How Russia and European Food Producers Are Set to Benefit From Grain Deal Suspension
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The Ukrainian leadership's plans to transport grain through the Black Sea without Russia's participation appear to be doomed, Sputnik's interlocutors warn, adding that agricultural producers are poised to benefit from the Black Sea Grain Deal suspension.
The Kiev regime is lobbying for grain exports to go on after Russia announced it suspended the expired Black Sea Grain Initiative after the West failed to implement its part of the agreement concerning Russia's agricultural products.
Unprecedented sanctions slapped on Russia in the wake of its special military operation in Ukraine have so far hindered Moscow's ability to supply its grain and fertilizers to the world market amid the food crisis. Russia has signaled that it is ready to resume the grain deal once the West meets its obligations under the agreement brokered in July 2022 by Turkiye and the United Nations.
Shippers and Insurers Take a Pause
Meanwhile, international shippers and insurers met Ukraine's calls to ignore Russia's suspension of the deal with skepticism. The cancellation of the pact means that Moscow will no longer guarantee safe passage through the Black Sea. As a result, some insurance brokers have already halted their programs for grain exports from Ukraine. For its part, Washington ruled out shipping escorts of Ukraine's vessels.
"Since the deal ended, no new moves have been seen. Shippers are not yet ready to carry Ukrainian grain," Alexander Dudchak, a political scientist and leading researcher at the Institute of CIS Countries, told Sputnik. "[Ukraine] could urge them as long as it wants, but these shippers have pragmatic interests (…) Private capital has its own interests, and they demand compensation for steps that can harm them."
Per Dudchak, exporters of Ukrainian grain, as well as intermediaries, are likely to lose some of their excessive profits. Still, no one prohibits them from exporting Ukrainian foods by land routes, through the European Union.
The scientist noted, however, that Eastern and Central European states are opposing this option, given that previously a huge amount of Ukrainian grain was stuck in their territories instead of being redirected to the needy countries of the Global South. As a result, agricultural producers in Poland, Slovakia, Hungary, Romania, and Bulgaria lost their profits due to the Ukrainian cheap grain glut in the European market.
In April, the group of Eastern and Central European countries introduced bans on Ukrainian foods, prompting the European Commission (EC) to take action and temporarily prohibit the sale of Ukrainian wheat, maize, rapeseed, and sunflower seed in Bulgaria, Hungary, Poland, Romania, and Slovakia until June 5. The ban was later extended until September 15. Currently, the five nations are urging the EC to extend the ban on imports of Ukrainian agricultural products beyond September 15.
In addition, the carrying capacity of land routers is considerably lower than that of sea lanes, noted Arkady Zlochevsky, president of the Russian Grain Union.
"The land route (…) has reached the capacity of 52,500 tons per day and kept this level," Zlochevsky told Sputnik. "These are overland shipments of Ukraine during the period of the grain deal. And in parallel, Ukraine shipped by water. Ultimately, the throughput of overland routes amounted to 18 million tons. For comparison's sake, 33 million tons were shipped by sea over a year as part of the deal. However, the volume [of land transportation] fell from 52,500 tons [per day] to 22,500 tons due to the fact that Europe closed the domestic market for Ukrainian products."
Bulgarian and Romanian Ports Not a Panacea
Ukrainian authorities are considering a new route for transporting grain through the territorial waters of Bulgaria and Romania as part of a trilateral grain initiative with the UN and Turkiye, Ukrainian Ambassador to Ankara Vasily Bodnar stated earlier this week.
"We have created a guarantee fund on our part and can attract companies that provide ships for the transport of grain. From our point of view, this can be implemented even without using the route that was previously agreed, but through the territorial waters of Romania and Bulgaria," Bondar told journalists.
Earlier, the head of the Ukrainian agricultural company HarvEast Holding Dmitry Skornyakov said that Kiev's main task is to get a nod from Ankara for continuing the grain deal without Moscow. Skornyakov further suggested that the Turkish Navy could ensure Ukrainian grain caravans' security. However, that would be a highly risky move for Turkiye and it is likely to refuse, Bloomberg reported on Tuesday, citing an official familiar with the matter.
"If [Ukraine] is going to ship [its grain] through the territorial waters [of Bulgaria and Romania], but from the Ukrainian ports, this would be problematic," said Dudchak. "Because insurance companies have already refused to insure such goods. How would they get [their grain] into territorial waters [of Bulgaria and Romania]? It raises questions whether [Ukrainians] would [transport] it by land or would try to send ships from their ports. The Russian Aerospace Forces have already been striking at the port infrastructure preventing this scenario from happening."
Ukraine Needs Sea Route to Smuggle Weapons
The Ukrainians are pushing to continue the grain deal not only because they want to profit from the sales of agricultural products. The truth is that the Kiev regime also used the maritime corridor to deliver weapons to Ukraine under the guise of the grain deal and to cover-up attacks on the Crimean peninsula, according to Dudchak.
"There were cases described in the press (…) when some radioactive substances were delivered to the Ukrainian port participating in the grain deal, this was recorded. Of course, it is very difficult for [the Kiev regime] to lose such a channel for the supply of weapons and such a reason not to allow Russia to strike at ports," the political scientist said.
Moreover, the Kiev regime itself undermined the Black Sea security by releasing a considerable number of sea mines in its waters, Dudchak continued. "Even today it is reported that one such mine was shot by the Russian military," he remarked.
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Ukraine's Dumping Backfired on European Producers
The suspension of the deal – even if the Kiev regime continues to transport its grain through alternative routes – would benefit agricultural producers, according to Zlochevsky.
"This deal was harmful for many participants in the process," Zlochevsky said. "Harmful consequences were caused by the discount generated by the Ukrainian dumping [of grain price]. We were forced to apply this discount, since we could not sell [our commodities] more expensive than Ukraine at the time when the deal began. For example, Turkiye completely stopped Russian supplies, switching to Ukrainian ones. We were forced to reduce prices to the Ukrainian level. The discount at the start was $30 per ton compared to French [grain] prices. We compare our price with that of the French, because previously we went head-to-head with our deliveries being evaluated with a premium for quality. And then we were forced to trade with a huge discount. Now the discount fluctuates in the range of $10-20."
Ukraine was able to make such a discount because Russia created and maintained a safe corridor in the Black Sea as part of the grain deal, explained Zlochevsky. As a result, the cost of insurance for Ukrainian shipments become very cheap. The Ukrainians had cheap freight with a guarantee for unhindered passage of its vessels amid the conflict. In general, all these factors led to the fact that Ukraine began to sell a huge volume of its foods at extremely cheap prices unbalancing the grain market, according to the expert. Zlochevsky added that Eastern and Central European producers suffered greatly from Ukraine's dumping spree.
After the suspension of the deal, the security risks are back, forcing insurers and shippers to raise costs for Ukrainian shipments. This would raise the Ukrainian grain prices to at least some reasonable level from the market's viewpoint, as per the president of the Russian Grain Union.
19 July 2023, 13:29 GMT
It's Time for West to Help Global South
The US and EU have already subjected Russia to criticism for suspending the grain deal, citing the food problems of the Global South. Sputnik's interlocutors refered to the West's hypocrisy, given that the poor developing states got a minuscule part of Ukraine's maritime grain shipments.
"In the end, Ukraine is not the only pebble on the beach in this respect," said Dudchak. "If someone has concerns about the poorest countries, the US, Canada and other [Western] countries can also participate and send some volumes. Wheat production does not end in Ukraine. Although this is a well-known exporting country, it is, nevertheless, not the only one by far."
Russian Grain Can Replace Ukraine's Supplies
Dudchak pointed out that Russia is ready to step in and fill the gap, given its record-high harvest in 2022. Despite the West artificially disrupting the flow of Russia's agricultural goods, Moscow has managed so far to send considerable volumes of grain to the developing countries of the Middle East, Africa, Asia and Latin America.
Russia is ready to continue supplying its grain to world markets, replacing Ukrainian grain, said Russian President Vladimir Putin on Wednesday.
"I want to assure you that our country is able to replace Ukrainian grain both on a commercial and free basis. Moreover, this year, as the minister reported, we again expect a record harvest,” Putin said during a meeting with the government.
He noted that Ukraine produced about 55 million tons of grain over the past agricultural year with its exports amounting to 47 million tons. For comparison's sake, Russia harvested 156 million tons of grain last year and exported a whopping 60 million tons.
