Month without grain deal: how Ukraine can sell its crops and why farmers want F-16s

Despite the hostilities, field mines, and the destruction of the Kakhovka hydroelectric power plant, Ukraine will harvest a better grain and oilseeds crop this year than last year. According to the Ukrainian Grain Association, the potential new harvest could yield around 48 million tons of grains and oilseeds, nearly double the capacity of the Romanian port of Constanța, which currently serves as the primary export channel for Ukrainian grain. Without the revival of the grain corridor, exporting such a significant volume of grain from the country would remain a mere fantasy. Will Ukrainian farmers be able to sell the crops harvested despite the shelling and air raids, and is it possible to revive the grain corridor without Russia - read more in the Espreso article. 

Will the temporary routes of the Ukrainian Navy replace the grain corridor?

On July 16, exactly one month ago, the last ship under the grain deal left the port of Odesa. 

On July 17, Russia officially stopped participating in the grain initiative and began systematically shelling Odesa region ports, making it difficult to transport grain to the Romanian port of Constanța. And on August 13, the Russian patrol ship Vasily Bykov opened warning fire at the civilian cargo ship Sukru Okan, which was heading to the port of Izmail, Ukraine. It is not yet known for certain whether the ship was carrying grain, but after the shelling, wheat prices on world markets went up. 

On August 16, Ukrainian Minister of Communities, Territories and Infrastructure Development Oleksandr Kubrakov said that the Hong Kong-flagged container ship JOSEPH SCHULTE with 30,000 tons of cargo left the port of Odesa and is moving through a temporary corridor established for civilian vessels to/from the Black Sea ports of Ukraine. The vessel had been in the port of Odesa since February 23, 2022. 

Photo: Oleksandr Kubrakov

The Ukrainian Navy announced temporary corridors for merchant ships sailing to/from Ukrainian ports on August 8. They will primarily be used to evacuate vessels that were in the Ukrainian ports of Chornomorsk, Odesa, and Pivdennyi at the time of the full-scale invasion launched by Russia.

"I cannot comment on whether this temporary corridor can be used for grain exports. The ship that left the port today has been there since February 2022. But will shipowners and crews take the risk of bringing vessels to Odesa ports for loading? I don't have enough information about the operation of these temporary corridors to predict this," says Svitlana Lytvyn, an expert at the Ukrainian Agribusiness Club.

Who will fund the new grain initiative?

Presently, there is discourse surrounding the revival of the grain initiative, excluding Russia from the equation. Some have even suggested that ships might need to enter ports with NATO fighter jet escorts within this corridor. Nevertheless, irrespective of the rhetoric, the core consideration remains financial. If Ukraine is obliged to finance assurances for shipowners against potential ship damage within its territorial waters or ports, the economic viability of such exports becomes uncertain.

"Restoring the grain corridor without Russia is a military and political issue rather than an economic one. It is technically possible. But two things need to be taken into account: ship insurance (no ship can go to sea without insurance coverage of risks) and guarantees of crew life. That is, insurance companies should agree to insure these vessels, and shipowners should not be afraid to send them," says Volodymyr Kozakevych, CEO of AP Marina (engaged in sea and river cargo transportation).

The Ukrainian Grain Association has put forth a proposal to the European Commission, suggesting that the Commission guarantee payments by shipowners in case of ship damage. In this scenario, Ukraine would subsequently reimburse the EU for these expenses if required. The head of the Ukrainian Grain Association, Mykola Horbachov, also believes that F-16 fighter jets could solve the problem of grain exports. 

"If we were given a dozen F-16s that would block the Black Sea and allow us to ensure the safety of navigation on our own, this would be one of the options to solve the problems with the grain deal," he said in an interview.  

What happens if grain corridor is not revived

Exporting grain through the Black Sea is the easiest and, until recently, the cheapest way to transport grain. In its absence, there are only two ways to export: by the Danube to the Romanian port of Constanța and by land via EU countries. 

Photo: Wikipedia

Exports through the EU are not going smoothly either. Until September 15, there are restrictions on exports to Poland, Hungary, and Slovakia. At the same time, Poland, which is preparing for the October 15 elections, has already warned that the border for Ukrainian grain will be closed after September 15. The fact is that many political forces running for election have built their campaigns around the theme of protecting Polish farmers, who are allegedly suffering from the influx of Ukrainian grain.

However, the Grain Association is convinced that Poland is important only as a grain transit country, not as a consumer. Therefore, the ban on grain exports to Poland, provided that transit to ports on the Baltic Sea is maintained, is a shame, but not a tragedy.

"If we talk about the volume of exports through the Danube ports and checkpoints, the Ukrainian side has actually done a lot in this direction. But it is important that the partner countries that declare their support also work to increase the capacity of the infrastructure," says Kozakevych, "For example, there are problems with European trains. Surprisingly, the European railroad is not able to handle such volumes of cargo. I can't tell you the reason why. But it is a fact that even those European trains that do exist are in collapse. They do not move. And this is despite the fact that we have always considered Europe to be a model, it turned out that there are not many opportunities there. They were not ready for such an increase in volumes and are not working to resolve the situation."

Grain is transported via land corridors to ports on the Baltic Sea, the Black Sea, and even the Adriatic Sea. However, while exports through the Danube ports to Constanța have increased to about 2 million tons (the maximum was 2.2 million in May), exports through all land border crossings with the EU countries amount to about a million tons per month.

Regarding Romania, the port of Constanța has an operational capacity of approximately 25 million tons per year, subject to weather conditions. Grain is transported from Ukrainian Danube ports to Constanța using coasters and small vessels, which are subsequently transferred to larger vessels. However, the port faces issues when there is an influx of ships from Western Europe.

"In other words, it is theoretically possible to increase exports via the Danube and the EU, but I don't know if the partner countries will do anything about it," Kozakevych says.

In the meantime, the Association assesses that the challenges with grain transportation have led to an escalation in logistics costs for Ukrainian firms, surging from 30 to 100 euros per ton. Additionally, during episodes of interruptions in the grain corridor, if a vessel remained stranded in a port for extended periods, it was the producers who absorbed the financial losses. Consequently, the once highly lucrative grain cultivation in Ukraine has lost its profitability, prompting farmers to shift their focus to other crops in the upcoming year. This shift has the potential to trigger a global shortage of grain.