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Analysis/ What happens if the Ukrainian wheat export deal fails

2023-07-12 07:59:07Kosova&Bota SHKRUAR NGA REDAKSIA VOX
Analysis/ What happens if the Ukrainian wheat export deal fails
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The agreement between Ukraine and Russia on the export of Ukrainian wheat expires soon. A new agreement has not been reached. What could be the consequences? The Secretary-General of the United Nations, Antonio Guterres, called the agreement between Ukraine and Russia on the uninterrupted export of wheat, signed on July 22, 2022, a "light of hope". The agreement, often referred to as the "Seafood Initiative of Black", has been extended several times. But Russia claims that it does not intend to extend it on July 17. And this would have consequences around the world.

Why is the agreement important?

Ukraine is among the largest producers of wheat in the world. At the beginning of the Russian invasion of Ukraine in February 2022, many countries were threatened with famine. According to the data of the World Food Program of the United Nations, Ukrainian cereals feed 400 million people in the world. The export disruption would hurt Africa and the Middle East the most.

Food prices have risen especially since the start of the war and are still rising due to the Russian occupation. In addition, due to the Russian blockade of the Black Sea, millions of tons of Ukrainian grain have remained in warehouses and are being stored for export. According to information from the European Union, "the continuation of Ukrainian wheat shipments is of crucial importance for food security around the world." This is also very important for Kiev, since as of March 2022, grain sales have brought in 700 million US dollars.

How does the deal work?

The agreement regulates the export of wheat from the Ukrainian-controlled Black Sea ports of Odesa, Chornomorska and Pivdeni. The ships pass through the previously agreed humanitarian corridor towards Istanbul. In a country controlled by Turkey, the ships are visited by an inspection made up of Russian, Turkish, Ukrainian and United Nations inspectors. Two United Nations military units ensure the transport of Ukrainian grain, but they are also tasked with facilitating the export of Russian food and fertilizer.

Is the deal successful?

This agreement can contribute to lowering prices and stabilizing the market. By May 2023, 30 million tons of cereals and other food products were exported through this corridor.

The agreement especially helps poor countries. About 64 percent of this wheat goes to developing countries, while half of the corn goes to them, while the other half is imported from industrially developed countries.

Since March, there have been frequent media reports that Ukraine is exporting less and less grain – according to them, three-quarters less was exported in May than in October last year. Shipping companies are reluctant to take the risk of sending ships on unsafe routes. In addition, strict controls make brisk business impossible.

The Secretary General of the United Nations, Antonio Guterres, has recently expressed dissatisfaction with the non-implementation of the agreement. "Reducing the pace of inspections also means that fewer ships enter Ukrainian ports, fewer leave them and less grain arrives," said his deputy spokesman, Farhan Haq.

The Russian side complains that Western sanctions prevent the export of Russian agricultural products, even if these products are expressly exempted from the sanctions. However, in recent years, Russia has restricted its exports by imposing taxes, and occasionally even imposed a grain export ban.

How important is the Black Sea?

Many interests intersect in the Black Sea region – those related to sea and land, geostrategy and economics. It is Ukraine's only sea route for grain export. The Bosphorus and Dardanelles straits through which all shipping traffic from the Black Sea passes are controlled by Turkey.

But these routes are also interesting for other countries that do not have access to the Black Sea coast, in particular for China. Part of the new Silk Road passes through the Black Sea, which will speed up the flow of Chinese goods to Europe.

What if the deal doesn't go ahead?

It is unclear whether Ukraine would find a way to export the same amount of grain without this agreement. The high cost of insurance for ships would be an additional problem. Ships currently taking the Black Sea route to Ukraine must pay thousands of dollars in insurance.

Without Russian approval, shipping companies would be reluctant to send their ships to the war-torn zone. Even transporting grain by land can be a difficult task. Since the beginning of the war, Ukraine has exported a large amount of wheat through the eastern countries of the European Union. But the logistical challenges were great and many. For example, the number of wagons available was too small for the amount of grain.

In addition, eastern EU grain-producing countries complain that Ukrainian grain is displacing local products and undercutting the price there. In early June, the European Union reacted by restricting imports of Ukrainian wheat. According to this decision, wheat can be transported through Bulgaria, Poland, Romania and Slovakia, but cannot be sold there.

UN spokesman Farhan Haq said the United Nations has a duty to continue supporting the agreement on the export of Ukrainian wheat, as well as Russian food products and artificial fertilizers. He added that it is especially important now, because the new harvest in Russia and Ukraine has just begun. Until now, the continuation of the agreement has not been agreed upon./ DW


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