Options are dwindling for shipping companies looking for a way to get Ukrainian grain to global markets, escalating a trade crisis that is expected to add pressure on global food prices.
Last week, Russia withdrew from an agreement that allowed safe passage of ships through the Black Sea. On Monday, it threatened an alternative route for grain, attacking a grain hangar at a Ukrainian port on the Danube River that serves as a key artery for transporting goods while the Black Sea remains blocked.
“It opens a new front in targeting Ukraine’s grain exports,” said Alexis Ellender, an analyst at commodities analyst Kpler, adding that the route was considered safe because of its proximity to NATO member Romania.
“That will potentially close that route,” he said. It could also raise shipping insurance rates and further cripple Ukraine’s ability to export grain.
A few hours later a pre-dawn attack in a hangar in the Ukrainian port of Reni at the mouth of the Danube, dozens of vessels gathered to collect grain from Ukraine.
Global grain prices rose 17 percent on Tuesday from eight days before Russia withdrew from the agreement which has allowed Ukraine to export nearly 33 million metric tons of food since it was signed a year ago.
Global markets have ample grain supplies due to massive harvests in Brazil and Australia, but a prolonged shortage of exports from Ukraine is likely to cause price volatility in the event of drought, flooding or other extreme weather events. Russia has stepped up its attacks on Ukraine after India, a leading rice producer, stopped exporting non-basmati white rice last week as extreme weather hit production and caused domestic prices to jump.
Even before Russia pulled out of the Black Sea deal last week, Ukraine, which produces about 10 percent of the world’s wheat and 15 percent of its corn, had increasingly relied on alternative routes for its exports: overland and across the Danube River, Europe’s second-longest river. Shippers turned to these options in anticipation that Russia would eventually withdraw from the Black Sea agreement.
Monday’s drone strike cast doubt on those possibilities.
An executive whose shipping company operates a ship waiting to load grain in Reni said he was waiting to hear whether Monday’s attack would affect insurance premiums, which were already high.
The executive director, who spoke on condition of anonymity out of concern for the safety of the ship and its crew, said he thought the vessel was relatively safe because nothing had happened to it in the past year.
With Russia withdrawing from an agreement that guaranteed safe passage for commercial vessels across the Black Sea, insurance premiums are likely to be prohibitively expensive for shipowners, analysts said.
But some shipowners may choose to travel to Ukrainian ports at increased risk if they receive guarantees from the Turkish and Ukrainian governments, said Yoruk Isik, an analyst at the Bosphorus Observer consultancy in Istanbul. In recent days, Russia has launched a series of airstrikes on Odessa, a Black Sea port in Ukraine.
While the Danube River was considered a safer option than the Black Sea, there were limits to the amount of grain that could be exported across it, given capacity ceilings at ports, traffic back-ups at border crossings, fuel shortages and damaged roads, Mr. Isik said.
The Danube River is also shallower than the Black Sea. This means that many smaller ships are needed to transport the same amount of grain that would fit on one larger vessel traveling across the Black Sea. “Instead of one ship, you need 20,” Mr. Isik said.
He added that over time the European Union could provide funding for new rail lines and facilities to facilitate the flow of goods across the Danube, but that would take years. “The Danube will never replace the Black Sea ports in Ukraine,” Mr. Isik said. “It doesn’t even come close.”
Romanian Prime Minister Marcel Ciolacu on Monday condemned Russia’s attack on Danube ports and said Romania would continue to help Ukraine transport grain to global markets.
With options for exporters dwindling, Ukrainian farmers will have no choice but to raise prices and put some of their crops in storage, said Michael Magdovitz, agricultural analyst at Rabobank. They will also have less capacity to prepare for next year’s harvest, meaning that even if Russia and Ukraine succeed in reworking the deal, Ukrainian production will be more limited, he said.
The Kremlin’s withdrawal from the grain deal, which was struck to help ease a food crisis in low-income countries in East Africa, North Africa and the Middle East, will directly benefit the Russian economy, analysts said. President Vladimir V. Putin wrote in an article posted Monday on the Kremlin website that Russia, another major grain exporter, expects a record harvest this year.
He added that Russia is able to provide free grain to countries in Africa that relied on exports from Ukraine. The article was published ahead of the Russia-Africa summit in St. Petersburg on Thursday and Friday.
China, Turkey and Egypt benefited the most from the grain deal, with China getting about 20 percent of Ukraine’s grain imports, said Evghenia Sleptsova, chief economist at Oxford Economics.
As for the wider impacts, “there is no immediate security threat to other trade flows,” Ms Sleptoš said.
Valerie Hopkins contributed a report from Odesa, Ukraine.