Ukraine’s Grain Crisis: Demining, Securing Ships and Insurance, Relying on Putin

Ukraine is on the verge of securing a deal that aims to restart vital trade in the Black Sea that was disrupted by the Russian invasion. But getting them to go won’t be easy.

An agreement is expected to be signed on Friday by representatives of both countries, which will help revive the supply from one of the world’s largest exporters of wheat, corn and vegetable oil. This could be good news for the global food market and Ukraine’s war-torn economy.

However, even once the agreement is signed, it will take time for businessmen and officials to get moving. Ukraine faces the task of improving waterways, getting enough ships to carry the remaining grain and re-running trains and trucks that are now being used elsewhere. Getting insurance to cover a job is difficult.

Insurers Require Safety Guarantees Before Covering Ships In Ukraine Grain Corridor

The plan’s success also depends on security assurances from Moscow and President Vladimir Putin to follow through on the deal, at a time when the Kremlin is moving toward occupied territories and continuing to advance in eastern Ukraine. Western researchers and officials are questioning how Ukraine can resume its role as the world’s largest agricultural resource.

“Despite military operations taking place on Ukrainian territory, being in the waters of Ukrainian ports remains extremely dangerous,” said Andriy Kupchenko, head of analytics at APK-Inform consultancy. Ukraine’s exports will not return to “good” this season, he said.

Showing that the situation is difficult, the adviser to the chief of staff of the President Volodymyr Zelenskiy. he said Ukraine will sign an agreement with Turkey and the United Nations, instead of directly with Russia – while Russia is showing cooperation with Turkey and the UN. He also said that Ukraine will not allow to be escorted by Russian ships or to have representatives in Ukrainian ports.

Many ships have been blocked in Ukraine since the war began, forcing the country to turn to rail and truck transport and river ports – which can handle smaller volumes. Once the Black Sea ports reopen, finding ships and getting insurers willing to cover cargo going there will be difficult and expensive.

Insurers can carry loads, mainly because of their personalities, says Neil Roberts, head of marine and aviation at Lloyd’s Market Association. But the details of production must be resolved to ensure that workers are available to handle and transport the crops.

“The opening of the ports would be exciting, the 80 or 90 ships that have been there could come out,” said Lucas Dorrestein, Viterra’s global head of sales. he said this week. “But then the next steps will be very difficult.”

Return Mills

Ukraine had 25 million tons of wheat remaining by mid-year and farmers are now in the process of harvesting the next wheat crop. Although some products are close to the ports, farmers and traders need safe routes to continue shipping. The southern region is still dangerous and the infrastructure is damaged, which will slow progress, APK-Inform’s Kupchenko said.

In addition, many rail cars and trucks are tied up in the grain delivery lines to the neighboring European Union and should return to traditional port routes, he said.

Keeping exports also depends on assurances that there will be no damage to infrastructure by Russia, which has been accused of stealing Ukrainian grain and targeting warehouses with missiles. Some officials believe that the Kremlin wants to use the threat of food shortages and global hunger as a communication tool.

The proposed agreement includes the creation of secure corridors from the ports of Odesa, Chornomorsk and Pivdennyi, Tass said on Friday. They accounted for only half of Ukraine’s exports to sea in the 2020-21 season.

There are others who are also important to achieve a majority vote before the war. One is Mykolayiv near Kherson, where fierce fighting is currently taking place, while Chornomorsk itself is blocked by ships that have been deliberately sunk.

The International Maritime Organization says the complete removal of sea mines near ports could take several months. However, the development of a way to allow ships to move could be done quickly, which could take about 10 days, Mykola Gorbachov, head of the Ukrainian Grain Association, said this week.

“I have hope,” he said. “It is possible to find a way.”

Increasing exports would provide relief to countries that depend on Ukrainian grain, especially those whose grain prices have already risen. An agreement would also give greater confidence to local farmers, who will face major decisions in the autumn on the amount of land – if any – to plant important winter crops such as wheat, which are in short supply worldwide, Rabobank expert Michael Magdovitz said.

“We believe there may be a way to get rid of this plant,” John Kirby, a spokesman for the US National Security Council, said at a briefing. “But we’re not looking through rose-colored glasses in terms of the success they’ll be able to achieve.”

-Courtesy of Josh Wingrove.

Copyright 2022 Bloomberg.

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