Where are Ukraine’s grains going?

The bulk carrier Valsamitis being loaded with wheat at the Black Sea port of Chornomorsk near Odesa, Ukraine. The ship will deliver 25,000 tons of Ukrainian wheat to Kenya and 5,000 tons to Ethiopia within the framework of the Grain from Ukraine initiative,18 February 2023 (EPA/Igor Tkachenko)

Russia and Ukraine’s grain deal has become a political football as tensions rise between the two countries on the battlefield and in information wars. Speaking to experts and wading through data, we find out where shipments are going and how they are getting there.

After being concluded ten months ago to buffer the shock of the Russian invasion on food commodity prices and avert famine in poor countries, the Black Sea Grain Initiative is now being portrayed by Moscow as simply a commercial deal benefiting wealthy countries rather than a humanitarian operation.

Brokered by the United Nations and Turkey last year, the deal has been widely seen as a rare success amid strained talks between Russia and Ukraine. The agreement has been prolonged twice and is due to expire again on 18 May. But negotiations have stalled as Moscow insists it’s not getting its end of the bargain.

The UN, Turkey, Russia and Ukraine held talks in Istanbul on Friday, ahead of discussions between the deputy defence ministers of the warring nations on Wednesday in an eleventh-hour attempt to salvage the grain deal.

Russia has been threatening to walk if the West doesn’t lift banking and insurance hurdles blocking its food and fertiliser exports. Unlike energy, trade in those products is not sanctioned, though it has become difficult for buyers to finance and insure commerce with Russia due to other sanctions. Rebeca Grynspan, secretary general of the UN’s trade and development agency, Unctad, was in Moscow on Friday to discuss the UN’s support to lift those obstacles.

Read more: Russia pushes UN, western countries to meet demands as Ukraine grain deal nears expiry

Moscow, meanwhile, has downplayed the positive impact of the deal, claiming that the poorest of countries most in need have received practically none of the grain shipments. The UN and others have defended the importance of the Ukrainian exports. So where is the truth?

What does the UN say?

The initiative set up a Joint Coordination Centre in Istanbul to facilitate the movement of shipments of foodstuffs from Ukraine ports through a  humanitarian corridor.

Ismini Palla, spokesperson for the centre, told Geneva Solutions that as of 27 April, the World Food Programme (WFP) had procured 595,169 metric tonnes of wheat to support operations in Somalia, Yemen, Ethiopia, Kenya and Afghanistan.

That’s only a fraction of the total of 29.5 million tonnes of combined foodstuffs shipped from Ukraine over the past ten months, according to the UN. Beyond those figures, the numbers scramble begins.

Data from the UN shows that food exports from the besieged country – including barley, corn, rapeseed, sunflower oil and meal, and wheat – have gone nearly equally to developed (45 per cent) and developing countries (49 per cent). Only six per cent has gone to the least developed countries (LDCs).

But which country qualifies as developed or developing depends on the World Bank’s definition, where the United Arab Emirates and China are considered developing nations, just like Kenya and Sri Lanka.

A breakdown of cargo destinations shows China, Spain, Turkey and Italy among the top cargo recipients.

Who says grains, says Geneva

As the biggest global hub for trading in grains and oil seeds, Geneva houses the sector’s giants, including Cargill, Bunge, Louis Dreyfus Company (LDC) and China’s COFCO International.

Florence Schurch, secretary general of the Swiss Trading and Shipping Association, a representative group for the business, told Geneva Solutions that traders were very nervous about the grain deal.

“We are very happy that the corridor exists because the trading companies have lots of assets in Ukraine, while Ukraine needs to support their cereals,” she said. “It’s a win-win situation.”

However, since mid-March, a slow-down in inspections of ships before they exit the Bosphorus straits in Istanbul from roughly 15 to just a couple or less in recent days has created “a lot of instability”.

On Thursday, 66 vessels were waiting to be inspected, including some ships stranded for weeks, Schurch said. Such delays incur mounting costs for operators, including fuel, insurance and seafarer expenses. Beyond the difficulties of operating in a warzone, she said insurance and ship chartering have become “crazy expensive” under the circumstances.

“If everything becomes too complicated, there is no purpose in pursuing those activities,” she added.

Is food going where it should?

Humanitarians and traders recognise the impact of the initiative’s corridor on global commodity prices since its establishment. While prices were already on the rise since mid-2020, a sharp spike following the Russian invasion of Ukraine last year was reversed after the grain deal was agreed, according to data from the Food and Agriculture Organization (FAO).

Speaking at a UN press briefing on Friday, Upali Galketi Aratchilage, senior economist at FAO, acknowledged that retail prices in various countries have not always followed the decline in wholesale prices.

Nonetheless, accounting for 10 per cent of the global wheat market, 15 per cent of the corn market, and more than 50 per cent of the sunflower oil market, Ukraine’s repercussions on global prices are significant.

Schurch said that in some cases, grains might be shipped to terminals such as in Rotterdam in the Netherlands, where they would be processed into other foodstuffs before being sent to other countries.

But a senior Geneva trader, who asked not to be named, told Geneva Solutions that buyers such as China and Spain, representing the lion’s share of shipments, were generally buying certain Ukrainian grains, including corn and wheat – depending on qualities – for domestic markets and mostly for animal feed.

Other countries, such as Turkey and Egypt, imported wheat and corn from the Ukraine to be milled for bread for human consumption.

Shipments, including for humanitarian cargos, such as those consigned by the World Food Programme, are decided through tenders. Countries or clients usually issue a tender for a specific type of commodity as well as payment and delivery terms before trading companies respond to it.

“There is always a trader who is facilitating the work” of UN food shipments, particularly with regard to freight logistics, the trader said. While the UN has announced ships being chartered through the initiative to deliver food to LDCs, the volumes purchased have been “really, really small”, he added.

A WFP spokesperson told Geneva Solutions in an email: “WFP observes the principle of fair and transparent procurement, buying most of its food in competitive processes, choosing the best offer based on commodity price and transportation cost.”

He added: “In the case of the Black Sea Grain Initiative, some procurement is done with open tenders (Ukraine winning the contracts with best prices) while other tenders specify the requirement (from donors) of wheat grain to originate from Ukraine.”

“The world is splitting into two,” the trader noted, explaining that there has been an increasing number of government-to-government deals between Russia and developing countries considered as “friendly” by the Kremlin to purchase high-quality wheat for bread.

“Russian national (trading) companies may be able to offer certain benefits, and they are becoming really aggressive (on prices),” he added.

Future fears

“We hope that the UN will do something to motivate the inspection teams to act so that there will be more inspectors and resume work as before,” said Schurch about the huge bottlenecks in traffic to the northeast of Istanbul a week ahead of the grain deal’s expiry.

She said STSA has been working with the Swiss mission to the UN in Geneva to voice members’ concerns over the initiative’s operation within its apparatus and that it has been “very helpful”.

The Swiss mission did not wish to comment on any interactions with representatives of the Geneva-based sector.

But traders and economists warn of future price rises ahead should the deal collapse.

Late last week, the uncertainty already caused reverberations on markets, with Egypt purchasing a large cargo of wheat – some 655,000 metric tonnes – from Russia and Romania ahead on global markets and wheat futures rallying in the Chicago grain market. “We are in an agricultural war,” the trader said. Similarly to previous conflicts, when energy prices jumped right away due to geopolitical uncertainties, this war has seen agricultural prices reacting immediately for the first time.

FAO’s Galketi Aratchilage explained that if the grain deal hits a wall next week, food prices will resume their upward trajectory after last year’s respite. If Ukrainian farmers cannot sell their crops, they may put off sowing for the next harvest, reducing future supplies and driving prices even further up.

A deal was recently struck between Ukraine and the EU to resume transit of certain grains through Europe and remove import bans imposed by five EU countries in April to protect their internal markets. But it would hardly be enough to make up for the volumes that can go through the Black Sea grain deal, as trucks and train carriages would not be able to carry enough volume to the markets.

It’s an issue that can complicate what the Geneva trader presented as the food products’ prime role:  “It’s wheat and vegetable oils that are the critical pillars not only to feed the world but to avoid revolutions,” he said.