Over the last decade, the world took for granted the rivers of cheap grain that quietly flowed from the black soils of Ukraine. Ukraine’s transition from collective farming to privately run agrobusinesses allowed yields to soar. The world over, populations benefited.
The World Food Program bought half its wheat from Ukraine. China bought 15 percent of its corn from Ukraine. Ukraine became the world’s largest exporter of sunflower oil, providing cooking oil to millions of Indian households. In the marketing year that ended last month, Ukraine was on track to rival the U.S. for world wheat exports.
I recall covering my first Black Sea grain conference at the Kyiv Hilton.
The expensive, handmade shoes of the foreign participants carried a clear message: this is where Ukraine walks on the world stage. Gathered were representatives of ABCD powers of the world grain trade — Archer Daniels Midland, Bunge, Cargill and Dreyfus. Margarita Louis Dreyfus, the iron-willed, Russian-speaking beauty from Leningrad, flew in from Zurich to directly negotiate investment projects with Ukrainian President Volodymyr Zelenskyy.
While parts of Ukraine’s economy were third-world — notably the sprawling state-owned railroad — Ukraine’s Black Sea grain terminals, elevators and silos were increasingly world-class.
To guarantee grain flows, Chinese, South Korean and Dubai companies built their own terminals.
The wheat wages of war
Six months ago, all this came to a grinding halt. Russian President Vladimir Putin ordered his Black Sea fleet to move out from Sevastopol and blockade all of Ukraine’s Black Sea ports. An estimated 22 million tons of grain were bottled up in the ports. Dozens of foreign ships were trapped.
Just as Germans belatedly realized their dependency on Russian gas, the Middle East and North Africa belatedly realized their dependency on Ukrainian wheat.
In a normal year, Ukraine, a nation of 40 million people, feeds 400 million people worldwide. According to the United Nations’ Food and Agriculture Organization, Ukrainian wheat in 2020 accounted for 81 percent of imports in Lebanon, 64 percent in Qatar, 49 percent in Tunisia, 48 percent in Libya, 29 percent in Indonesia and about 25 percent in Bangladesh, Egypt and Malaysia.
With world wheat prices soaring, Egypt moved to spend $1 billion for food subsidies. The World Food Program warned that Russia’s blockage of Ukraine’s ports could push 47 million people around the world into “acute hunger.”
Playing chess while the rest of the world played checkers, Putin profited handsomely. With no sanctions on Russian food exports, he earned more from his Black Sea wheat exports than last year. Similarly, he benefited from the world jump in oil and gas prices.
Yesterday, Russia and Ukraine signed a deal in Turkey brokered by the United Nations to open Ukraine’s three largest Odesa region ports for grain exports. As early as next month, as much as 5 million tons of grain are to be exported from Chornomorsk, Odesa City and Yuzhne. This doubles the volumes that have been leaving Ukraine by truck, rail and ship from its two Danube ports, Izmail and Reni.
In a separate concession to Russia, the U.S. and the European Union stressed last week that sanctions do not apply to Russia’s exports of food and fertilizers. Although Russia had been earning more money by exporting less food, these reassurances to shippers and maritime insurers are expected to boost Russia’s exports.
Under the deal, Ukrainian pilot boats are to lead cargo ships through safe shipping channels established by Ukraine’s navy. Both countries agree to not attack civilian cargo ships or port facilities used for grain exports.
Ukraine is reluctant to remove mines, fearing that this would open the door to Russian amphibious assaults. Similarly, Russia fears that “empty” cargo ships could dock at Ukrainian ports filled with military supplies. To prevent this, Russian-Ukrainian ship inspections will take place at Turkish ports.
While both countries proceed cautiously, the deal will only partially put Ukraine’s food back on the world table.
sharp blow, slow recovery
This year, Ukraine’s wheat planting may prove to be as little as one-third the level of last year, Ukraine Agriculture Minister Mykola Solskyi told The Financial Times on Monday. As a result, grain exports in the current July-June marketing year could be only 18 million tons — one-third of the 54 million tons of exports forecast for the recently completed year.
The war is taking its toll on farming. For starters, Russia now occupies about one-quarter of Ukraine’s arable land. Other fields are too close to the front lines or imperiled by unexploded shells. Several farmers have been killed by unexploded ordnance. In what may be a deliberate psychological war tactic, the Russians have burned thousands of acres of mature wheat fields.
Damage to buildings and machinery total $4 billion, according to the Kyiv School of Economics’ Center for Food and Land Use Research. Roads and bridges have been blown.
In addition, Minister Solskyi charges that Russian soldiers have stolen several million tons of grain, largely for export through Crimea or the Russian-occupied ports on the Sea of Azov.
Without crop sales, farmers face a money drought. Fertilizer prices have increased by 40 percent over the last year. Diesel prices have doubled.
The ink is barely dry on the Istanbul deal. Time will tell if Ukraine can get its grain out — without letting Russians in.