► Why does the cereals agreement need to be renewed?
Ukrainian Head of State Volodymyr Zelensky, visiting Turkey, is to meet on Friday July 7 with Turkish President Recep Tayyip Erdogan about the renewal of the grain export agreement.
This agreement was concluded in July 2022, with the sponsorship of the United Nations and Turkey. It allows Ukraine, a major agricultural country, to continue to export grain from three ports located on the Black Sea. Ships leaving these ports must then undergo inspections in Istanbul, conducted by Russian and UN inspectors, before continuing their journey. In exchange for this facility, Russia obtained the right to also continue to export grain and fertilizers, despite the sanctions.
This agreement must be renewed every three months. It expires on July 17. But this time, Russia is very reluctant to accept a renewal. The Russian Foreign Ministry has said it sees “no reason” to extend the deal. Russia complains in particular of obstacles to its fertilizer exports.
► How has this agreement worked so far?
In one year, the agreement allowed the export of 33 million tons of grain from Ukrainian ports. In addition, the drop in volumes exported by sea was offset by the rise in importance of other export routes: road, rail, and especially the river ports to the Danube. In 2022, Ukraine had managed to export 48 million tons, exactly the same figure as in 2021. However, the sea route remains the cheapest and most suitable.
The continuation of these exports is vital for Ukraine. It is also necessary to avoid an imbalance on world agricultural markets. For the past year, the existence of this agreement has made it possible to avoid a surge in prices which would have weighed on African countries, which are very dependent on imports.
However, this agreement is working increasingly poorly. Last October, it allowed ten ships a day, on average, to load agricultural products in Ukrainian ports. In June, the average fell below two ships per day. Inspections are taking longer and longer and Ukraine accuses Russia of wanting to “sabotage” the agreement. In any case, Moscow is seeking to put pressure on the developed countries in order to obtain a partial lifting of the sanctions, while the UN and the European countries are pushing for renewal.
► What would be the consequences in the event of non-renewal?
Despite the war, Ukraine was able to continue producing, even though part of the land has become uncultivable due to mines. The Ukrainian Association of Producers expects the wheat harvest to be down 10-15% this year.
In the event of non-renewal of the agreement, the shipping companies will have to decide whether they still take the risk of continuing to sail. Ukraine is trying to convince them of this. To this end, it has created a compensation fund which must compensate for losses in the event that a ship finds itself immobilized in a Ukrainian port.
Furthermore, with the support of the European Union, Ukraine has invested in developing other export corridors. Already, in June 2023, the waterway was the most important, allowing the export of more than 2 million tonnes, when only 1.3 million tonnes left by sea. When the agreement was working well, nearly 4 million tonnes left each month by sea. In comparison, rail exported 600,000 tonnes in June and road less than 200,000 tonnes.
A non-renewal of the agreement will have consequences on prices, with the risk of a surge in world prices which will inevitably weigh on the most fragile countries, dependent on grain imports.