Several dozen ships have left unblocked Ukrainian ports in the Odessa region since an agreement was signed in Istanbul on July 22, brokered by Turkey and the UN, paving the way for grain exports. One of the first ships was chartered by the UN under the Food Program to transport 23,000 tonnes of wheat to famine-stricken Ethiopia. More than 600,000 tonnes of grain have already entered international markets, according to the Ukrainian Sea Ports Administration. The department has ambitious plans: in the near future, increase the number of ships leaving the ports of Odessa, Yuzhny and Chernomorsk with grain to 100 a month. This, however, is still a long way off.

Transport companies are in no hurry

Most of the ships sailing along the “green corridor” through Istanbul were removing grain loaded on the eve of the war after a long idle time. “The pace of contracting new parts is still not very high. The market does not particularly trust the Russians and expects surprises. At the same time, freight rates fluctuate a lot even during the day. We see mixed signals from the Russian Federation – sometimes they they shoot in the Odessa region, then in the port of Nikolaev, then their fighter planes enter the territory through which the grain routes pass. Therefore, the market is in suspense,” said Pavel Martyshev of the Kyiv School of Economics (KSE) , in a statement interview with DW.

Huge risk premiums

Gennady Ivanov, Executive Director of BPG Shipping knows exactly how to transport cargo in a war. For ten years, he searched for ships to transport food to war-torn Yemen. Now Ivanov has to find shipowners who, under war conditions, can export grain from his native Odessa. “Owners who have systemic experience working in potentially dangerous areas such as Yemen or West Africa, and who are also willing to consider a vessel entering Ukraine, are a minority in the market. They understand that freight rates are much higher than, for example, neighboring Romania or Bulgaria,” says the transport manager.

Ivanov is optimistic: the longer without incident the export of wheat through the “grain corridor” continues, the more shipowners will decide to enter Ukrainian ports. “At the time the grain contract was signed, the insurance rates announced by insurers were expected to be four to five percent of the insured value of the vessel for a period of seven days. Today, insurance rates vary from one to one and half a percent of the vessel’s insured value over a seven-day period – that’s about $200-270,000 a week,” he says.

Ukraine is hard to compete

Chartering a ship to export grain from Ukraine now costs between $8,000 and $12,000 a day more than in neighboring Romania, calculated Gennady Ivanov. In addition, lengthy checks in Istanbul on the way to Ukraine and on the way back, as well as other organizational difficulties, lead grain traders to pay shipowners an additional seven to nine days’ rent for each raid. The checks in Istanbul were Moscow’s demand to “prevent the transfer of arms”. “All this, on average, leads to a freight difference between Romania and Ukraine of 25 to 35 dollars per tonne”, concludes Ivanov.

These costs reduce the profitability of Ukrainian grain exports, Ukrainian farmers are paid less for their products. At the same time, this price difference in logistics is a competitive advantage for the Russians, although in the Russian direction the shipowners demand, as experts say, some risk premiums. “Russia expects this year a record wheat harvest of 90-92 million tonnes. In such circumstances, Russian wheat will dominate the market. Russians can dump, give discounts. They have already partially expelled Ukrainian wheat from important markets like Turkey and Egypt, “says Pavel Martyshev Russia has snatched a piece of Ukraine’s export pie in the sunflower oil market, notes the expert. “Many factories haven’t been working since the beginning of the war, so Ukraine now exports unprocessed sunflower seeds instead of oil. And that generates a lot less foreign exchange,” complains Martyshev.

Where to put millions of tons of grain?

According to experts, around 18 million tons of grain, destined for export, remain in warehouses. It can be especially difficult for farmers who grow corn. “In September-October, a new crop will be harvested and, if exports do not accelerate significantly, there will be nowhere to store around 10 million tons of corn”, warns Pavel Martyshev. He is convinced that many Ukrainian farmers, especially small ones, will need support from international donors to build temporary barns as well as loans for the new crop.

Agricultural expert Heinz Strubenhoff, who worked for the World Bank in Ukraine for many years, is convinced that the grain deal will only deliver tangible results if international partners help Ukrainians minimize risky insurance premiums for chartering ships. “Russia is interested in continued uncertainty and high insurance premiums. The EU and US should be interested in supporting Ukraine in risk reinsurance and making Ukrainian grain exports more competitive,” said an independent analyst.

He fears that the uncertain economic viability of exporting grain could force many Ukrainian farmers to plant more rapeseed and sunflowers next year, or not sow part of the area. So in terms of food security, which was in the international spotlight when the agreement was signed in Istanbul, the medium-term benefits could be very limited, warns Strubenhoff.