The agreement that allows Ukraine export grain through Black Sea It expires on July 17, and Moscow says it sees no reason to extend it, so there are fears it may end.
Because it is important?
Ukraine is a major producer of grains and oilseeds, and the disruption of its exports at the outbreak of the war sent world food prices soaring to all-time highs. The current agreement, from July 2022, some five months after the start of the war, helped lower prices and alleviate the global food crisis.
Ukrainian grain has also played a direct role, with 725,200 tons or the 2.2% of the supplies sent through the corridor, in the United Nations World Food Program (WFP), which helps countries such as Ethiopia, Somalia and Yemen.
What will happen if it ends?
Prices of some staple foods are likely to rise, but the situation is better than in the months after the start of the war due to increased grain supplies from other producers such as Russia and Brazil.
The prices of wheat, the main ingredient in bread, have fallen by about a 17% so far this year, while those of corn, a 26%
However, the current global food crisis is far from over. The WFP declared last month that multiple emergencies had overlapped creating the largest and most complex hunger and humanitarian crisis in more than 70 years.
In 2022, a record 349 million people suffered from acute hunger and 772,000 were on the brink of famine, the WFP reported in an annual report.
What is the state of world food reserves?
Global maize stocks started the 2021/22 season at the lowest level in six years, so the Russian invasion of Ukraine, one of the world’s leading maize exporters, caused a significant price spike.
Strong export growth from Brazil, however, has since helped boost supplies along with the export of almost 17 million tons of corn through the corridor.
The US Department of Agriculture has forecast that global corn stocks at the end of the 2023/24 season will be at the highest level in five years.
World wheat stocks are tighter and were at their lowest level in seven years at the end of the 2022/23 season, according to USDA data, although a slight increase is anticipated in 2023/24.
What would it mean for the world food program?
WFP purchases several million tons of basic food items each year, of which around 75% they are cereals.
In 2021, WFP purchases amounted to 4.4 million tons, with Ukraine being its main source, with a twenty% of the total.
Most of the food goes to Africa and some West Asian countries such as Yemen, so WFP tends to source mainly from Eastern Europe, which is closer than the big producers in North or South America.
WFP has shipped 725,200 metric tons through the corridor. If it were to shut down, it would have to look elsewhere, potentially costing more when funding crunch has already forced it to scale back its activities in some countries.
What has been exported?
Under the pact to create a safe shipping lane, Ukraine has been able to export 32.8 million tons of agricultural products, including 16.8 million tons of corn and 8.9 million tons of wheat.
Before the conflict, Ukraine exported between 25 million and 30 million tons of corn a year, mainly through the Black Sea, and between 16 and 21 million tons of wheat.
The ability to transport grain across the Black Sea under the pact has been limited by the inclusion of only three ports.
Why might Russia withdraw from the pact?
Russia has repeatedly stated that it sees no reason to extend the agreement. It argues that the commitments made to remove obstacles to Russian exports of food and fertilizers have not been fulfilled.
Among Moscow’s demands is the reconnection of the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payment system.
Other demands include the resumption of the supply of agricultural machinery and parts, the lifting of restrictions on insurance and reinsurance, the resumption of the Togliatti-Odesa ammonia pipeline, and the release of the assets and accounts of Russian companies engaged in the export of feed and fertilizer.
Can the corridor work without Russia?
Ukrainian ports were blocked until the deal was reached in July last year and it is unclear whether it would be possible to ship grain if Russia pulls out.
Additional premiums for war risk insurance, charged when entering the Black Sea zone, would rise and shipowners might be reluctant to allow their ships to enter a war zone without Russia’s agreement.
Insurance industry sources say that for now there are no changes to the coverage agreements, although the conditions could change quickly. War risk insurance policies must be renewed every seven days for ships, which costs thousands of dollars.
Is the broker necessary if the Ukrainian crops fall?
Ukrainian grain exports are expected to decline in the 2023/24 season as the war pushed farmers to plant less corn and wheat.
The US Department of Agriculture has forecast corn exports to fall to 19 million tons, down from 27 million the previous season and well below the record 30.3 million shipped in the 2018/19 season, when represented the 17% of world cereal trade.
Wheat exports are expected to fall to 10.5 million tonnes, down from 16 million the previous season and from the peak of 21 million in 2019/20, which represented the eleven% of the world grain trade.
However, exporting even those lower volumes of grain through the eastern European Union would be logistically difficult and expensive, particularly for crops from the eastern regions of Ukraine that face a long and difficult journey just to reach the border. .
Can Ukraine export more grain through the EU?
Ukraine has been exporting substantial volumes of grain through the eastern EU countries since the conflict began. However, there have been many logistical problems, such as the different track gauges.
Another problem is that the flow of Ukrainian grain through the eastern EU has caused anger among farmers in the region, who say it has depleted local supplies and has been bought up by mills, leaving them with no market for their crops.
For this reason, the EU has authorized five countries -Bulgaria, Hungary, Poland, Romania and Slovakia- to prohibit the internal sale of Ukrainian wheat, corn, rapeseed and sunflower seeds, although it allows transit for export to other places. This measure will be phased out from mid-September.
Larger harvests are also expected this summer in the eastern EU, so key ports such as Constanta in Romania will find it difficult to handle the volume of grain they are likely to receive, leading to bottlenecks and delays in shipments. .
Source: Reuters
Source: Gestion
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