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Battle for grain. What is the result of Ukraine’s grain export pact?

The entry into force of the grain agreement signed by the UN, Ukraine, Turkey and Russia stabilizes the regional and global market, but at the same time gives the Kremlin a green light for war crimes.

August 12, 2022 - Dmytro Rybakov - Analysis

Photo: (CC) commons.wikimedia.org

On February 24, 2022, the frontline stretched from Belarus (from where some 60 battalion-tactical groups of the Russian Army were advancing to Kyiv) through Chernobyl and Chernihiv to the Black Sea coast, which was blockaded by Russian ships. At the same time, rocket fire began on almost all regional cities and large infrastructure facilities – from Lviv to Mariupol, Chernihiv and Odesa.

Due to a treachery in the Kherson region’s security structures, on the fourth day of the Russian offensive, Ukraine lost control of the Dnieper estuary and the commercial ports of Mariupol and Berdyansk on the Sea of Azov. Mykolaiv, which has access to the Black Sea via the Boh River, came under intense artillery fire. The ports of Odessa and its satellite cities, including Chornomorsk, remained under Kyiv’s control, but they were densely mined to prevent a Russian landing.

This meant that Ukraine lost a gateway through which some 85 per cent of its exports of grain, fertilizers, agricultural products and rolled steel products were traditionally going through. Budget revenues from seaport operations had previously amounted to at least eight per cent of national GDP.

After the Russians captured the Snake Island, the use of the Danube’s logistical zone also became more difficult. The Kremlin planned to turn the island into a beachhead for landing in Bessarabia – the southern part of the Odesa region between the Danube and the Dniester. Russia’s offensive strategy included closing the entire Black Sea-Azov corridor.

All this meant that Ukraine lost not only one-fifth of its territory, but also significant economic potential and the ability to export grain, for which there are virtually no other channels of transportation besides by the sea. Ground transportation routes were extremely congested, particularly those going through the border with Poland which turned into the main route for supplying Ukraine with fuel and material and technical support necessary for the war.

Grains – today’s gold

In 2021, Ukraine ranked fifth among the world’s largest wheat exporters (accounting for ten per cent of global exports), third in corn exports (12 per cent) and second in barley exports (15 per cent). In recent years, the country has exported between 40 and 62 million tons of cereals and legumes annually. Due to the lack of export channels, domestic prices for agricultural products in Ukraine have fallen by 40-50 per cent compared to the pre-war period, while world prices have almost doubled. Overall, the lost state revenue is about 24 billion US dollars, as estimated by Oleh Nivievskiy of the Kyiv School of Economics.

Serhiy Danylov of the Ukrainian Center for Middle East Studies believes that despite Russians’ stealing of grains from in Kherson and Zaporizhia regions and thousands of hectares of abandoned or destroyed grain on the frontlines, the unblocking of ports will allow Ukraine to sell more than 20 million tons of grain products for an estimated 10 billion US dollars.

The Ukrainian Grain Association also calculated that because of the situation on temporarily occupied territories and damaged crops, farmers will harvest about 70 million tons of grain, which is significantly less when compared it with 106 million tons in 2021.

How to prevent the outbreak of famine?

The only way to avert a food crisis in countries critically dependent on Ukrainian grains is for the Ukrainian Armed Forces to gain operational and tactical superiority in the northern Black Sea area, on the one hand, and the efforts of the country’s partners to improve agricultural exports, on the other.

The first step was to push Russian ships out of Ukrainian Black Sea waters. The operation lasted from April to early July of this year. First, the flagship of the Russian Black Sea Fleet, the cruiser “Moskva,” was sunk. It provided control of the Snake Island and the Danube estuary. That is why its neutralization made it possible to retake the island in late June.

In this way, the risk of an offensive on Odesa from the sea was eliminated. The use of the latest western anti-ship equipment by Ukrainian military forces, such as Harpoon missiles and HIMARS (High Mobility Artillery Rocket System) light rocket launchers, allowed it to have an upper hand in the Black Sea. At this point, the normalization of grain export logistics was handed over to Ukraine’s partners in the UN, whose competence is to prevent food crises in Asian and African countries.

Under such conditions, a four-party agreement format was proposed in mid-July to ensure grain exports through Ukrainian Black Sea ports. The agreement was signed by Ukraine, Turkey and the UN on one side, and Turkey, the UN and the Russian Federation on the other.

What has been formally agreed upon

It has been agreed that ships sailing to Ukrainian ports to fetch grains and fertilizers are inspected in Turkey by members of the Joint Coordination Center which gathers representatives of all signatories.

At sea, ships may be accompanied by drones, military aircrafts or naval vessels, if such a decision is agreed upon within the Center. The Turkish side insisted on this point because it implies the participation of its fleet in convoys. As reported by Anadolu news agency, the Turkish navy has already been pulled from the Black Sea and the Mediterranean Sea for this purpose.

The Ukrainian side is committed to demining the area of the Black Sea ports, including Odesa, and Chernomorsk. According to sources in the Ukrainian Defense Ministry, these operations will not lead to a military threat, as the Ukrainian military has sufficient artillery resources to control the area, as was evidenced by the recovery of the Snake Island.

The agreement will be in effect for 120 days from the date of signing, and can be extended if at least one of the signatories does not decide to leave it unilaterally. The parties guarantee the safety of the ships.

Unfortunately, infrastructure security has not been agreed on, as the UN has already acknowledged. Tellingly, no mechanism was provided for enforcing the parties’ responsibility for violations of security guarantees.

This is what thus allowed Russia to strike, without any consequences, the Odesa port infrastructure with ballistic missiles on the very next day after the agreement was signed. The UN has not yet expressed “deep concern” over this, as it is used to do.

This means that the port’s infrastructure and employees will not be safe even when loading cargo. Also the amount of insurance for ships and cargo under such conditions could turn out to be higher than the value of the grain itself.

Betrayal or victory?

Both Ukrainian and foreign experts I have spoken to are prone to believe that if the parties implement the agreement, all sides will gain material benefits, while Russia will gain the least in terms of the reputation. Putin will lose his strategically important influence over the leaders of African, Central Asian and Middle Eastern countries.

Turkey is taking over the status of food savior. And this is an extremely important lever for it on the eve of its planned military operation in Syria and strengthening of its position in Libya, where Turkish special forces have already destroyed a detachment of Russian mercenaries from the Wagner Group.

Unblocking of exports will allow Ukrainian agricultural companies to end the fiscal year with much smaller losses than they had feared. Many agricultural companies will be saved from bankruptcy. According to Hlib Vyshlinskiy, executive director of the Ukrainian Center for Economic Strategy this will allow Ukrainian farmers to harvest crops, receive foreign currency and pay taxes. “This does not solve the problem of a stable budget deficit of about five billion US dollars per month, but it avoids unnecessary risks of insolvency,” says Vyshlinskiy.

Agricultural exports now account for about five per cent of Ukraine’s GDP and significantly balances the devaluation of the national currency. Since the end of February, the hryvnia has already lost more than a third of its nominal value. The UN, whose actions in recent years have provoked much criticism in regards to efficiency and accountability, is regaining its reputation. It has proved to be fulfilling its duty – to save millions of people in Third World countries that would be threatened by devastating food price inflation and possibly migration.

It is Turkey that has gained the most. Namely, it has received a 25 per cent discount on purchases of Ukrainian grain and the prestigious status of guarantor of economic stability in countries critically dependent on imports of Ukrainian grains, especially in the Middle East.

The first cargo ship left Odesa on August 1.

Russia wanted more

As part of the agreement, Russia has lifted anti-dumping duties on exports of agricultural products, seeds, feed and fertilizers, as well as sanctions on imports of medicines and medical equipment. As a result of these restrictions, 14 out of 20 international shipping companies, which accounted for about 70 per cent of cargo turnover, have left the Russian market so far, according to Russian newspaper Kommersant. The logistics potential of the Russian Federation has therefore been significantly reduced.

The most important thing that Russia has managed to negotiate as a result of the grain deal is the supply of components for Boeing and Airbus aircraft. Over 500 of them that were part of the fleet leased by Russian airlines had been “nationalized” at the beginning of the war. The owners of these aircraft are not yet losing hope of recovering them through court or negotiation. “By unblocking the supply of components, they are trying to protect them from ‘cannibalization,’ i.e., decomposition into spare parts in order to maintain the airworthiness of units of the Russian fleet,” commented an expert at Ukraine’s Infrastructure Ministry on condition of anonymity.

The agreement also provided Russia with the tools to bypass gas sanctions, because cheap Russian gas is used in fertilizer production. Before the war, Russia’s share of fertilizer supplies to the EU and the US was around 12 per cent. According to Reuters Agency the EU is ready to unfreeze the assets of several sanctioned banks so that they can implement food and fertilizer trade deals.

War crimes

The problem, however, is hidden elsewhere: is Russia even ready to fulfill its part of the agreement? These doubts are justified, especially after the shelling of the Odesa port, which Russian media initially called a “Ukrainian provocation.” The Russian Federation’s participation in the agreement may be a safeguard against it being seen as a sponsor of terrorism, which is being seriously discussed not only by Ukraine’s Foreign Ministry, but also by the US Congress.

“This is what may explain the brazen act of killing Ukrainian prisoners of war in the Olenivka in the Donetsk region on July 29th: now Russia has a card in its hands in the form of a grain deal,” says Glen Grant, a professor at Riga Business School and former analyst on the General Staff of the British Armed Forces. Some of the military personnel of the Mariupol military unit which surrendered at Azovstal factory in late May were held in Olenivka. “Now Putin can literally spit on all of them, understanding the interest of both Ukraine and Turkey in implementing the grain corridor,” Grant concludes.

As is well known, Moscow has demanded much more – in particular, a complete “grain truce.” This means a cease-fire across the entire frontline for the duration of the unblocking of Ukrainian ports. “This is Putin’s primary interest, because his troops on the eastern front have exhausted their offensive potential and require replenishment and regrouping. On the southern front they are in an extremely unfavorable tactical position,” explained to me Oleh Zhdanov, a former employee of the Ukrainian Army General Staff.

At a briefing after the signing, UN Secretary-General António Guterres said the world could finally breathe a sigh of relief. On that day, the Chicago Stock Exchange indeed saw a three percent drop in wheat prices. “At the same time, it doesn’t make sense for Russia to abandon hunger blackmail to put pressure on Ukraine, especially with winter approaching and when the EU will be forced to face an unprecedented gas shortage,” Zhdanov concluded.

Was there a secret protocol?

Behind the scenes, conditions of more interest to Russia, such as further easing of Western sanctions, were probably also discussed. Contrary to Kremlin’s propaganda about the so-called “import substitution,” considerable damages to Russian economy are expected to take place. For example, Rosneft and Gazprom may soon resume oil supplies to third countries, which was prohibited by the fourth package of sanctions. The decision was made by representatives of EU countries to, as Reuters reported, “avoid negative consequences for food and energy security in the world.”

Yemen is home to 3.5 million people who suffer from hunger. The country imports about three million tons of wheat each year where 26 per cent comes from Ukraine. Sri Lanka is in a state of insolvency due to food price inflation. It is in three fourths dependent on grain imports from Ukraine.

Grain delivered to Middle Eastern countries through middlemen with shady reputations, ostensibly to avoid a “humanitarian crisis,” may be stopped at EU and Turkish ports, as much of it has been stolen from Ukraine’s occupied territories. Lebanese authorities recently arrested a ship with stolen Ukrainian grain, Bloomberg reported.

Grains mixed with blood

Although the entry into force of the grain deal stabilizes the regional and global market, it simultaneously gives the Kremlin a green light for war crimes.

On the night of July 31st, a ballistic missile fired from Crimea at Mykolaiv killed the chairman of Ukraine’s most powerful agro-investment company Nibulon, Oleksiy Vadaturskyi, known as the architect of the grain deal on the Ukrainian side.

His home was not even close to the military facilities on the outskirts of Mykolaiv, but the S-300 missiles used for ground targets are among modern precision weapons. Many experts associate the death with Russian revenge for the agreement which did not resemble the “Minsk-3” Putin had hoped for. This version of events was presented by Andriy Kostin, Ukraine’s Prosecutor General as reported by Interfax-Ukraine.

However, the most unforeseen consequence of Russia’s official presence in the international settlement – for the first time since the invasion – is the execution of Mariupol defenders in Olenivka prison on July 29th.

Returning to Grant’s warnings, the Russian side will be able to commit such atrocities under the umbrella of participation in the grain pact.

The question thus is, how many more of such mass murder sites will the international community and the UN be able to take in? The latter still hopes for an agreement with the Russians, but, as history shows, the bills for such agreements with Russia will sooner or later be paid in blood. For the time being it is the Ukrainian blood.

Dmytro Rybakov lives in Kyiv. He is a financial journalist who co-operates with www.mind.ua. He graduated from the Historical Institute of the Jagellonian University and the Kyiv School of Economics.

This article is published in the framework of the “Bohdan Osadchuk Media Platform for Journalists from Ukraine” co-financed by the Polish-American Freedom Foundation as part of the "Support Ukraine” Program implemented by the Education for Democracy Foundation and the Foundation for Polish-German Cooperation. 

Texts published as part of this project are available free of charge under open access Creative Commons license. Republishing is allowed under the CC license, however requires attribution and crediting the author and source. 


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