Russian attack even threatens alternative routes for Ukrainian grain -TGN

For shipping companies looking for a way to bring Ukrainian grain to world markets, the options are shrinking, escalating a trade crisis that is expected to put pressure on global food prices.

Russia last week withdrew from an agreement that allowed the safe passage of ships through the Black Sea. On Monday, it threatened to reroute grain by attacking a grain hangar at a Ukrainian port on the Danube River, which has served as a major thoroughfare for freight while the Black Sea remains blocked.

“It opens a new front in the attack on Ukraine’s grain exports,” said Alexis Ellender, an analyst at Kpler, a commodity analysis firm, adding that the route was considered safe due to its proximity to Romania, a NATO member.

“This will potentially close that route,” he said. It could also increase transport insurance rates and further cripple Ukraine’s ability to export grain.

Hours after the pre-dawn attack on the hangar in the Ukrainian port of Reni, dozens of ships on their way to get grain from Ukraine were docked at the mouth of the Danube.

Global grain prices were up 17 percent on Tuesday from eight days earlier, before Russia pulled out of an agreement that, since it was signed a year ago, allowed Ukraine to export nearly 33 million tons of food.

Global markets have ample grain supplies due to robust harvests in Brazil and Australia, but a prolonged shortage of exports from Ukraine is likely to make prices more volatile in the event of drought, flooding or other extreme weather events. Russia stepped up attacks on Ukraine after India, a top producer of rice, exports stopped of non-basmati white rice last week as extreme weather hit production and pushed domestic prices higher.

Even before Russia ended the Black Sea deal last week, Ukraine, which produces about 10 percent of the world’s wheat and 15 percent of its corn, increasingly relied on alternative routes for its exports: overland and via the Danube River, Europe’s second longest river. Shippers turned to these options expecting Russia to eventually withdraw from the Black Sea deal.

Monday’s attack, which was carried out by a drone, cast doubt on those options.

An executive whose marine transport 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 director, who spoke on condition of anonymity out of concern for the safety of the ship and its crew, said he thought the ship was relatively safe because nothing had happened to it in the past year.

Given Russia’s withdrawal from the deal that guaranteed safe passage for commercial ships through the Black Sea, insurance premiums are likely to be prohibitively expensive for shipowners, analysts said.

But some shipowners may decide to travel to Ukrainian ports, even at increased risk, if they get guarantees from the Turkish and Ukrainian governments, said Yoruk Isik, an analyst with the Bosphorus Observer consultancy in Istanbul. In recent days, Russia has launched a series of air strikes on Odessa, a Black Sea port in Ukraine.

While the Danube was considered a safer option than the Black Sea, there were limits to the amount of grain that could be exported through it, given capacity limits at ports, traffic congestion at border crossings, fuel shortages and damaged roads, 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 as one larger ship traveling through the Black Sea. “Instead of one ship you need 20,” said Mr. Isik.

He added that over time the European Union could provide funding for new rail lines and facilities to facilitate the flow of goods through the Danube, but that will take years. “The Danube will never replace Ukraine’s Black Sea ports,” Isik said. “It won’t even come close.”

Romania’s Prime Minister Marcel Ciolacu on Monday condemned Russia’s attack on Danube ports, saying Romania would continue to help Ukraine ship its grain to world markets.

With dwindling options for exporters, Ukrainian farmers will have no choice but to put part of their harvest in storage, says 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 manage to strike a deal, Ukrainian production will be more limited, he said.

The Kremlin’s withdrawal from the grain deal, which was brokered to ease the food crisis in low-income countries in East Africa, North Africa and the Middle East, will directly benefit the Russian economy, analysts said. In an article published Monday on the Kremlin’s website, President Vladimir V. Putin writes 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 depended 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 were the biggest beneficiaries of the grain deal, with China getting about 20 percent of its grain imports from Ukraine, said Evghenia Sleptsova, a senior economist at Oxford Economics.

As for the broader impact, “there is no immediate security threat to other trade flows,” Ms Sleptosova said.

Valerie Hopkins contributed reporting from Odessa, Ukraine.