lifeline’ Black Sea deal expiry looms
- Limited supplies from Ukraine, one of the world’s most productive agricultural regions, could drive up food prices as the deal nears expiry on July 18
- Moscow says there are no grounds for an extension or renewal of the deal as most of Ukraine’s agricultural goods have gone to ‘well-fed countries’
“Our agricultural shipments have stopped completely in the last 14 days as Russian authorities have stopped inspecting our shipments to allow them for export,” said Alex Lissitsa, CEO of Warsaw-listed agricultural company IMC.
About 90 per cent of the war-torn country’s agriculture exports were routed through the seaport of Odesa, which was kept open under the Black Sea deal. However, Russian authorities would only allowed agricultural cargoes to pass after inspections.
‘Lifeline’ deal
But the volumes of shipments have been in decline since February and last month dipped to less than one-quarter of the 7.3 million tonnes dispatched in January last year, before the start of Russia’s invasion, said Julia Bereshchenko, who is in charge of sustainable business development for Astarta, one of the largest agriculture firms in Ukraine.
An end to the Black Sea deal would mean nearly half of wheat and corn produced by 4,500 small Ukrainian farmers could end up rotting in the fields as they lack the storage capacity and need to sell the crops immediately, Bereshchenko said. Wheat is typically harvested in July and the income from sales helps farmers plant crops for the next growing season, which begins in the autumn.
01:33
Ukraine’s Volodymyr Zelensky warns of escalating food crisis that will eventually affect Asia
Russia’s occupation means that around 20 per cent of Ukraine’s land is not available for crop cultivation, bringing down its agriculture output this year to about 80 million tonnes of grains and oilseeds from 100 million tonnes previously, Bereshchenko said.
Asia must embrace technology to ensure solid food supplies amid climate change
“Ukrainian farmers will lose money on growing corn and wheat if they have to pay such high freight costs,” said Bereshchenko, adding that the farmers had started reducing their corn and wheat acreage and shifting to other crops. “If the Black Sea deal is not renewed, then the wheat and corn crop is going to be even lower.”
The Financial Times reported that the European Union was considering a proposal to allow Russia’s Rosselkhozbank to establish a subsidiary to connect to Swift, but Moscow has rejected the proposal as “unworkable” since it will take several months to set up.
Higher food prices
Moscow has also opposed extending the deal because it says that Ukraine’s agricultural goods have flowed to “well-fed countries” and five of the poorest countries – Ethiopia, Sudan, Yemen, Somalia and Afghanistan – have accounted for only about one-quarter of shipments.
“I think the grain deal will not be extended. Ever since the Togilattle-Odesa ammonia pipeline was blown up in early June, the likelihood of a renewal became minimal,” said Viktor Katona, lead crude analyst at Kpler, a commodities data and analytics company.
The pipeline, the largest of its kind in the world, carried ammonia from a petrochemical plant in the southern Russian city of Togliatti to Odesa in Ukraine for European markets. It was destroyed by unknown actors in June among a spate of arson and other attacks on Russian assets.
Commodity price patterns in the financial markets show that grain trading has turned into a “contango” – when the futures price of a commodity is higher than its spot price – an indication that traders are bracing for a deal collapse and tighter markets.
If the market’s worst fears come true, Asia will feel the impact as the region accounts for about one-quarter of Ukraine’s seaborne exports, though the impact may vary from country to country, Katona said.
Russia, which has already reaped a bumper wheat crop and expects another one to be harvested soon, may step in to fill the breach by selectively supplying some countries, such as those in Africa, to win their diplomatic support at the UN, analysts say.
“Russia cannot completely replace the grain coming from Ukraine if the deal collapses. However, they can export a significant quantity,” said Cedomir Nestrovic, a professor of geopolitics at the ESSEC Business School Asia-Pacific.
If Moscow embarks on such a grains-for-votes push, then global prices are likely to increase because there may be less supply available in global trading hubs, he added.
Why a delay to South Asia’s monsoon is ‘bad news’ for global rice supplies
Blistering heatwaves have also reduced wheat production in India, one of Asia’s largest grain producers, and the country may only have enough to meet its own needs after the harvest, said G Chandrashekhar, an independent policy commentator. The onset of El Nino during the monsoon could prolong the South Asian country’s woes as it is also the world’s top supplier of rice, he added.
Global prices for grains and edible oils are likely to rise unless Russia and Ukraine extend the Black Sea deal, Chandrashekhar said.
“Food inflation will remain at elevated levels. A rising tide lifts all boats,” he added.
