Agriculture & Food

The Ukrainian government said on July 27 that it has restarted operations at three designated Black Sea ports after reaching an agreement with Russia to resume grain exports recently. Turkey officially opened the Ukrainian Grain Export Joint Coordination Center in Istanbul.

The Ukrainian navy said in a statement on social media: "In relation to the lifting of the blockade of grain exports from Ukrainian ports, operations have been resumed in the ports of Odessa, Chernomorsk and Pivdennyi. At the same time, in accordance with the above-mentioned agreement, Turkey officially opened the Ukrainian Grain Export Joint Coordination Center in Istanbul on the same day. Turkish Defense Minister Hulusi Akar inaugurated the center.

On the 22nd, Russia and Ukraine signed relevant agreements with Turkey and the United Nations in Istanbul on the issue of the export of agricultural products from Black Sea ports. The content of the agreement includes: establishing a joint coordination center in Istanbul and ensuring the safety of food transportation, and both Russia and Ukraine agree that neither side will attack ships carrying agricultural products. In addition, Russia signed a memorandum of understanding with the United Nations on promoting the entry of Russian food and fertilizers into the international market.

The Ukrainian Joint Coordination Center for Grain Exports will be staffed with Russian and Ukrainian civilian and military officials, as well as Turkish and United Nations delegations. Their main tasks include monitoring the safe passage of Ukrainian grain ships along their established routes, and supervising the inspection of prohibited weapons as they enter and leave the Black Sea.

Helps eliminate global food supply shortages

International public opinion believes that the agreement reached this time allows the world to see the dawn of easing global food tensions. "There is a beacon of hope in the Black Sea," said UN Secretary-General Antonio Guterres. Shipping agricultural products to markets around the world will help eliminate global food supply shortages and ease pressure from high prices.

Russia and Ukraine are among the world's largest grain exporters, and together they account for one-third of the world's wheat supply. The blockade of Ukraine's exports has sent food prices soaring, making them unbearable for the poorest countries. The United Nations estimates that nearly 50 million people around the world are facing "acute hunger" as a direct result of the war.

According to reports, due to the crisis in Ukraine, more than 20 million tons of Ukrainian grains are currently stranded in Odessa and cannot be shipped out. Ukrainian President Volodymyr Zelensky said that the signing of the agreement will allow the backlog of food to be exported, thereby easing the global food crisis.

Wheat prices have fallen sharply in the hours after the aforementioned grain agreement was signed.

Implementing Existential Variables

Analysts believe that the situation in Ukraine has not taken a turn for the better, there is a lack of mutual trust between Russia and Ukraine, and there is uncertainty about the smooth implementation of the agreement on the export of agricultural products.

The day after the agreement was signed, Ukraine accused Russia of attacking the port of Odessa. In addition, the agreement does not include additional demining operations in Ukrainian territorial waters. Vessels transporting food will leave the Black Sea along a safety corridor agreed by the parties, but still face certain risks.

In addition, Russian Deputy Foreign Minister Andrei Rudenko said that Ukrainian grain shipments will resume soon and hope that the above-mentioned agreement facilitated by Turkey can be maintained. But he also warned that the agreement could also collapse if obstacles to Russian agricultural exports are not quickly lifted.

Worries about insurance are the biggest hurdle

While Ukraine launched grain shipments from Black Sea ports this week, exporters said concerns over insurance were the biggest obstacle for cargo ships leaving ports.

The question now is whether insurers are willing to insure these ships in minefield waters, and buyers are hesitant to place new orders given the risk of a Russian attack.

Martha Belikova, an agricultural expert at commodity price reporting agency Fastmarkets, said people were waiting to see what would happen before placing a new order. "(Exporters) have been very pessimistic and still are," Belikova said. "The most important thing is that they don't trust Russia, so they don't trust the agreements that Russia signed."

The top priority for exporters and buyers, Belikova said, is to divert grain from ships that have been parked at Ukrainian ports since the invasion. "If all goes well, they might consider new deals," she said, but for new orders, "it's not currently possible".

Industry insiders also raise the big question of who will insure such an adventure. "The safety of crew, cargo and people working at the port is difficult to guarantee," Belikova said.

According to Fastmarkets' Tim Wallich, there are rumors that Turkish merchant ships may be used for export in the future, as ships from other countries in the world may "watch the fire". However, Turkish ships tend to carry only 10,000 to 15,000 tons, while vessels previously operating from Ukrainian ports can carry 40,000 to 70,000 tons of cargo.

Ukraine has been using shallow ports along the Danube border with Romania to export goods for the past five months, and Ukrainian railways have also been working to increase exports to Europe. Belikova said Ukraine is now able to export 2 million tons of grain per month through these channels. But before the war, exports could reach 6 to 8 million tons per month.

Wallich said Russia's incursions and negotiating methods, including the attack on the 23rd, have prompted buyers to consider diversifying supplies.

Kubrakov said the export would start from Chernomorsk, the port closest to the Ukrainian-Romanian border. At least 10 vessels have been trapped there since February 24, totalling more than 600,000 tons, according to shipping data.