Since its Black Sea ports were essentially shut down last month, a third of Ukraine’s agricultural exports have been destroyed, demonstrating the success of the Kremlin’s attempts to stymie food shipments from the nation.
Even with a €1 billion drive by the European Union to develop alternate channels since the beginning of Russia’s invasion, the decline represents a serious setback for the economy of Ukraine and world food security. This week, the US announced that it is collaborating with its European allies to maintain the flow of grain exports, depending on rivers like the Danube and other routes once sea passage has become unsafe.
According to Evghenia Sleptsova, senior economist at Oxford Economics, “the river ports are the key question.” However, increasing the flow through those would be challenging because “now Russia started bombing Izmail and Reni,” two Danube ports that were assaulted earlier this week.
According to projections from analyst UkrAgroConsult, Ukraine was only able to export 3.2 million tons of grains, vegetable oils, and meals in the four weeks leading up to August 15 compared to 4.4 and 4.8 million tons in May and June when the Black Sea agreement was still in effect. Better-than-expected harvests will now likely result in larger crop stocks during the following year as there will be fewer routes to market.
Even in times of war, Ukraine is a significant exporter of grains, and the Black Sea agreement that Russia abandoned on July 17 contributed to stabilizing market prices and maintaining consumer flows. The weakness of Ukraine is helping Russia’s own grain trade. Its agricultural exports are rising and are anticipated to account for about a quarter of the world’s wheat trade in the 2023–2024 growing season.
In a sign of how difficult it has been to identify dependable workarounds, Ukrainian President Volodymyr Zelenskiy stated that seven drone and missile strikes on ports had already occurred within a month of the grain deal failing.
Additionally, there are logistical challenges. According to Alex Lissitsa, a member of the board of the Ukrainian Agribusiness Club, certain cargoes now take four times longer to reach the Danube than they did a month ago due of traffic bottlenecks.
Higher transportation expenses are partly a result of the delays and lower shipment quantities. Even before the grain contract fell, Olena Vorona, operational director at the supplier Agrotrade Group, said that her company totally reoriented flows to Danube ports and trains. However, shipping prices have increased by up to 50% as a result.
According to Lissitsa, “farmers in many regions will probably consider reducing the sowing of winter cereals because the prices offered by the market do not cover the costs.”
The train company in Ukraine reported that the current wait times at border crossings with European nations are around 5 to 6 days. Yevhen Lyashchenko, its CEO, told Bloomberg that the company is geared up for a rise in rail exports.
But it’s possible that won’t be enough to prevent a worse downturn. According to Sleptsova of Oxford Economics, the second half of the year might witness a 25% decrease in the exports of grains and oilseeds from Ukraine.
“That would be a 3% drag on Ukraine’s gross domestic product in the second half of the year,” she said.