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(Updates throughout)
By Nigel Hunt and Jonathan Saul
LONDON, March 15 (Reuters) - Russia has proposed that a
U.N.-backed initiative that has enabled grains to be exported
from Ukraine's Black Sea ports should be renewed for just 60
days.
The deal to free up grain exports from Ukraine's southern
Black Sea ports, which expires later this month, has previously
been renewed for 120 days and there are concerns a shorter
extension could cause logistical issues.
Reached in July last year, it created a protected sea
transit corridor and was designed to alleviate global food
shortages by allowing exports to resume from three ports in
Ukraine, a major producer of grains and oilseeds.
Here are some of the issues:
WHAT HAS BEEN EXPORTED?
Under the pact to create a safe shipping channel, some 24.6
million tonnes of agricultural products have been shipped,
including 12.2 million tonnes of corn.
Wheat shipments have reached 6.7 million tonnes. Other
commodities shipped include rapeseed, sunflower oil, sunflower
meal and barley.
The leading destinations have been China (5.4 million
tonnes), Spain (4.3 million) and Turkey (2.7 million).
For a full breakdown of the countries and quantities
exported:
https://www.un.org/en/black-sea-grain-initiative/vessel-movements
HOW MIGHT THE AGREEMENT CHANGE?
The main potential change to the agreement is a shortening
in the length of the renewal to 60 days from 120 days, a switch
that is supported by Russia but opposed by Ukraine.
A shorter period is significant as there is often a slowdown
in shipments in the period leading up to the renewal date due to
the potential risk that the deal may collapse.
If the deal collapses, more ships in the region could be
stranded.
There are still up to 60 commercial ships stuck around
Ukrainian ports from more than 90 vessels - many with food
cargoes onboard - in February 2022, when Russia invaded Ukraine,
industry sources said.
It is likely therefore that a shorter renewal period will
effectively mean a lower volume of shipments of grains and
oilseeds out of Ukraine through the corridor as companies
consider whether their shipments may get stuck.
Shipping companies are already holding off from charters
through the corridor until more is known over the outcome of the
current talks, industry sources said.
Ukraine has said it would like the deal to be extended for
at least one year and the addition of the port of Mykolaiv.
The three ports involved in the deal - Odesa, Chornomorsk
and Pivdennyi - have the combined capacity to ship around 3
million tonnes a month.
Mykolaiv was Ukraine's second-largest grain terminal
according to 2021 shipment data so its addition would allow a
much larger volume of grains and oilseeds to be shipped.
Russia has said it opposes the expansion of the deal until
concrete steps are taken to unblock its agricultural exports.
Agricultural exports have not been explicitly targeted by
sanctions, but Moscow says blocks on its payments, logistics and
insurance industries are a barrier to the export of its grains
and fertilisers.
Among its demands, Russia is believed to want the West to
ease restrictions on state agriculture lender Rosselkhozbank,
which should facilitate Russian exports.
HAS IT ALLEVIATED THE FOOD CRISIS?
Reduced shipments from major exporter Ukraine have played a
role in the global food price crisis.
Other factors include the COVID-19 pandemic and climate
shocks that continue to challenge agricultural production,
including droughts in both Argentina and the United States.
The corridor has led to a partial recovery in shipments from
Ukraine, but they remain well below pre-invasion levels and will
not fully recover for the foreseeable future.
Transporting grains to and from ports there is challenging
and expensive, and Ukrainian farmers have reduced sowings of
crops such as wheat and corn after in many cases selling last
year's crops at a loss because domestic prices were very low.
HAS IT DRIVEN DOWN GLOBAL WHEAT PRICES?
Prices of wheat on the Chicago Board of Trade rose
sharply following Russia's invasion of Ukraine on Feb. 24, 2022.
They are now around pre-conflict levels as Ukraine's ability
to export millions of tonnes of wheat through the corridor
helped to lower prices.
Other factors include a record crop in major exporter Russia
last year, the gloomy global economic outlook and a strong
dollar.
Prices for wheat-based food staples, such as bread and
noodles, are still well above pre-invasion levels in many
developing countries despite the decline in Chicago futures, as
weak local currencies and higher energy prices have raised costs
such as transport and packaging.
WHAT ABOUT INSURANCE?
The Istanbul based Joint Coordination Centre, which oversees
the deal and is made up of Russian, Turkish, Ukrainian and U.N.
officials, in August published procedures on the
shipping channel to address the concerns of insurers
and shipowners.
Insurers initially said they were willing to provide cover
if there were arrangements for international navy escorts
and a clear strategy to deal with sea mines.
Since then, they have created clauses for providing cover,
including provisos that ships need to stay inside the corridor
when transiting or risk invalidating their policies.
Following the July 22 agreement, Lloyd's of London insurer
Ascot and broker Marsh set up a marine cargo and war
insurance facility for grain and food products moving out of
Ukrainian Black Sea ports with $50 million cover per voyage.
The cost of overall insurance for ships sailing into
Ukrainian ports - which includes separate segments of cover - is
nevertheless likely to remain steep.
This has been compounded by insurers having to cover more of
the risk after reinsurers at the start of this year introduced
exclusions for Belarus, Russia and Ukraine, meaning more
exposure for insurers and potentially less appetite to cover
cargoes.
Ships that sail into one of the three Ukrainian ports under
the accord are required by their charterers to pay an additional
war premium, which is renewed every seven days costing thousands
of dollars. If the extension is limited to 60 days it could
dissuade more ship owners from chartering their vessels given
the multiple costs involved and the possibility of getting
stuck.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
ANALYSIS-Patchwork fixes to Ukraine grain shortfall leave world
vulnerable a year into war [nL1N34W2C6]
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Nigel Hunt and Jonathan Saul in London and Pavel
Polityuk in Kyiv, Editing by Angus MacSwan, Alex Richardson and
Barbara Lewis)
((jonathan.saul@thomsonreuters.com; + 44 207 542 4357 ; Reuters
Messaging: jonathan.saul.thomsonreuters.com@reuters.net))
Keywords: UKRAINE CRISIS/GRAINS (EXPLAINER, PIX)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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