Apparently, it is not enough for Moscow to terminate the lard corridor in order to smash the Ukrainian grain industry. Russian airstrikes recently targeted ports and grain warehouses, including those in Odessa. Threats against all civilian shipping in the waters and alarming reports of newly laid mines only allow one conclusion: The Ukrainian harvest of wheat, corn and oilseeds must find other routes to the world market than via the protected route granted for almost a year via the Bosporus and Istanbul.
Moscow is only promising a resumption of the grain agreement concluded with the UN and Kiev on its own terms. And they seem – at least in the short term – unattainable and not very credible if Russia is bombing the port region of Odessa at the same time. According to Ukrainian information, 60,000 tons of grain have already been destroyed. President Volodymyr Zelenskyy called the attacks “possibly the biggest attempt by Russia since the beginning of the large-scale war to damage Odessa”.
From now on, Moscow regards ships heading for Ukrainian ports as “potential carriers of military cargo.” According to Russia, areas of the north-west and south-east of the international waters of the Black Sea are classified as dangerous for shipping. Under these circumstances, no shipowner and no insurance company will take the risk of this route.
“I seriously doubt that there are any volunteers after the attacks on Odessa,” says a trade expert. This means that considerations in Kiev about possibly continuing the 300-nautical-mile corridor on their own – flanked by a million-dollar fund from the international community for risk premiums and damage – are also no longer valid.
Most countries have strongly condemned Moscow’s withdrawal from the grain deal because President Vladimir Putin is once again using hunger as a weapon. Numerous poorer countries in the Global South, especially in East Africa, and the World Food Program (WFP) covered their grain requirements to a large extent with Ukrainian goods until 2022. “Last year (to compensate) the good harvests in the USA and parts of Europe were helpful,” says Tobias Heidland, head of the International Development Research Center at the IfW Kiel, who examined the dependencies. “Many countries were then able to obtain supplies elsewhere.”
As emphasized by Heidland and other experts, Ukrainian exports play their crucial role in stabilizing the world market price. The price level of wheat, with which Russia and Ukraine together supplied 30 percent of world trade, was already very high at the beginning of the Ukraine war. The conflict further fueled food inflation globally, affecting import-dependent and often over-indebted developing countries as well as WFP emergency aid actors who care for the hungry in crises. The Food Price Index of the Food and Agriculture Organization (FAO) has since returned to pre-war levels, but the burden on poorer countries continues.
But what will happen if the grain exported in less than a year on more than 1,000 freighters via Black Sea ports is no longer available? Of the approximately 33 million tons shipped, 51 percent was stored maize, 27 percent was wheat and eleven percent was sunflower products. Above all, other producers can probably make up for the loss of wheat for global food security. According to Unctad economist Carlos Razo, 65 percent of the approximately 8.5 million tons of wheat shipped via Black Sea ports reached developing countries (including China) – a share of 24 percent or 1.9 million tons.
The US Department of Agriculture (USDA), widely recognized as the benchmark for global harvest forecasts, raised global expectations for wheat by 10 million to a record 800 million tons in June. One factor is the location of India. Despite the recent storm, New Delhi expects a record production of around 112 million tons of wheat, but also wants to increase its own state reserve. For the wheat harvest in the northern and southern hemispheres as well as in Argentina and eastern Australia, the international “Crop Monitor” of the Observatory Amis meanwhile spreads “mixed conditions” due to the weather.
In any case, experts like Heidland expect world market prices to rise again. Where these will level off is still unclear. The futures markets initially reacted much more calmly to the latest escalation by Moscow than they did last year. To a certain extent, the crisis was anticipated after Kiev had been complaining for months about how Russia was increasingly undermining the grain deal. The quantity checked in Istanbul has recently fallen from a peak of 4.2 million tons. In June, Russia had already had 29 freighters waiting before entering Turkish waters.
“It’s obvious that the Black Sea Corridor hasn’t worked as it should,” says international agricultural trade analyst Michael Magdovitz of London’s Rabobank. The delay in inspections has already made Ukrainian grain more expensive – to Russia’s own advantage.
For example, the price of the Chicago wheat futures contract shot up to $7.28 a bushel on Wednesday, but was still down on Thursday at $7.45 — and a 14 percent increase over three days — from the $7.53 paid four weeks ago. The record high of $14.25 was reached after the outbreak of war in March 2022. On the Euronext stock exchange in Paris, September wheat rose by EUR 19.25 to EUR 253.75 per ton on Wednesday and EUR 254.50 on Thursday.
Further development will depend on how the alternative routes for agricultural goods via the Danube and the Ukrainian river port near Ismail as well as via the port of Constanta in Romania can be used. According to Nicolay Gorbachev from the Kiev Grain Association (UGA), 60 percent of exports were recently able to use these “solidarity routes”. However, including their rail and truck routes, they are longer and more expensive. A good 500 meter long freight train can carry about 2000 tons of grain. Around 100 large trucks would be needed for the amount. A grain freighter, on the other hand, can hold around 60,000 tons – as much as 30 large freight trains or 3000 trucks.
Russia has blocked an extension of the agreement to export grain from Ukraine across the Black Sea. A phasing out of the initiative would have serious consequences – for poorer countries and for the world
Ultimately, Ukrainian farmers will pay an even higher price. Because of the increased logistics costs, the yields are already extremely low. With the failure of the most effective Black Sea route, they are now likely to be left with a large part of the coming harvest of corn, wheat and sunflower seeds. This, in turn, can affect the decision to sow winter wheat in the fall.
According to a USDA analysis, grain exports totaled 15.7 million tons of wheat, 2.7 million tons of barley, and 27 million tons of corn in crop year 2022/23. The Ukrainian UGA puts grain and oilseed exports together at 58 million tons – and expects to be able to export almost 45 million tons in the new harvest year. In contrast, a USDA forecast from Kiev – in the event of a “dysfunctional Black Sea grain initiative” – assumes an export capacity of only around 3 million tons per month. This corresponds to the previous export volumes to the neighboring countries of Romania, Poland, Hungary, Moldova and Slovakia.
If, in retrospect, it is always said that before the war Russia and Ukraine together contributed 30 percent to the global export volume of wheat, this ignores the fact that both countries were already bitter competitors. This year, too, experts reported on price wars for Black Sea grain. All in all, Russia exported more than three times as much wheat as Ukraine at the end of the 2022/23 harvest season in June. While it was 35.6 million tons in the previous year, Rabobank expert Magdovitz estimates the annual balance at around 58 million tons.
Russia has thus actually achieved the increased export target of 60 million tons of grain announced by Putin in February after a peak harvest in 2022. The Americans had also predicted record exports, especially of wheat. “Despite Russian claims of export restrictions, Russia’s grain and oilseed exports are thriving in the current crop year with ample supply and competitive prices,” read a USDA assessment. And they could be even higher if an export quota and levy introduced during the Corona period to ensure domestic food security did not remain in place.
Instead of suffering from Western sanctions in the agricultural and fertilizer trade, as claimed, the sector seems to be taking on an increasingly prominent world market place. Among other things, Moscow is calling on the West to reconnect the state agricultural bank Roszelkhosbank to the international payment system SWIFT. “Russia is demanding concessions from the EU and the US,” says analyst Magdovitz, “but the status quo hasn’t affected the export routes, at least not on the grain side. From a Russian perspective, the export destinations haven’t suffered.”
Rather, trade has flowed steadily, which has helped Russia to clear significant inventories. According to the statistics authority Rosstat, at the turn of the year Russian farmers and processors were still sitting on almost 14 million tons of wheat – about 71 percent more than in the previous year. Magdovitz estimates that inventories were still unusually high in June – with the winter wheat harvest already threatening.
Unlike the Ukrainian competition, which has to sell with high transport surcharges, “Russia doesn’t have such problems,” he says. Even the withdrawal of the agricultural trade giants Bunge, Cargill, Viterra and Louis Dreyfus from Russian grain exports does not appear to have dampened business noticeably. The retail groups are likely to have said goodbye to western sanctions because of indirect risks. From an analyst perspective, trader pullback may pose some challenges to longer-term growth. “But we haven’t seen any export problems since then.” There are local players who can handle trade and logistics.
In any case, against this background, Russia’s conditions under which it would be willing to restore the protected corridor for Ukrainian goods are losing credibility. For example, blocked assets and accounts of Russian companies in agricultural trade are to be released. “Regardless of what Russia wants or demands, it exports huge amounts of food,” emphasized the Rabobank expert. “What reason could there be to deny the world Ukrainian exports across the Black Sea instead of keeping global inflation in check?”
