Food security: Grain deal ‘partially addresses’ food export challenges for Ukraine

Sophie CameronWednesday 17 August 2022

Ukraine and Russia signed the Black Sea Grain Initiative in late July, aiming to restart the resumption of grain exports from Ukraine via the Black Sea after months of delay.

The deal, which was brokered by UN and Turkish officials, also seeks to enable Russian food and fertiliser to reach global markets. Critical commodities from Ukraine and Russia have been curtailed by the war in Ukraine, exacerbating the global food crisis and fuelling escalating prices.

Ukraine is one of the world’s foremost grain exporters, supplying more than 45 million tons annually, but the country has been thwarted from producing and exporting wheat, corn and sunflower oil to global markets by the war, threatening millions with food shortages. Russia has also experienced difficulties in exporting grain and other agricultural products due to the widespread use of economic sanctions by global powers and the war’s logistical challenges.

In view of the diplomatic break between the two countries, Russia and Ukraine did not enter into a direct agreement, but separately signed the ‘Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports of Odesa, Chornomorsk and Yuzhny'.

The UN has established a joint operation centre to inspect vessels and monitor operation of the agreement, which focuses on the unblocking of more than 20 million tons of grain held at Ukrainian seaports. Twelve ships have successfully left Ukrainian ports since the deal was struck.

Pavlo Byelousov, a partner at Aequo in Kyiv, explains that due to the war, Ukraine's grain production is expected to halve, particularly as the Russian army regularly attacks farms, vehicles and grain storage facilities. ‘Ukrainian farmers have risked their lives by harvesting and sowing seeds for next year's crop,’ says Byelousov.

Ukrainian farmers have risked their lives by harvesting and sowing seeds for next year’s crop

Pavlo Byelousov
Partner, Aequo

The destruction or capture of grain warehouses and storage facilities by Russia has also created a challenge for storing food products in Ukraine. The products are therefore at risk of being destroyed, especially in situations where agrarians are prevented from exporting the goods due to the seaport blockade by Russia and because of the low export capacity and high price for transportation by rail to Europe, says Byelousov.

Overall, he says, the Grain Initiative ‘partially addresses the challenges for Ukraine and allows grain shipments to resume from Ukrainian ports.’

Experts believe the deal will help ease the food crisis as long as Russia adheres to its commitments, which include refraining from attacking crucial infrastructure and ensuring that transit routes operate uninterrupted.

It’s anticipated that even as trade resumes it may take some time before food prices stabilise, however.

Meanwhile, concerns have been raised about Russia’s willingness to adhere to the agreement in practice, particularly given the Russian military’s attack on the port of Odesa almost immediately after the Grain Initiative was signed.

The Russian Ministry of Defence eventually admitted the missile strike against the seaport, but argued that the Grain Initiative doesn’t prohibit the destruction of Ukrainian warships and military warehouses, which it says were targeted. The attack was condemned by Kyiv and its allies, with Ukrainian President Volodymyr Zelensky calling it ‘barbarism.’

Julian Clark is Global Senior Partner at Ince, based in London, and an expert in shipping and international trade. ‘The deal makes it clear that the protection to ports and shipping is limited to essential movement of commodities,’ he says. ‘Russia technically breached the deal on the day it was signed by attacking the port of Odesa, claiming this attack was on military installations and nothing to do with the trade deal. One has to wonder whether there will be other “mistakes”.’

Byelousov highlights that while Section C of the Grain Initiative obliges parties to the agreement to not ‘undertake any attacks against merchant vessels and other civilian vessels and port facilities engaged in the [Grain Initiative],’ the deal doesn’t provide any security mechanisms or sanctions against parties violating the obligations.

He also fears that Russia may use the agreement to export grain and other products stolen from occupied territories of Ukraine.

Clark says there’s ‘clear evidence of grain laundering and theft with a massive increase in dark activity […] in the region.’ Such activity involves vessels switching off their Automatic Identification System, the continual operation of which is mandatory under the International Convention for the Safety of Life at Sea, except in specific circumstances.

Clark says that this activity has largely been out of Crimea. ‘Satellite imagery proves that there is suspicious STS [ship-to-ship] activity with likely stolen Ukrainian grain moving into Turkey and Syria.’

According to Clark, evidence suggests that such illegal activity, which has so far been focused on grain, is extending to corn, sunflower products and steel from Mariupol and Berdyansk.

On the day the Grain Initiative was signed the European Commission announced a further package of sanctions on Russia. It has clarified how EU sanctions will make exceptions to ensure that food and agricultural products are not restricted, in addition to introducing new exceptions for wheat and fertiliser for sanctioned Russian banks, and an import ban on Russian gold.

The Commission details the possible effects of EU sanctions on the food sector and the steps being taken to ease the food crisis, such as the establishment of 'solidarity lanes' across the EU to ensure Ukraine can export grain and other agricultural produce and import crucial goods.

Tom Stocker, Head of Pinsent Masons' White Collar Crime, Investigations & Compliance team, based in Edinburgh, explains that the sanctions targeting Russia are working to the extent that businesses based in countries which have imposed sanctions have in the main ceased supplying goods and services to Russia and parts of Ukraine.

‘The sanctions have been imposed in a piecemeal manner and, while they do not amount to a complete embargo, they are extensive and of a myriad of complexity,’ he says. ‘In addition, banks, insurers and other businesses which facilitate the wheels of international trade have made policy decisions to go beyond the strict letter of the sanctions because it is too complicated a regulatory regime to navigate and business with Russia is generally seen as harmful to a brand and business reputation.’

Image credit: Mny-Jhee/AdobeStock.com

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