The attack on a grain hangar on the Danube River, an alternative export route that has become an economic lifeline, complicates Ukraine’s efforts to export its grain.
For shipping companies looking for a way to bring Ukrainian grain to global markets, the options keep dwindling, escalating a trade crisis that is expected to add pressure on global food prices.
Russia last week pulled out of an agreement that had allowed for the safe passage of vessels through the Black Sea. On Monday it threatened an alternative route for grain, attacking a grain hangar at a Ukrainian port on the Danube River that has served as a key artery for transporting goods while the Black Sea remains blockaded.
“It’s opening a new front in the targeting of Ukrainian grain exports,” said Alexis Ellender, an analyst at Kpler, a commodities analytics firm, adding that the route had been considered safe because of its proximity to Romania, a NATO member.
“This will potentially close off that route,” he said. It could also raise rates for shipping insurance and further cripple Ukraine’s ability to export grain.
Hours after the predawn attack on the hangar at the Ukrainian port of Reni, dozens of vessels that had been bound to collect grain from Ukraine were clustered at the mouth of the Danube.
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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, had allowed Ukraine to export nearly 33 million metric tons of food.
Global markets have adequate supplies of grain because of 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 droughts, floods or other extreme weather events. Russia stepped up the attacks on Ukraine after India, a top producer of rice, halted exports of non-basmati white rice last week because extreme weather had hit production and caused domestic prices to jump.
Even before Russia terminated the Black Sea agreement last week, Ukraine, which produces about 10 percent of the world’s wheat and 15 percent of its corn, had increasingly relied on alternative routes for its exports: by land and through the Danube River, Europe’s second-longest river. Shippers turned to these options in anticipation that Russia would eventually pull out of the Black Sea agreement.
Monday’s attack, which was carried out by drone, threw those options into doubt.
An executive whose ocean transportation company operates a ship waiting to load grain at Reni said he was waiting to hear whether Monday’s attack would affect insurance premiums, which were already high.
The executive, who spoke on the condition of anonymity out of concern for the safety of the ship and its crew, said he had thought the vessel 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 vessels 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 with the elevated risk, if they receive assurances from the Turkish and Ukrainian governments, said Yoruk Isik, an analyst with the consultancy Bosphorus Observer, in Istanbul. In recent days, Russia has launched a series of aerial assaults on Odesa, a Black Sea port in Ukraine.
While the Danube River had been considered a safer option than the Black Sea, there were limits to how much grain could be exported through it, given capacity caps at ports, traffic backups at border crossings, fuel shortages and damaged roadways, Mr. Isik said.
The Danube River is also shallower than the Black Sea. That means many smaller ships are needed to transport the same amount of grain that would fit on one larger vessel traveling via the Black Sea. “Instead of one ship, you need 20,” Mr. Isik said.
Over time, he added, the European Union could provide financing for new rail lines and facilities to ease the flow of goods through the Danube, but that will take years. “The Danube will never replace the Black Sea ports of Ukraine,” Mr. Isik said. “It won’t even come close.”
Prime Minister Marcel Ciolacu of Romania on Monday condemned Russia’s attack on the Danube ports and said that Romania would continue to help Ukraine transport its grain to global markets.
With dwindling options for exporters, Ukrainian farmers will have no choice but to put some of their harvest into storage, said Michael Magdovitz, an agriculture analyst at Rabobank. They’ll also have less capacity to prepare for next year’s harvest, meaning that even if Russia and Ukraine manage to rehash a deal, Ukrainian production will be more limited, he said.
The Kremlin’s withdrawal from the grain deal, which had been established to help alleviate the food crisis in low-income countries in East Africa, North Africa and the Middle East, will provide a direct benefit to the Russian economy, analysts said. In an article published on Monday on the Kremlin’s website, President Vladimir V. Putin wrote that Russia, another major grain exporter, expected a record harvest this year.
He added that Russia was capable of providing free grain to countries in Africa that had relied 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 had been 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 wider impacts, “there is no immediate security threat to other trading flows,” Ms. Sleptosova said.
Valerie Hopkins contributed reporting from Odesa, Ukraine.
Source: Economy - nytimes.com
