Russia does not stop trying to destroy Ukraine’s port infrastructure in order to stop the export of agricultural products. At the same time, the land route through the EU is almost idle due to expensive logistics, and in European countries neighboring Ukraine there is an embargo on the import of Ukrainian grain.
Ukraine is experiencing serious problems with agricultural exports. There is a big risk that, having received a good harvest of grain and other agricultural products, the country simply will not be able to sell it in the required volumes.
The problem is the routes by which farmers export their products abroad. The “grain corridor” with the participation of the Russian Federation has not been working since mid-summer, the Danube ports, which have significantly increased transshipment this year, are under attacks from the Russians, and the EU has decided to further block Ukrainian agricultural exports.
“The harvest forecast had to be changed several times. But of what the farmers planned to sell for export, we can so far export up to 45%. This means that businesses will not have money for the next sowing campaign and the purchase of everything necessary: seed, fertilizers, fuel, etc.,” one of the officials familiar with the grain export situation told RBC-Ukraine.
According to the National Bank, losses from the ban on exports to neighboring countries, if they continue until the end of the year, will amount to $600 million. At the same time, the NBU noted that Ukrainian suppliers allegedly managed to find alternative sales markets and they will be able to use them if the ban is not lifted from September 15.
However, according to the latest information, there is practically no reason to expect the ban on the import of Ukrainian goods by neighboring countries, primarily Poland, to be lifted and the work of the former “grain corridor” to resume.
Polish Prime Minister Mateusz Morawiecki has already announced that the ban will be extended. Negotiations on the resumption of the “grain corridor” have reached a dead end, and, according to RBC-Ukraine, Kyiv no longer considers this option as promising. At least in the form in which the agreement was in force until mid-July.
Ports are the target of the Russians
Problems with grain exports arose from the very beginning of active hostilities on the part of Russia. Its supplies through the Black and Azov Seas were practically stopped in February last year. The ports of Mariupol, Skadovsk, Berdyansk and Kherson came under the control of the invaders, and were closed by order of the Ministry of Infrastructure in May last year.
Ukraine lost almost 90% of agricultural exports that went by sea. As a result, there was a grain shortage in the world. Its prices rose by 30%, and developing countries, especially North Africa and the Middle East, faced the threat of famine. The UN called the situation “catastrophic” and called for ways to solve the problem to be found as soon as possible.
In July 2022, Ukraine and Russia signed a grain agreement with the UN, which made it possible to temporarily resume exports - at that time, more than 20 million tons of grain had accumulated in Ukraine for export.
The “Grain Corridor” worked intermittently, since literally from the first days it was blocked by the Russian side. Ukraine, meanwhile, increased grain exports to European countries by land and used the capacity of Ukrainian ports on the Danube.
Realizing that the Danube ports were partly a solution to the problem for Ukraine, the Russians began to literally destroy them from the end of the summer of this year. The infrastructure of local ports has become a repeated target for Russian drones, the wreckage of which has even been found in Romania.
The economic damage to Ukraine from the export blockade is an important goal for Russians, but not the only one. In the Kremlin, trying to destroy the river route that is currently key for Ukrainian farmers, in fact, they want to create conditions when Ukraine will be forced to transport grain only by sea. And in this case, Kyiv, the UN and Ukraine’s Western partners, according to the logic of the Russians, should become more accommodating on the issue of the “grain corridor” and accept the Russian Federation’s conditions for its resumption.
Moscow has already tried to negotiate the lifting of sanctions in response to the opening of access for Ukrainian grain to the world market. In March 2023, the Russian Federation agreed to extend the deal for 60 days, but stated that future exports would depend on the extent to which its requirements were met.
The Russian Federation, in particular, sought to increase the export of its agricultural products, lift sanctions against Rosselkhozbank, and resume the operation of the Tolyatti-Odessa ammonia pipeline. It is also known that the Kremlin wants to achieve the lifting of some of the sanctions that relate to restrictions on the supply of Russian oil to third countries through EU ports.
Russia's conditions were discussed at the UN leadership level, but did not produce results. In mid-July, the Russian Federation announced its withdrawal from the “grain corridor”. Since then, according to RBC-Ukraine, Ukraine has not received any substantive proposals to extend the agreement from the UN or other intermediaries.
In August, an alternative route for export was opened, without the participation of the Russian Federation. It takes place in the sovereign waters of Ukraine, Bulgaria, Romania and Turkey. Several ships have already passed along this route and Ukraine has high hopes for it. In fact, it could replace the failed “grain initiative,” especially when combined with increased land grain exports. The volumes of supplies along it will be somewhat less than along the old “corridor,” but they will become more guaranteed, since Russia will not be there. Currently, grain supplies by land are relatively small due to the high cost of logistics.
The Turkish side is still studying the prospects of a new route. “The proposal for work (“grain corridor” - ed.) without Russia has been transferred to the Turkish side. There is no final confirmation yet. But since the ships (with grain - ed.) are already traveling through the territorial waters of Romania, Bulgaria, as well as Turkey and passing through the straits without restrictions. This is actually a rational path,” said Ukrainian Ambassador to Turkey Vasyl Bodnar on September 7.
As of today, according to RBC-Ukraine, there is no final answer from Ankara yet. But Ukraine hopes for a positive result, since it is beneficial for Turkey to participate in the transit of Ukrainian grain, and negotiations between Recep Erdogan and Putin to extend the previous “grain initiative” in early September did not produce results.
As for the Danube ports, they will still be used, but obviously not to the same extent as before the attacks of recent weeks. In Europe there is a willingness to work with this route. At the end of August, the Croatian side confirmed its desire to provide ports on the Danube and the Adriatic Sea for the transportation of Ukrainian grain.
“Ukrainian grain has already been exported from Croatian ports. This trade route, although niche, is already popular. We are ready to develop it, expanding the capabilities of the transport corridor,” said Deputy Prime Minister Yulia Sviridenko. Transit details are also being discussed with the Romanian side.
Trade restrictions with neighbors will continue
A consequence of the increase in supplies of Ukrainian grain by land transport was trade restrictions in European countries neighboring Ukraine - Poland, Bulgaria, Hungary, Romania and Slovakia.
Poland was the first to speak about the need to ban the import of goods from Ukraine in the spring of this year. On April 15, Warsaw introduced a 5-month embargo on Ukrainian wheat, corn and oilseeds. Following this, similar restrictions were introduced by Bulgaria, Hungary, Romania and Slovakia.
The reason is that due to the increase in transit, some of the Ukrainian goods ended up in the domestic markets of these countries, which led to lower prices for local producers. This, in turn, led to losses for farmers in those countries. In part, the restrictions on the part of Poland, which were agreed upon with the European Commission, were applied for political reasons - to gain more support for the ruling party in the elections that will be held in mid-October, the Ukrainian Ministry of Agriculture stated back in April last year.
But the reason is not only political. After an increase in the flow of transit grain, it turned out that Poland’s infrastructure could not cope with its transshipment for export. Due to the increase in transit, problems emerged in the coordination of the work of the customs of both countries in terms of data exchange.
In addition, one must take into account the factor of Polish businessmen who held back grain in anticipation of higher prices. But prices did not rise, and grain reserves remained quite large. In addition, grain from Ukraine was added, which ended up in Poland due to problems with transshipment.
“I think that in fact, it’s more about the fact that there are abuses by unscrupulous businessmen, including on the territory of Poland, who sometimes buy (grain) for next to nothing and throw it onto the Polish market,” - said Deputy Foreign Minister Anatoly Tochinsky.
According to Ukrainian trade representative Taras Kachka, Polish farmers simply “filled” the storage facilities with grain and wanted to sell it after the price increased.
“The Poles don’t want to admit that farmers dreamed that prices would be as high as in 2022,” Kaczka said. The price of grain, in his opinion, is now “sagging” due to large stocks in warehouses and the supply of a new crop, the quality of which is worse due to the rains.
“But Poland’s insistence on finding arguments to continue the ban distorts the possibility of continuing the discussion. Whatever our Polish colleagues say, they have many arguments that are artificially summed up under the need for a ban,” said Kaczka.
He noted that even after the ban on Ukrainian goods, prices on the Polish market did not change. “If you introduced a ban, but the problem did not disappear, then the problem is not in the Ukrainian product. The problem is not related to commerce,” noted the trade representative of Ukraine. In fact, there is no harm at all from Ukrainian goods on the Polish market, Kachka is sure.
Warsaw has already stated that regardless of the position of the European Commission, the ban on the export of Ukrainian products will be extended after September 15. In addition, she wants to expand the list of products - frozen strawberries and raspberries may be subject to the embargo.
The Hungarian Minister of Agriculture said that Budapest has agreed on an embargo of Ukrainian grain with Romania, Slovakia and Bulgaria. But on September 14, it became known that Bulgaria had overestimated the impact of Ukrainian exports on the domestic market and decided not to extend the ban, since it did not detect any harm. Romania only announced plans to increase the transit of Ukrainian grain.
If the embargo is extended, the EU may subsidize the transit of Ukrainian grain to Baltic ports at the level of 30 euros per ton. “This money - the amount of 600 million euros - will come from the EU budget. The condition for their allocation will be Ukraine’s obligation to find a recipient of its goods in third countries,” said European Commissioner for Agriculture Janusz Wojciechowski.
Despite the fact that the ban violates the free trade agreement with the EU, Ukraine still did not resort to retaliatory measures. “Now is not the time for trade wars,” one of the officials from the government’s economic bloc told RBC-Ukraine.
The government does not want to aggravate relations with Poland, which provides strong support to Ukraine in the war. “There is a very important political context here, because Poland is a friendly country that is Ukraine’s closest partner and ally,” said Deputy Prime Minister Olga Stefanishyna. But at the same time, the involvement of the Ukrainian agricultural sector in the political process in Poland, despite the fact that Ukraine is in a state of war, is “a very sad story in these economic, political and military conditions,” she noted.
Ukraine's only response may be to appeal to the World Trade Organization regarding compensation for damages for violation of the General Agreement on Tariffs and Trade. The government promised to take this step if the embargo by neighboring countries is extended beyond September 15.
