Nearly a Year into the War, Has Ukraine’s Grain Export Crisis Eased?

In early November, Odesa had not yet been plunged into large-scale missile attacks and power cuts, and the shops along the streets were still open as usual. The farmer Aleksey had arranged to meet me at a café in the city centre.

Aleksey’s farm, located near Odesa, comprises – according to him – 1,000 hectares of land along with its own flour and bread factory. In a country of such vast farmland as Ukraine, this is not particularly large-scale.

The moment he sat down, he complained that the recently closed Black Sea Grain Corridor was severely affecting the livelihoods of Ukrainian farmers.

The Black Sea Grain Initiative, signed on 22 July and brokered by the United Nations and Turkey, was designed to enable Ukraine – one of the world’s largest grain-exporting countries – to continue exporting grain through Black Sea ports, and to prevent countries that depend on Ukrainian grain exports, mainly densely populated developing nations, from falling into a food crisis.

In late October, Ukrainian forces used drones and unmanned surface vessels to attack the Russian Black Sea Fleet in Sevastopol on the Crimean Peninsula. Subsequently, on 29 October, Russian forces announced the suspension of the grain corridor, which had been operational for less than three months.

● Aleksey shows me the state of his barn, blown over by Russian missiles.

Because grain had sat unsold, Aleksey had been forced to find his own sales outlets, managing distribution in addition to production and processing. When I met him, he had just wrapped up a grain deal in Bulgaria and returned to Ukraine. Aleksey, now over forty, has three children, and he told me that this is precisely what grants him an exemption from Ukraine’s ban on adult men leaving the country (Note: On 24 February 2021, the Ukrainian government announced that Ukrainian men aged 18–60 were prohibited from leaving the country, though fathers of three children could be granted an exemption), allowing him to shuttle back and forth across borders to conduct his grain export business. By contrast, Ukrainian farmers without three children are not so fortunate.

In the weeks that followed, the Black Sea Grain Initiative was restored through Turkish mediation. However, for Aleksey’s farm, the focus of sales had already shifted to neighbouring countries, including Moldova and Bulgaria. “I’m arranging more exports to Bulgaria; part of the wheat I’ll turn into refined flour to sell in Moldova; the rest goes into bread for the Ukrainian domestic market.”

Under the shadow of war, Ukrainian grain once exported in vast quantities to Third World countries is now flooding into Europe.

I. I. Europe as an Alternative?

Before the war, the European Union was not a primary market for Ukrainian agricultural products.

Ukraine benefits from low labour costs and high agricultural output, giving its products a price advantage over those from the EU. For example, in August 2022, Ukrainian wheat was selling at $272 per tonne and maize at $251 per tonne, while the average prices on the internal European market during the same period stood at $324 and $307 per tonne respectively. However, to shield EU agriculture from competition, the EU imposed strict quality inspection requirements and tariff policies on imported agricultural goods, making it extremely difficult for Ukrainian products to gain entry.

As a result, Ukraine’s grain has been primarily exported to more distant developing countries. These shipments were mainly dispatched by sea-going vessel from Ukraine’s southern ports, with Odesa, Mykolaiv, Berdiansk and others serving as key maritime hubs. After the war broke out, Mykolaiv was subjected to prolonged Russian missile strikes and blockade, while Berdiansk and surrounding areas fell into Russian hands. Although Odesa’s port facilities remain operational, the threat of naval mines in the waters persists to this day. The local port facilities, designated as strategic sites, have been encircled with layers of barbed wire, and ordinary civilians can no longer approach the coast for leisure as they once did.

According to UN statistics, before the war, between 120 and 160 cargo ships departed from Ukrainian ports each week. After the war began, this number briefly plummeted to below 40, of which only about 20% were sea-going vessels.

●The grain silos at Odesa Port were attacked by Russian forces the very day after the Black Sea Grain Agreement was signed. Photo: dpa

The sharp decline in seaport throughput capacity has forced Ukraine’s grain exports to rely more heavily on rail, road and inland waterways. Yet each of these transport modes carries its own drawbacks.

Rail comes first. Ukraine and Europe use different rail gauges, making it impossible to run through trains; cargo must be transshipped at the border. Furthermore, Ukraine’s principal agricultural production areas lie in the chernozem belt to the southeast, a considerable distance from the main export corridors to the northwest.

Lorry transport, meanwhile, is “far too expensive”. Aleksey explained that his farm sells Ukrainian wheat to Bulgaria at roughly $220 per tonne, of which lorry transport alone accounts for about $120 per tonne. In other words, road haulage costs on their own exceed more than half the selling price. On top of that, severe congestion at border crossings makes freight lorries extremely difficult to secure. “Sometimes you have to wait more than a week just to get a lorry, so we ended up buying three of our own.”

Inland waterway transport requires grain to be moved by land first to a handful of small river-port towns on the Danube in southern Ukraine, bordering Romania – Kiliya, Reni and Izmail – before being shipped onward by waterway. This route is slightly cheaper than road transport. According to Aleksey, hauling wheat from Kyiv in the centre-north of Ukraine down to Reni on the southern Danube costs roughly $80 per tonne in transport, while the selling price for wheat at Reni stands at approximately $210 per tonne.

What all three routes have in common is that grain once exported by sea-going vessel is now pouring into the neighbouring EU.

II. Eastern European Farmers Protest

However, Aleksey, who has been exporting grain to southeastern Europe, has encountered a new problem: “Bulgarian and Romanian farmers are protesting that we Ukrainians are exporting far too much grain, disrupting their markets.”

The situation he described was not confined to just those two countries. In late November, a group of Polish farmers staged a protest in the eastern city of Lublin. According to Polish media reports, the protest was organised by the farmers’ organisation Agrounia, whose leader told the media that an excessive influx of Ukrainian grain into the Polish market had caused local grain prices to plummet, undermining farmers’ livelihoods. According to Polish government statistics, in the first half of 2022, Poland imported 640,000 tonnes of Ukrainian grain, while in recent months, 450,000 tonnes have been entering Poland each month – 16 times the figure for the same period in 2021, and 1.5 times that of mid-2022. Agrounia believes the actual volume is considerably higher than this official figure.

●Agrounia protests in front of the provincial government building in Lublin. Photo: PAP

This situation stems from the Solidarity Lanes policy launched by the EU on 12 May this year, which allowed Ukrainian grain to pass tariff-free through the EU to Baltic Sea ports. The policy permits only the transit of Ukrainian grain for re-export; it does not enter the European market. Polish Prime Minister Mateusz Morawiecki has also repeatedly assured farmers that Ukrainian grain will not remain in Poland but will merely be transshipped to other export destinations.

The opening of the EU market has provided considerable convenience for “smallholders” like Aleksey. But it also means that Ukrainian agricultural products enter Europe in fragmented, dispersed form through small-to-medium producers like him, making it difficult to ensure that these goods are exported to third countries, as the Solidarity Lanes scheme was originally intended.

According to observations made in July 2022 by Michael Scannell, Deputy Director-General of the Directorate-General for Agriculture and Rural Development at the European Commission, a considerable share of Ukrainian grain entering the EU via the Solidarity Lanes became “stuck” in the first EU countries it reached, failing even to arrive in the member states with greater need for grain – countries such as Italy and Spain, which typically import Ukrainian maize for feed.

From July 2022 to the present, this problem has shown no sign of improvement. According to a November 2022 EU report, not just grain but Ukrainian imports of poultry products, dairy and other agricultural goods have all seen “significant growth”. This has made the Solidarity Lanes themselves less than solidary – in a bid to protect the farmers’ vote, right-wing conservative parties in the EU have begun proposing new restrictions on Ukrainian food products.

III. Is the Third World Starving?

On 5 December, NASA published its latest remote-sensing data analysis, estimating Ukraine’s winter wheat harvest (including Russian-occupied territories) at 26.6 million tonnes – down from the previous year’s bumper crop of 33 million tonnes, though not too bad by comparison. The good news is that the winter wheat harvest area in 2022 shrank by only 6%, with 94% of the planted area still brought in. Earlier forecasts had predicted that 20% to 30% of the winter wheat would go unharvested in 2022. Meanwhile, 22% of the wheat was being harvested in Russian-occupied areas.

According to estimates by the Ministry of Agrarian Policy and Food of Ukraine, the country harvested approximately 51 million tonnes of grain in 2022 – a 40% reduction compared with the 86 million tonnes recorded in 2021 – the principal causes being lower yields per hectare and territory lost to occupation.

●NASA satellite data shows that almost all unharvested wheat fields are situated near the front line. Photo: NASA

Meanwhile, in several low-income countries that depend on Ukrainian grain, the risk of food crisis and famine is mounting. In its mid-December 2022 assessment, the International Rescue Committee (IRC) concluded that, with drought brought on by climate change expected in 2023, hunger in East African countries – Somalia above all – would be particularly acute.

Before the war, some East African countries, Somalia included, sourced nearly all their grain imports from Ukraine. In Egypt, half of the annual wheat supply depended on foreign imports, and of that imported share, roughly 15% came from Ukraine.

Despite the Black Sea Grain Initiative, grain was still reaching these countries far more slowly than before the war. According to data released on 26 December 2022 by Turkey’s Transport Minister, Adil Karaismailoğlu, since August, 15 million tonnes of agricultural products had been exported from Ukraine via the Initiative, carried by 585 cargo ships. Of these shipments, 44% went to Europe, 16% were destined for Turkey, and only 14% were shipped to African countries. In 2021, Ukrainian wheat destined for Egypt and Indonesia alone had each accounted for more than 15% of Ukraine’s total wheat exports. Some analysts argued that the Black Sea Grain Agreement helped low-income countries mainly in an indirect way, by expanding supply to help stabilise prices and making it easier for these nations to access grain on international markets.

The degree of shortage, however, varied from one Third World country to another. At the very moment Somalia faced the threat of starvation, Egypt had already secured wheat supplies through to early 2023 via a range of trade agreements. Following the outbreak of the war, Egypt swiftly procured wheat from European countries, India and elsewhere to keep the market supplied – above all, the steady flow of cheap bread available through government subsidies – in order to maintain social stability. Egypt’s Ministry of Trade and Supply recently stated that the country’s wheat reserves would be sufficient for the next five months. The food shortage that many had feared for Egypt at the start of 2022 never materialised. Indeed, the Egyptian government did not purchase its first batch of Ukrainian wheat since the war – 175,000 tonnes – until December 2022. Compared with Egypt’s average annual total consumption of 25 million tonnes, this procurement was clearly modest.

Russia, for its part, seized on the destinations of Ukrainian grain exports as ammunition for attack. Putin publicly accused Ukraine of seeing its grain end up in Europe, never reaching the low-income countries that needed it most.

This criticism was, of course, an exaggeration. Yet the Ukrainian side recognised the need to be more attentive to the demands of low-income countries – or at least to make a credible effort to help. Beyond the United Nations programme, Ukraine launched its own grain export initiative. On 26 November, Zelenskyy convened a grain summit in Kyiv to discuss Ukraine’s grain exports. He announced that Ukraine had already secured $150 million in funding from 20 countries and would establish a separate “Ukraine Grain Programme” to deliver at least 125,000 tonnes of grain to countries in Asia and Africa in urgent need, and to dispatch 60 cargo ships’ worth of grain to Asian and African nations before the following spring. The Ukrainian government’s official statement on the initiative read: “Our goal is to end hunger for at least five million people.”

IV. Forced into Change

But plans are one thing; in Aleksey’s view, the biggest problem remains the transport bottleneck and the upheaval in supply chains.

Before the war, Aleksey sold his grain each year to Ukrainian wholesalers, who would then decide whether to sell it on the domestic market or ship it to Odesa for export to other countries by sea-going vessel. Once the war began, however, the entire order of the supply chain fell into chaos. Grain struggled to leave the country, while domestic sales stagnated badly. The mass exodus of Ukrainians abroad and the decline in purchasing power had been shrinking the home market ever since.

Aleksey said that many people, himself included, were weighing whether to scale back production or shift their model of farming altogether.

He had heard that farmers in northern Ukraine were growing increasingly reluctant to plant maize, because maize requires drying and threshing, which in turn demands large quantities of gas. Since the war began, gas had become very expensive, accounting for twenty to thirty per cent of the final price of maize. “More people are switching to sunflowers – some are even converting wheat land to sunflower fields – because sunflowers can fetch $450 a tonne, which is more than wheat can earn.”

With cash flow constrained, Ukrainian farmers have been economising on fertiliser. “A lot of farmers are cutting back on fertiliser, some down to half of what they used to use. It’s to save money, so naturally the fertiliser market has shrunk as well.” Aleksey shook his head.

I asked him what his plans were for the new year. After a moment’s thought, he said he would still do his best to sell his products into southeastern Europe. “After all, we have the price advantage.”

Ukrainian farmers caught up in the war are striving to find new ways forward. After all, as the conflict drags on, Ukraine is drawing ever closer to European markets – the grain trade and security arrangements that existed before the war are gone for good.

References

Unless otherwise noted, all photos are by the author

Author: A Qi

Editor: Wang Hao

I. I. Europe as an Alternative?

II. Eastern European Farmers Protest

III. Is the Third World Starving?

IV. Forced into Change

Published by Foodthink