“Renewed export of Ukrainian grain gives hope for those many people worldwide who need high-quality and affordable Ukrainian grain to feed them as well as helps UN’s World Food program to help the poorest countries to tackle with hunger. It also gives Ukrainian farmers hope for the future that they will sell their crop, will receive income enough to cover the costs and to carry out a new sowing campaign starting in weeks.”
President of Ukrainian Grain
Russia and Ukraine signed separate accords with the UN and Turkey on 22nd July to reopen Ukraine's Black Sea ports to grain exports, in an effort to ease an international food crisis caused by Russia's invasion of Ukraine. The deal specifically allows for significant volumes of commercial food exports from three key Ukrainian ports in the Black Sea – Odessa, Chernomorsk and Yuzhny.
The agreement, brokered by Turkey and the United Nations, has been widely praised. In addition to stabilizing global food prices, the agreement could help to alleviate rising food insecurity and global hunger concerns. Much of the grain imported by developing countries comes from Ukraine, but since the invasion, the country’s Black Sea ports have been blockaded by Russia. Ukraine is among the world’s leading grain exporters, supplying more than 45 million tonnes annually to the global market. The Russian invasion has sparked record food and fuel prices, as well as supply chain issues, with mountains of grain stuck in silos.
How has the deal affected grain markets? How is the grain export pace via Black Sea ports? What is the grain export prospect for Ukraine in the coming months? How the war has affected Ukrainian grain production?
Mykola Gorbachov, President of the Ukrainian Grain Association, answered these important questions.
Russia, Ukraine, the UN, and Turkey signed a deal aimed at the resumption of grain exports from Ukraine. Many hope the agreement will result in increased exports of grain and improved food security for hundreds of millions. Do you agree with these hopes for food security? How has the deal affected grain markets?
Russian aggressive and brutal war against Ukraine as well as total blockade of Ukrainian ports drastically disrupted Ukrainian grain exports. Ukraine is a big player in the world grain market. Last season, Ukraine produced more than 106 mmt of grains and oilseeds and would have to export about 70 mmt of it. Due to the Russian invasion and ports blockade, Ukraine exported not more than 50 mmt of grains and oilseeds, mostly wheat, corn and barley. A huge amount of grains remained in storages – about 26 mmt. Normally season ending stocks in Ukraine not exceeded 3.5-5 mmt.
Ukraine provided food for more than 400 million people worldwide and as I already mentioned is one of the top grain exporters in the world, a really breadbasket of the world. When Russia launched its full-scale invasion of Ukraine blocked the Ukrainian ports, a shortage of grain on the market immediately emerged and prices climbed upward. While prices skyrocketed people in most developing and low-income countries couldn’t afford to buy expensive grains or food.
Renewed export of Ukrainian grain gives hope for those many people worldwide who need high-quality and affordable Ukrainian grain to feed them as well as helps UN’s World Food program to help the poorest countries to tackle with hunger. It also gives Ukrainian farmers hope for the future that they will sell their crop, will receive income enough to cover the costs and to carry out a new sowing campaign starting in weeks.
‘IT WILL BE EASIER TO CHARTER SHIPS IN SEPTEMBER’
After the agreement, the first ship carrying grain departed from Odesa on 1st August. How is the grain export pace since the beginning of August? Can Ukraine ship its grain safely to global markets from Black Sea ports?
We couldn’t believe the Russians as they could break an obligation to stake the grain deal at any moment. That’s why the UN and Turkey needed in this deal to somehow guarantee the deal execution. Starting from 1st August and as of 27th August, 46 vessels departed from Ukrainian ports in Odesa region carrying about 1.04 mmt of grains and oilseeds. Ukraine grain exports is helping lower food prices on the world market. The World Bank said it does not expect food prices to increase for the rest of the year.
Has the deal helped to reduce shipping rates and high insurance premiums? Can the customers source cargoes from Ukraine and find large vessels?
As you may know, the cost of delivery through ports is much cheaper compared to rail or trucks. Insurance premiums always depend on percentage ratios of incidents; therefore, as long as the grain corridor operates without accidents, premiums will decrease.
It is still difficult to find ships for Ukrainian ports, but more and more ship-owners see the promising perspectives of the grain corridor and submit ships for loading in Ukrainian ports. I hope that it will be easier to charter the ship in September.
Do you think that the agreement will allow Ukrainian grain exports to return to prewar levels 4-5 mmt per month?
We hope that the opening of Ukrainian ports for grain export will increase export to about 3-3,5 mmt of grains and oilseeds per month. It’s below the natural pre-war volume of 6-7 mmt export a month. If we could export either from Mykolayiv port, the largest exporting point during the prewar period, it would add volumes to export.
Could you give us information about the latest situation in the Ukrainian Black Sea ports? Has port infrastructure been damaged during the war?
As you may know, Russian invading forces attacked port facilities multiple times. There were major damages at Mykolayiv port grain facilities. Russians also tried unsuccessfully to damage facilities in Odesa port. From the beginning of the grain deal, there were no attempts by Russians to destroy export facilities in Big Odesa ports (Pivdenny, Odesa and Chornomorsk). These ports continue to work accepting and departing vessels with grains and oilseeds.
‘THERE IS NO ALTERNATIVE TO BLACK SEA PORTS’
Given the fragile nature of the agreement due to the ongoing war, does Ukraine plan to create alternative export routes for its grain?
Well, Ukraine tried to export grain through the western border of Ukraine by railway and trucks. The experience proved its insolvency as logistics takes too much costs and producers could not survive as they receive prices below their costs. For example, when the price for wheat was $300 per ton it took almost $200 to get the wheat to port Constanta through alternative routes from Ukraine. It left the farmer with less than $100 of wheat price while costs reaching $200 per ton. We could definitely see that the farmer would go bankrupt and could not conduct a sowing campaign. It will emerge further as one more huge risk for the food security in Ukraine as well as for the world. So, there is no alternative to Black Sea ports in Ukraine as a route for Ukrainian grain.
The best way to ensure the steady export of Ukrainian grain for the world market and to sustain global food security is to help Ukraine defeat the Russians on the battlefield.
Could you give some information about the grain harvest season in Ukraine? What is your forecast for wheat, corn, barley and sunflower production?
Ukrainian Grain Association’s latest forecast for grain and oilseeds production this year is 64.5 mmt, which includes 19 mmt of wheat, 24 mmt of corn, 5,4 mmt of barley and 9 mmt of sunflower seeds.
What is the latest status on the grain storage projects? Will Ukraine be able to safely store its newly harvested grain?
If exports volume reaches 4-5 mmt per month, then the problem will not arise at all. Potentially, we expect possible difficulties with the storage of corn, which will have been harvesting in September-October. There are no storage problems at the moment with early grain to store.
PROSPECTS FOR GRAIN PRODUCTION IN UKRAINE
How the war has affected Ukrainian grain production? Do you think Ukraine farmers will have incentives to plant in the fall and next spring?
This year’s harvested area is almost 6 million hectares less than the previous season due to the Russian war against Ukraine and occupation. In general, in the spring of 2022, 2.7 million hectares less area was planted under the main spring crops.
We can already see the volume of destruction- the impossibility of carrying out a sowing campaign in the occupied territories, the disruption of logistics routes, the blocking of Ukrainian ports. All of this endangers grain production in Ukraine for future periods and even greater risks of famine in the world.
Russia launched a full-scale invasion of Ukraine with the aim of destroying Ukraine, the institutional organization of the Ukrainian state, its culture and its economy, and committing mass crimes of genocide against Ukrainians. It has chosen the agri-sector as one of the targets for attack and destruction as this industry is ensuring Ukraine's food security and stability. The agricultural sector is one of the basic foundations of the Ukrainian economy and provides 20% of the country's GDP and up to 50% of Ukraine's exports.
Damages to the agricultural sector of Ukraine from Russia's war against Ukraine, according to FAO estimates, reach 4-6 billion US dollars. Another estimate says the total losses from the war in the agri-sector of Ukraine reached 4.3 billion US dollars according to the results of the "Survey of War Damage in Ukraine's Agriculture", prepared by the Center for Food and Land Use Research KSE Institute together with the Ministry of Agrarian Policy and Food of Ukraine. At the same time, the Ukrainian Kyiv School of Economics estimates indirect losses of the agricultural sector in the amount of 23.3 billion US dollars.
The Ukrainian Grain Association, with the support of FAO and the EBRD, initiated the study by surveying Ukrainian agricultural producers, logistics, infrastructure companies, which are important elements of production, storage and transportation of agricultural products regarding their damages and losses from the war. The results revealed that agri-sector businesses suffered such losses as sawn areas and land resources, means of production, products, storages etc. We could definitely conclude that the Kremlin from the very beginning of the war aimed to deprive the Ukrainian farmers of the means of production before sowing and to create conditions for an acute food crisis in the fall and further.