Shipping companies looking for ways to get Ukrainian grains to global markets continue to have fewer options, intensifying a trade crisis that is expected to put pressure on global food prices.
Last week, Russia withdrew from a pact that allowed ships to safely navigate the Black Sea. On Monday, it threatened alternative routes for grain by attacking a grain hangar in a Ukrainian port along the Danube, which has served as an important artery for goods shipments while the Black Sea remains blocked.
“It opens a new front in targeting Ukrainian grain exports,” said Alexis Elender, an analyst at commodity analysis firm Kpler, adding that the route was considered safe due to its proximity to NATO member Romania.
“This could lead to that route being closed,” he said. Also, hull insurance rates could be increased, further undermining Ukraine’s ability to export grain.
Hours after a hangar in the Ukrainian port of Leni was attacked before dawn, dozens of ships destined to collect grain from Ukraine converged at the mouth of the Danube.
Global grain prices on Tuesday were up 17% from eight days before Russia pulled out of a deal that had allowed Ukraine to export about 33 million tonnes of food since its signing a year ago.
Although good harvests in Brazil and Australia have provided ample supplies of grain to global markets, a prolonged shortage of exports from Ukraine is likely to make prices more volatile in the event of droughts, floods or other extreme weather events. Russia stepped up its offensive against Ukraine following the attack from India, the top rice producer. Export suspension Production of non-basmati white rice was halted last week as extreme weather hit production and boosted domestic prices.
Even before Russia ended the Black Sea Agreement last week, Ukraine, which produces about 10% of the world’s wheat and 15% of its maize, had become increasingly dependent on exports by land and alternative routes via the Danube, Europe’s second longest. Shippers turned to these options in anticipation that Russia would eventually withdraw from the Black Sea Agreement.
Monday’s drone attack cast doubt on those options.
An executive at a shipping company that operates ships waiting to load grain at the port of Leni said he was waiting to see if Monday’s attacks would affect already high insurance premiums.
The official, who spoke on condition of anonymity because of concerns about the safety of the ship and its crew, said he thought the ship was relatively safe because nothing had happened to it over the past year.
Analysts say insurance premiums are likely to be exorbitant for shipowners, given Russia’s withdrawal from a pact that guarantees safe passage for merchant ships on the Black Sea.
But Jörg Isik, an analyst at consultancy Bosphorus Observer in Istanbul, said some ship owners might decide to go to Ukrainian ports even if the risk is higher if they can get assurances from the Turkish and Ukrainian governments. In recent days, Russia has launched a series of airstrikes against the Ukrainian Black Sea port of Odessa.
Although the Danube has been considered a safer option than the Black Sea, Issyk said there are limits to the amount of grain that can be exported through the Danube given capped production capacities at ports, traffic backups at border crossings, fuel shortages and damaged roads.
The Danube is also shallower than the Black Sea. In other words, it would take many small ships to transport the amount of grain that could fit in one large ship through the Black Sea. “He needs 20 ships, not one,” said Isik.
He added that over time, the European Union could fund new railway lines and facilities to facilitate the flow of goods through the Danube, but that would take years. “The Danube will never replace Ukrainian Black Sea ports,” Issyk said. “It can’t even come close.”
Romanian Prime Minister Marcel Siorak on Monday condemned the Russian attack on ports on the Danube River and said Romania would continue to help Ukraine transport grain to global markets.
With fewer options for exporters, Ukrainian farmers will have no choice but to raise prices and store some of their crops, said Rabobank agriculture analyst Michael Magdovitz. It would also reduce the ability to prepare for next year’s harvest, which would further limit Ukrainian production even if Russia and Ukraine were able to revive the deal, he said.
Analysts said the Kremlin’s withdrawal from the grain deal, which was set up to ease food crises in low-income countries in East Africa, North Africa and the Middle East, would directly benefit the Russian economy. In an article published on the Kremlin website on Monday, President Vladimir V. Putin wrote that Russia, another major grain exporter, expected a record harvest this year.
He added that Russia has the ability to provide free grain to African countries that depended on exports from Ukraine. The article was published ahead of the Russia-Africa Summit in St. Petersburg on Thursday and Friday.
Evgenia Sleptsova, senior economist at Oxford Economics, said the biggest beneficiaries of the grain deal were China, Turkey and Egypt, with China getting about 20% of its grain imports from Ukraine.
As for the broader implications, “there is no immediate security threat to other trade flows,” Sleptsova said.
Valerie Hopkins Contributed a report from Odessa, Ukraine.
