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War in Ukraine

Current grain deal not enough to solve food and price crises

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Three Ukrainian ports are now part of the so-called “grain deal", which enables Ukrainians to export agricultural production via the Black Sea. The ports of Odesa, Chornomorsk, and Pivdennyi are now accepting and sending ships with grain and oil to foreign buyers.

The grain deal, which Ukraine signed with the UN and Turkey on July 22, enabled the end of the complete Black sea blockade by Russia. The latter signed a similar deal with Turkey and the UN on the same day, where it pledged to allow Ukraine to export its products safely. However, a day after the signing, Russia launched missiles at Odesa; but Ukraine has kept on exporting nevertheless.

During the month of August, Ukraine managed to export 1.7 million tons of grain via the Black sea; pre-war, they had exported closer to 5 million. Meanwhile, there is another route that Ukraine is using: it is exporting its agricultural products via the Danube river as well as by rail, and through these routes, it has managed to bring around 3.2 million tons to market last month. 

“If Ukraine wanted to increase exports via the Danube by trucks, it would need heavy investments into the border logistics, and nobody is ready to invest there now,” says Heinz Strubenhoff, Former Senior Operations Officer at the International Finance Corporation, "So if the current export capacity is at the limit, we would need to return to pre-war sea exports of 5 mil tons, especially during harvest time.”

The expert explains: the grain deal will need to expand if Ukraine wants to achieve a real impact on the global markets and the domestic producers. 

“There are two approaches to this. One could be the inclusion of more Ukrainian ports into the grain deal,” Strubenhoff says, “The other is to talk to international governments which support Ukraine to keep the shipping risk premiums under control. Currently, insurance premiums for Ukrainian grain ships are very high, which makes the cost go up.”

For Strubenhoff, the potential expansion of the grain deal will depend directly on the situation on the frontline. As experts point out, the initial grain deal happened because Russians were interested in negotiations due to their military losses. So if Ukrainians manage a strong counteroffensive, they would also be able to expand the grain deal and create more favorable conditions for Ukrainian farmers. 

“There is one fundamental problem in that Ukraine under-exports in comparison to pre-war years,” Strubenhoff says, “Ukraine has around 15 million tons of last year’s harvest in stock in addition to about 67 million of the new one. If farmers cannot sell abroad, they would need to sell domestically for a very low price, which is below the production cost.”

According to the expert, the grain deal did not make a big difference for the countries which are experiencing food insecurity, although some UN ships did reach the most vulnerable destinations. The Russian blockade has also exposed the lack of food safety nets for the world’s most impoverished regions. 

“The world has stored enough grain to last it for four months of consumption. It is extremely low,” Strubenhoff says, “So there's really not enough stocks in the world at the moment to compensate for the loss of exports that we have.”

Half of the stock, which is around 150 million tons, is stored in China. According to Strubenhoff, they have strategic interests across Africa and Asia and may use their grain as a tool to increase their influence in the region. The same is being done by Russia, too: for example, in June, Vladimir Putin met with the chairman of the African Union, Senegalese President Macky Sall, in Sochi, Russia, where Sall asked Putin to resolve the Ukrainian grain blockade. 

“Macky Sall was very naive when he thought he solved the problem by talking to Putin,”  Strubenhoff reasons, “The Africans have to be a bit more courageous to say what they want. There are 51 countries in Africa and they can have a voice at the United Nations level and leverage Russia to do more to address the food crisis.”

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