KANSAS CITY, MISSOURI, US — Having directly targeted and damaged Ukraine grain assets at Black Sea ports and on the Danube River since withdrawing from the Black Sea Grain Initiative on July 17, Russia has sent Ukraine and the entire world a chilling message, said Stephen Nicholson, global sector strategist, Grains & Oilseeds, at Rabobank.
“It reemphasizes to me that Russia has made a clear decision that it is going to use food as a weapon, politically, economically, or whatever the case may be,” Nicholson told World Grain.
The European Union, in a letter obtained by Reuters, recently warned developing countries and G20 members (composed of the world’s largest economies) that Russia is offering cheap grain “to create new dependencies.”
“As the world deals with disrupted supplies and higher prices, Russia is now approaching vulnerable countries with bilateral offers of grain shipments at discounted prices, pretending to solve the problem it created itself,” the letter said. “This is a cynical policy of deliberately using food as a weapon to create new dependencies by exacerbating economic vulnerabilities and global food insecurity."
The recent assault on Ukrainian grain terminals along the Danube River, the longest river in the European Union by length and volume, is particularly worrisome, Nicholson said, since the bombings occurred very close to Romanian soil. The risk of the war evolving into a much wider conflict has increased since Russia’s decision to pull out of the grain deal.
Exports from the inland ports along the Danube River have grown in importance after the end of the grain initiative.
“That’s getting very close to NATO territory,” he said. “If you go further up the Danube, you get into Romania and Moldalva. If they start poking the bear, then you’ve got NATO invoking Article Five (which states that an attack on one NATO nation is an attack on all), and then they’ve got a real mess on their hands.”
Exports from the inland ports along the Danube River have grown in importance after the end of the grain initiative, which allowed Ukraine to ship 33 million tonnes of agricultural products via the Black Sea for nearly a 12-month period during the war, now in its 18th month. In the past year, Ukraine, which in recent years has been among the world’s top producers and exporters of wheat and corn, has increased grain shipments on the Danube from a few hundred thousand tonnes to 2 million annually, according to the Ukrainian Grain Association, which noted that there is potential to double that figure.
There are four ports along the Danube River in Ukraine: the Port of Izmail, which was attacked this week, leaving storage units and at least 40,000 tonnes of grain damaged; the Port of Reni; the Port of Ust-Dunaisk; and the Port of Kilya. The river connects Ukraine to the Black Sea and eight other European nations.
“These are substantial facilities, not a couple of grain bins and a leg,” Nicholson said. “These are the kind you see in Western Europe — big complexes with significant tonnage.”
He noted that in 2021-22, more than 90% of Ukraine’s wheat, barley and corn exports were shipped through the Black Sea. With Russia blockading the Black Sea ports during the first five months of its invasion, Ukraine redirected its shipments in 2022-23, with only 65% of wheat and corn and 50% of barley exported through the Black Sea.
“They certainly diversified their shipping abilities pretty quickly,” Nicholson said.
With grain exports from the Black Sea essentially halted and terminals on the Danube now under siege, potentially limiting shipments, the next best alternative is rail. But export volumes by that mode of transportation are limited by higher shipping costs and not having uniform rail gauges throughout Europe.
The war also has taken a major toll on production. The Foreign Agricultural Service (FAS) of the US Department of Agriculture sees Ukraine in 2023-24 producing its smallest wheat crop in 12 years and exports dropping to their lowest level in 11 years, an estimate that was made before Russia’s decision to withdraw from the initiative. Meanwhile, the FAS forecasts Russian wheat exports in the 2023-24 marketing year at a record 47.5 million tonnes.
Russian President Vladimir Putin recently assured African leaders that he would supply them with the grain they needed in the coming months, but industry analysts are skeptical about Russia’s ability to make good on that promise. Although Russia, in theory, has control of the Black Sea shipping lanes and can ship grain by rail east to China and Southeast Asia, several issues will weigh on its ability to maximize exports, Nicholson said.
“Freight and insurance costs are going to be higher because they are shipping in a war zone,” he said. “Also, the Russian ports on the Sea Azor don’t have the capacity that Ukraine ports have on the Black Sea. They are much smaller. That’s certainly one of the reasons Russia has such a desire to control Ukraine — it has fertile soil, a better climate and larger ports on the Black Sea.”
He added: “Ukraine has 48 million tonnes of shipping capacity (at its seaports); Russia has 42 million. But it’s spread out of 12 different ports, almost all of them smaller compared to Ukraine, which has six ports, most of them large.”
So with Ukraine’s grain production and export capacity dwindling, how will the world be impacted if this conflict continues to drag on for weeks, months or even years? The International Grains Council, in its most recent report, noted that global wheat carryover stocks are projected to fall by 7% in 2023-24, to a five-year low of 263 million tonnes, as Ukraine, Australia, China, Russia and possibly India are anticipating smaller crops.
“If you look at the world’s major wheat exporters, and you take out Ukraine and Russian stocks and look at their exports, there’s not enough wheat stocks in the world to fill that void,” he said. “It’s just the opposite with corn. As of now, there is enough corn stocks among the world’s major exporters to make up for the loss of Ukraine corn. Is that sustainable long term? In both cases, likely not. But there is a lot more concern over the supply of wheat than there is corn.”
