The Russian offensive threatens even alternative routes for Ukrainian grain

For shippers looking for a way to bring Ukrainian grain to global markets, options continue to narrow, leading to an escalating trade crisis that is expected to add pressure on global food prices.

Russia last week withdrew from an agreement that allowed safe passage of ships through the Black Sea. On Monday, it threatened an alternative grain route, attacking a grain hangar in a Ukrainian port on the Danube that served as a major artery for transporting goods while the Black Sea remains blockaded.

“It opens a new front in targeting Ukrainian grain exports,” said Alexis Ellender, an analyst at Kpler, a commodity analytics firm, adding that the route was considered safe because of its proximity to Romania, a NATO member.

“This will probably close that road,” he said. It could also raise shipping 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 that were going to collect grain from Ukraine gathered at the mouth of the Danube.

Global grain prices rose 17 percent on Tuesday, compared to eight days before Russia pulled out of an agreement that, since signed a year ago, has allowed Ukraine to export nearly 33 million metric tons of food.

Global markets have ample supplies of grain due to strong harvests in Brazil and Australia, but a prolonged lack of exports from Ukraine is likely to make prices more volatile in the event of drought, floods or other extreme weather events. Russia has stepped up its attacks on Ukraine after India, the largest producer of rice, Exports stopped of non-basmati white rice last week because severe weather damaged production and caused domestic prices to rise.

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, had been increasingly relying on alternative routes for its exports: by land and across the Danube, Europe’s second-longest river. Shippers turned to these options in anticipation of Russia’s eventual withdrawal from the Black Sea Agreement.

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

An executive whose shipping company operates a ship waiting to load grain in Rennie said he was waiting to hear whether Monday’s attack would affect insurance premiums, which were already high.

The executive, 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.

Analysts said that given Russia’s withdrawal from the deal guaranteeing safe passage for commercial vessels through the Black Sea, the insurance premiums are likely to be prohibitively expensive for shipowners.

But Yoruk Izik, an analyst at Bosphorus Observer consultancy in Istanbul, said some ship owners may decide to travel to Ukrainian ports even with higher risks, if they receive assurances from the Turkish and Ukrainian governments. 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 are limits to how much grain can be exported through it, given capacity limits at the ports, back-up traffic at border crossings, fuel shortages and damaged roads, Mr. Isik said.

The Danube is also shallower than the Black Sea. This meant that many small ships were needed to transport the same amount of grain as would fit in one larger ship traveling across the Black Sea. “Instead of one ship, you need 20,” said Mr. Isik.

He added that over time, the EU could provide funding for new railways and facilities to facilitate the flow of goods across the Danube, but that would take years. “The Danube will not replace Ukraine’s Black Sea ports,” said Mr. Ishik. “It won’t even come close.”

Romanian Prime Minister Marcel Ciulacu on Monday condemned Russia’s attack on Danube ports and said Romania would continue to help Ukraine transport its grain to global markets.

With exporters’ options dwindling, Ukrainian farmers will have no choice but to raise their prices and put some of their crops into storage, said Michael Magdowitz, an agricultural analyst at Rabobank. They would also have less capacity to prepare for next year’s harvest, he said, meaning that even if Russia and Ukraine could rework an agreement, Ukrainian production would be more limited.

Analysts said the Kremlin’s withdrawal from the grain deal, which was designed to help ease the food crisis in low-income countries in East Africa, North Africa and the Middle East, would provide a direct benefit to the Russian economy. In an article published Monday on the Kremlin’s website, President Vladimir Putin wrote that Russia, another major grain exporter, expects a record harvest this year.

He added that Russia is able to provide free grain to African countries that were dependent on exports from Ukraine. The article was published ahead of the Russia-Africa summit in St. Petersburg on Thursday and Friday.

The biggest beneficiaries of the grain deal were China, Turkey and Egypt, said Evgeniya Sleptsova, chief economist at Oxford Economics, with China getting about 20 percent of its grain imports from Ukraine.

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

Valerie Hopkins Contributed reporting from Odessa, Ukraine.