Russian attack also threatens alternative routes for Ukrainian grain

Russian attack also threatens alternative routes for Ukrainian grain

Shipping companies looking for a way to bring Ukrainian grain to global markets are running out of options, fueling a trade crisis that is expected to put pressure on global food prices.

Russia last week pulled out of an agreement that allowed safe passage of ships through the Black Sea. On Monday it threatened an alternative route for grain by attacking a grain hangar at a Ukrainian port on the Danube River, which serves as a major artery for transporting goods while the Black Sea remains blockaded.

“This is opening a new frontier in targeting Ukrainian grain exports,” said Alexis Allender, an analyst at commodities analytics firm Kepler, adding that the route was deemed safe because of its proximity to NATO member Romania.

“It would potentially close that route,” he said. It could also raise rates for shipping insurance and further undermine Ukraine’s ability to export grain.

Hours after the pre-dawn attack on hangars in the Ukrainian port of Rennes, dozens of ships that had come to collect grain from Ukraine had gathered at the mouth of the Danube.

Global grain prices were 17 percent higher on Tuesday than eight days earlier before Russia pulled out of a deal that allowed Ukraine to export about 33 million metric tons of food since it was signed a year ago.

Good harvests in Brazil and Australia keep global markets in ample supply of the grain, but a prolonged lack of exports from Ukraine could make prices more volatile in the event of drought, floods or other extreme weather events. After India, the top producer of rice, Russia has intensified attacks on Ukraine. export stopped Supplies of non-basmati white rice declined last week as extreme weather hit production and pushed up domestic prices.

Even before Russia terminated the Black Sea accord last week, Ukraine, which produces about 10 percent of the world’s wheat and 15 percent of corn, had become increasingly dependent on alternative routes for its exports: by land and through the Danube River, Europe’s second-longest river. Shippers turned to these options in the hope 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 marine transportation company operates a ship waiting to load grain in Rainey 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 because of concerns 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 a deal that guaranteed safe passage for commercial vessels through the Black Sea, insurance premiums for shipowners are likely to become prohibitively expensive, analysts said.

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

While the Danube River was considered a safer option than the Black Sea, there were limits to how much grain could be exported through it, given capacity limits at ports, cross-border traffic backups, fuel shortages and damaged roads, Mr Isic said.

The Danube River is shallower than the Black Sea. This meant that many smaller ships were required to transport the same amount of grain that would fit on a single large ship traveling through the Black Sea. “Instead of one ship, you need 20,” Mr Isik said.

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

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

With dwindling options for exporters, Ukrainian farmers will have no choice but to raise prices and put some of their crop into storage, said Rabobank agricultural analyst Michael Magdowitz. They will also have less capacity to prepare for next year’s crop, he said, meaning that even if Russia and Ukraine manage to renegotiate a deal, Ukrainian production will be more limited.

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

He said that Russia was able to provide free grain to countries in Africa that depended on exports from Ukraine. This article was published on Thursday and Friday ahead of the Russia-Africa summit in St. Petersburg.

Evgenia Sleptsova, a senior economist at Oxford Economics, said China, Turkey and Egypt have been the biggest beneficiaries of the grain deal, with China importing about 20 percent of its grain from Ukraine.

As far as wider impacts are concerned, “there is no immediate security threat to other trade flows,” Ms Sleptsova said.

Valerie Hopkins Contributed reporting from Odessa, Ukraine.

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