Russia targets Ukrainian exports

Russia’s withdrawal from the Black Sea Grain Initiative (BSGI) and its subsequent attacks on Ukraine’s Black Sea and Danube ports has raised the stakes, not only in its ongoing war with Ukraine, but in global grain and oilseed supply.

With Russia having threatened to pull out of the BSGI dozens of times, it was perhaps unexpected that it actually carried through with its threat. The export pact had become increasingly ineffective due to the slow inspection rate of vessels heading to and from Ukraine’s Black Sea ports. The country’s Danube ports had taken on a more crucial role as a result and were considered safe because of their location bordering NATO but the drone attacks on the Danube ports of Reni and Izmail have put paid to this idea and Ukraine’s export options are now being squeezed.

The Ukrainian Grain Association (UGA) has said it can increase exports by 1-1.5M tonnes/month to third countries via ports in the Baltic states (Klaipeda and others), Germany (Rostock, Hamburg), the Netherlands (Rotterdam), Croatia (Rijeka), Italy (Trieste) and Slovenia (Koper).

These routes are more complex due to factors such as limited capacity at borders and different railway gauges, with higher logistics costs coming at a time when world oilseed and vegetable oil prices are lower than last year.

The UGA has called on the European Commission to introduce subsidies for European carriers and ports to meet these increased costs of around €30-40/tonne and has also proposed transferring sanitary, phytosanitary and veterinary control from checkpoints on the border with Ukraine to the destination country. It says the expected volume of Ukrainian grain and oilseeds in the 2023/24 marketing year is about 45M tonnes, along with 9-10M tonnes of oil and meal.

Will these vital supplies reach the world?

Russian president Vladimir Putin told the Russia-Africa Economic and Humanitarian Forum on 27 July that he could supply Burkina Faso, Zimbabwe, Mali, Somalia, the Central African Republic and Eritrea with up to 50,000 tonnes of free grain each in the coming three or four months. However, UN secretary general António Guterres said a “handful of donations to some countries” would not correct the dramatic impact the end of the deal would have, the Guardian reported.

The United Nation’s FAO Vegetable Oil Price Index jumped 12% in July from June, the first increase after seven months of consecutive declines, with international sunflower oil prices rising by more than 15% underpinned by renewed uncertainties surrounding the exportable supplies out of the Black Sea region.

With insurers and vessel owners reluctant to operate in a war zone, an uncertain market and the threat to Ukraine’s grain and oilseed industries and farmers, the road ahead for the country and some of the world’s poorest import-dependent nations is unclear.

Serena Lim serenalim@quartzltd.com