20.11.2022.

Extended validity of the "Grain Agreement": What does it bring to Ukraine and the world?

The Ukrainian Grain Initiative, designed to guarantee the safe transport of agricultural products across the Black Sea, has been extended for another 120 days. What is foreseen in the agreement, what will happen to prices and how will the world react?
In Istanbul, on Thursday, November 17, the validity of the "grain agreement", or "initiative", as it is also called, according to which agricultural products are exported from Ukrainian ports, was extended for another 120 days.
The agreement, first reached in July and now extended for another four months, aims to create and manage a protected maritime transit corridor for Ukrainian grain exports and prevent global food shortages. Thanks to this, it was possible to resume exports from three ports in Ukraine. What will change now and how Ukraine and the world reacted to its extension - in DW's review.
 
What exactly is exported?
 
According to available data, thanks to the agreement, more than 11 million tons of agricultural products were exported to 38 countries of the world, including 4.5 million tons of corn and 3.2 million tons of wheat. Rapeseed, sunflower oil and barley were also exported through this corridor. In addition to sales, according to the Ukrainian media, Ukraine sent free grain as humanitarian aid, for example, to Somalia and Ethiopia.
Before the start of Russia's invasion of Ukraine, many countries, especially in Africa and the Middle East, relied heavily on grain imports from Ukraine. For example, Yemen, where a humanitarian disaster reigns, according to available data, provides almost half of its wheat needs by importing from Ukraine and Russia.
 
Conditions?
 
At the talks in Istanbul, Ukraine offered to expand the agreement to include two additional ports in the Mykolaiv region for export. From the currently available data, it is not clear whether the transport from the seaports will now be extended to Mykolaiv Oblast, after the extension of the agreement. Until now, the agreement covered three ports - Odesa, Chornomorsk and Pivdenij. These three ports have a combined capacity to ship about three million tons of agricultural products per month, reports Reuters.
Before the start of the Russian invasion, the ports of Mykolaiv Oblast provided about 35 percent of Ukraine's food exports. According to export data from 2021, Mykolaiv was the second largest grain terminal in Ukraine. In Kyiv, it was emphasized that Mikolayev's participation in the agreement will significantly increase the volume of deliveries of grain and oilseeds. In Istanbul, Ukraine offered to immediately extend the agreement for a year or more, while the Kremlin said that an indefinite extension of the agreement was not discussed.
"Of course, we would like this initiative to be open," Ukrainian Minister of Agricultural Policy and Food Nkola Solskyi said in an interview with DW.
Russia, considered the world's largest wheat exporter, has previously said it would agree to extend the agreement if it could export its own grain and fertilizer. Among the demands put forward by Moscow was the easing of sanctions against the state-owned Rosselkhozbank and its connection to the SWIFT bank transfer system, which should help boost Russian exports.
 
At the end of October, after a series of explosions in the port of occupied Sevastopol, Moscow announced that it was withdrawing from the "grain agreement". However, within three days, the Kremlin announced that it would return to its implementation after receiving "written guarantees" from Kiev that the grain corridor would not be used for hostilities. Ukraine's foreign ministry denied at the time that it had given any new written guarantees to Moscow.
 
Did the agreement help prevent a global food crisis?
 
Against the background of the war, a sharp drop in supplies from Ukraine – a major world exporter of agricultural products – played a significant role in the food price crisis. However, experts point to other factors.
Among them are the consequences of the COVID-19 pandemic and climate disturbances that continue to have a negative impact on agricultural producers. Experts point in particular to recent major droughts in Argentina and the United States.
The opening of the corridor thanks to the "grain agreement" allowed Ukraine to partially restore the supply of the world market. However, the supply is still at a much lower level than before the war.
Due to the hostilities in Ukraine, even transporting grain to seaports has become a difficult task. At the same time, Ukrainian farmers reduced the sowing of cereals, because domestic prices remain unprofitable, while the fields for sowing were repeatedly attacked and burned during the war.
 
Did the deal help reduce wheat prices?
 
Immediately after the Russian invasion of Ukraine on February 24, wheat prices on the Chicago Stock Exchange, which is considered a kind of barometer for "futures" of agricultural products, rose sharply. Recently, they returned to approximately the level that preceded the beginning of the Russian war.
Observers believe that Ukraine's ability to export millions of tons of wheat through the sea corridor has allowed food prices to stabilize somewhat. Other favorable factors were this year's record harvest in Russia, as well as the strengthening of the US dollar on foreign exchange markets.
However, world prices of staple food products made from wheat, such as bread and pasta, remain significantly higher than last year's level in many countries, especially in developing economies. And this despite the fall of Chicago futures, because at the same time the exchange rate of many local currencies fell, energy prices rose significantly, which caused an increase in the cost of transportation and packaging of goods. The increase in food prices was fully felt by the final consumer. It hit particularly hard the most vulnerable sections of the population in many countries of the world.
 
What about the security of the sea corridor and the security of the crews?
 
Sea mines in the Black Sea represent a serious danger for ships and their crews, as the sailor of the "Razoni" ship, who was one of the first to go to sea under the terms of the "grain agreement" on August 1 under the flag of Sierra Leone, openly spoke about.
Ukrainian, Romanian, Bulgarian and Turkish military divers are making great efforts to eliminate mine threats in the Black Sea. However, complete demining can take months or even years.
Insurance companies have previously stated that they are only willing to insure the route if there is an international escort of ships and a clear strategy for countering sea mines is presented. Since then, the necessary agreements have been reached with the insurance companies, the main of which is that the vessels must strictly follow the set course within the safe corridor. Insurance services are provided
exclusively by the insurer Ascot of the Lloyd's of London group. Risk coverage is estimated at up to 50 million dollars per sea voyage.
At the beginning of the war, about 2,000 sailors from all over the world were stuck in Ukrainian ports. According to the International Chamber of Shipping (ICS), 346 such persons remained in Ukraine by the end of October.
 
In September, a decree went into effect in Ukraine allowing sailors to leave the country despite the restrictions imposed by the state of emergency. The move was aimed at securing manpower for the smooth export of grain.
The Joint Coordination Center in Istanbul, which is supposed to monitor compliance with the grain agreement, includes representatives from Ukraine, Turkey, the Russian Federation and the United Nations.
 
How does the world react to the extension of the agreement?
 
Kyiv welcomed the extension of the agreement. As Ukrainian President Volodymyr Zelensky pointed out, "the world has seen that it is impossible to ensure global food security without Ukrainian exports," he said.
"For Ukraine, this is the main grain export corridor, important for Ukrainian farmers and all people in the world, because it restrains the growth of food prices," added Minister Solskij in an interview with DW.
The President of the Republic of Turkey, Recep Tayyip Erdogan, expressed a positive attitude.
"It is clear how important this agreement is for the security of the world's food supply," Erdogan said. The Ministry of Defense of Turkey announced that the two-day negotiations on the extension of the agreement took place in a "positive and constructive atmosphere".
UN Secretary General António Guterres, US Secretary of State Anthony Blinken, European Council President Charles Michel and other politicians welcomed the agreement to extend the agreement.
The German federal government emphasized that the agreement "will help the poorest people who suffer the most due to high food prices", the KNA agency reports the statement of the Minister for Economic Cooperation and Development, Svenja Schulze.
German Minister of Agriculture Cem Özdemir welcomed the extension of the agreement.
"Ukraine shows that even in times of greatest trouble it takes responsibility for the hungry in the world." At the same time, Ezdemir urged not to rely on the reliability of the Russian side.
"We should expect that Putin will continue to use the Black Sea "grain agreement" as a means of pressure," warned Ezdemir.