Did the deal stand?
Grain agreement stands – but distrust prevails
By Marina Zapf
07/30/2022, 08:50 am
Ukrainian grain is soon to reach the world market again via the Black Sea. But the impact of two cruise missiles on the port area of Odessa a few days ago still resonates with many. How much is the deal worth?
It’s about more than 20 million tons of grain. Where, how much of the more than 20 million tons of grain is stored is a secret. Fearing that the silos could become a target for Russian attacks, the Ukrainian government closed the publicly accessible database after the war began. Five months after the invasion, three Black Sea ports are to reopen to bring the blocked grain through mined waters under international supervision to the Mediterranean Sea and on to its buyers. It is hoped that if this valve opens, Ukrainian farmers will survive – and the global food crisis will ease a bit.
This is what the agreement between Russia and Ukraine brokered by Turkey and the UN envisages. A joint coordination center is being set up in Istanbul these days, which threads convoys of ships into secured corridors, monitors their loads and, if necessary, searches them. Kyiv releases three ports for operations, which had become impossible due to the Russian naval blockade and its own mines. These should now be removed in places. And Moscow pledges to refrain from attacks on freighters and ports.
But whether this guarantee is worth much is doubted, particularly in Kyiv. All preparations are underway, including at the Hamburg port operator HHLA, which operates a terminal in Odessa. However, the impact of two cruise missiles on the port area of Odessa last Saturday resonates with many of those involved, it is reported. The ink under the deal was barely dry. A UN spokesman then assured that all sides had confirmed their commitments. But: “We are basically really skeptical about this action,” says Mariia Bogonos from the Kyiv School of Economics (KSE). There is hope because Turkey and the UN are involved. But: “The distrust of the Russian side prevails.”
Lots of movement on the transport routes
The agricultural economist heads the Center for Food and Land Use Research at the KSE and, in cooperation with the Ministry of Agriculture, has drawn up a damage assessment of the war damage in Ukrainian agriculture. It supports reports of indiscriminate Russian attacks on grain stores, mined fields, burning grain fields and stolen crops. With this in mind, Bogonos first points out the dangers before asking how realistic it is to bring millions of tons onto the world market via these special corridors.
All of Ukraine’s ports combined could technically handle 60 to 70 million tons of agricultural goods a year, says Bogonos, about 5 million tons a month. So even under normal circumstances it would take four months to transport the quantity in question. But now about a third of annual exports are said to be channeled through just three ports: Odessa, Chornomorsk and the port of Pivdenni further east. In peacetime, much of Ukraine’s sea freight was also shipped through the now-damaged terminals of Mykolaiv and Olbia, and through occupied Mariupol and Berdyansk on the Sea of Azov.
Because three ports do not open up much space for interim storage, there will be a lot of movement on the transport routes there and traffic jams in the bottlenecks, the agricultural economist points out. “The stocks from the last harvest are scattered all over the country and it is considered highly risky to even get the grain to the loading terminals on rail cars,” she says. Despite Russian non-attack commitments, participating shipowners would also have to pay very high insurance premiums. “If this increases transport costs enormously, it reduces the yields of Ukrainian farmers. The question arises as to whether the risk is worth it.” Especially since Russia could change its mind every day.
$4 billion in direct damages
Still, even if only half of the 23.4 million blocked crops were exported across the Black Sea, it would save farmers – whether small farms of 100 hectares or agri-holdings of 600,000 hectares – a spoiled crop and ruin if incomes came in for the next crop could be, says the agricultural economist. In any case, the route would be faster and cheaper than via the arms of the Danube to Romania, or via land corridors of the EU to other ports. If everything goes “according to plan and efficiently”, revenues of $1 billion a month could be realized by December, Bogono confirms forecasts by the Kyiv government. That would be pre-war levels. And an imminent loss of ten percent of gross national product (GDP) from agriculture would be at least partially averted.
According to KES calculations, she suffered immeasurably from the war: Bogonos and her colleague Roman Meyter recorded direct damage of 4 billion dollars by the beginning of June, including destroyed machines, operating resources, livestock, grain and agricultural land. In addition, there would be economic losses, mainly due to increased production costs and drastically falling domestic prices for the products, but also because acreage was lost or income from livestock and poultry farming collapsed. Adding to the logistical complications, this results in losses of 23 billion dollars.
The damage calculation is to be updated in mid-August. Because with every hectare that Russian forces conquer, new “scorched earth” is added. According to French media reports, the occupiers deliberately set fire to grain fields. The harvest in the country is scheduled to begin in two weeks. According to the CFE experts and the government, the storage problems for wheat, barley and corn from the new season could probably be solved if the export corridors gradually opened up and farmers used plastic “Ag-Bags” for temporary storage, as the Minister of Agriculture recommends.
Meanwhile, an analysis by the Carnegie Endowment for International Peace emphasizes that Russia would not throw the deal overboard with military attacks unless it had to. Because Moscow has also asserted its own interests. “The easing of sanctions to facilitate Russian agricultural exports was not an official part of the agreement,” it says, “but it was successfully negotiated in parallel with the US and the EU.” Russia earned around 11 billion dollars from grain exports in 2021 and wants to benefit from the increased world market prices on a large scale.
HHLA can resume operations in Odessa at short notice
Exports have not come to a standstill, nor have they been subject to boycotts imposed in Washington and Brussels. But they were made more difficult and hindered by sanctions on banks and payment channels or by increased logistics costs. The same applies to fertilizer exports, which, like grain, have become scarcer and more expensive on the world market. All this to the chagrin of developing and emerging countries with a high proportion of imports and great poverty.
“There are many reasons why the Kremlin wants to save the export earnings of Russia’s largest agricultural holdings,” said Carnegie’s Alexandra Prokopenko. The agriculture minister is the son of the head of the Security Council, and the second largest grain trader, Demetra Holding, is partly owned by the Marathon Group, owned by Foreign Minister Sergei Lavrov’s son-in-law. Another holding belongs to a former Minister of Agriculture. Also, some frozen assets would be released to allow Russia to import much-needed seeds, high-quality fertilizer and pesticides, and young animals for poultry and pig farming.
However, according to the Carnegie author, these significant concessions to Moscow are by no means a guarantee that the deal for the “bread corridors” will be honored. In two weeks we will see how the deal will be accepted by Ukrainian farmers to make room for the new crop, says Bogonos. And you will see how the rush of dealers in the ports fails.
Hamburg’s HHLA, which also handles bulk goods in addition to the largest container terminal, can resume operations in Odessa at short notice, they let know on request. Preparations are being made for the possible transhipment of grain by sea and talks are being held with exporters and authorities. However, it is still unclear when which ships will be available for transport and which infrastructure is required at the terminals.
This article is first at Capital.de appeared.