Explained: What Is The Ukraine Grain Deal And What Problems It May Solve

Hera Rizwan
Hera Rizwan
Updated on Aug 13, 2022, 12:58 IST- 4 min read
Ukraine grain deal

As part of a deal negotiated by the UN and Turkey for opening the country's ports, two more grain-carrying ships left Ukraine's Chornomorsk port. The agreement, which established a secure corridor and has consumers in some of the world's poorest countries like Eritrea in Africa, was meant to aid in the global food shortage.

However, the majority of exports to date have been made up of maize, which is usually utilised as animal feed or to create the biofuel ethanol. Let us look at the problems which still persist.

No export of wheat

The agreement established a secure maritime route for exports from three Ukrainian ports, and its first focus has been on clearing a path for ships that have been stranded in the country since Russia's invasion in February.

Ukraine Grain Exports usip

Approximately 3,70,000 tonnes of agricultural products, primarily maize but also tiny amounts of soybeans, sunflower oil, and sunflower meal, have been exported thus far. Wheat has not yet been delivered in any shipments.

This partially reflects the date of Russia's invasion as much of the wheat crop from the previous year had already been sold in February. Wheat is typically shipped sooner because it is harvested several months before corn.

The first step is to shift the three million tonnes of grain believed to be in ports; this process will likely take until about the middle of September.

Will it help the food crisis get better?

Even bigger volumes will need to be supplied in order to significantly impact the global supply. In addition to the expected additional 20 million tonnes of wheat that will be harvested this year, Ukraine has approximately 20 million tonnes of grain stockpiled throughout the nation.

Ukraine Food Crisis AFP

Three million tonnes can be sent per month through the three ports engaged in the agreement—Odesa, Chornomorsk, and Pivdennyi—and some believe this level of exports might be reached in October.

To transport such a big amount of grain, however, a significant number of ships will be required, and some shipowners would be reluctant to enter a war zone due to the hazard posed by mines and the high expense of insurance.

Need for insurance

The Joint Coordination Centre, based in Istanbul, which oversees the accord and is made up of Turkish, Russian, Ukrainian, and U.N. officials, revealed the long-awaited guidelines on the shipping route on Monday in an effort to calm concerns held by insurers and shipowners. Previous statements from insurance firms indicated that they would be open to providing coverage provided preparations were made for international navy escorts and a clear sea mine response strategy.

Ukraine grain deal AFP

Lloyd's of London insurer Ascot and broker Marsh (MMC.N) established a maritime cargo and war insurance for grain and food goods leaving Ukrainian Black Sea ports with a $50 million cover per voyage as one of the first actions following the July 22 agreement. View More

However, the cost of overall insurance for ships entering Ukrainian ports, which covers several coverage components, is expected to remain high.

Will this help in tackling global food inflation?

By raising the cost of both grains and energy, Russia's invasion of Ukraine has sparked an increase in food prices. Russia's natural gas supplies to Europe have decreased, and pipeline equipment is to blame, along with Western sanctions. Leaders in the West have accused Moscow of blackmail. The cost of farming, transporting, processing, and packaging food increases when fuel prices rise.

Ukraine grain foreignpolicy

It is commonly expected that the price of grains and oilseeds will fall globally if the strategy to export grains is successful. Despite this, supplies are still scarce, and because the conflict has damaged agriculture, this year's harvest in Ukraine will be lower than last.

Even if the agreement holds, the World Food Programme has issued a warning that food prices will remain high.