The BSGI Termination to Raise Ukraine’s Grain Shipment Costs
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The Black Sea Grain Initiative was set up to abate a global food crisis after Moscow launched a full-scale invasion of fellow key Grain exporter and neighbor Ukraine. Under the deal, over 1,000 ships carrying nearly 33 million metric tons of agricultural products have departed from Ukraine’s war-weary Black Sea ports of Odesa, Chornomorsk, and Pivdennyi, previously known as Yuzhny. 65% of the Wheat exported through the Black Sea Grain Initiative reached developing countries. Maize was shipped almost equally to developed and developing countries.
The United Nations World Food Programme (WFP – the largest humanitarian organization in the world) also shipped Wheat from Black Sea ports. As of July 2023, the program had bought 80% of its Grain stock from Ukraine, up from 50% before the war. Over 725,000 tons of Wheat left Ukrainian ports to Ethiopia, Yemen, Afghanistan, Sudan, Somalia, Kenya, and Djibouti during the implementation of the initiative.
According to AgFlow data, Ukraine exported 0.95 million tons of Wheat in June 2023. Key markets were Turkey (0.32 million tons), Egypt (0.19 million tons), Bangladesh (0.11 million tons), and Spain (94,500 tons).
Dmitry Peskov, Press secretary of the President of the Russian Federation, said on July 17: Unfortunately, the part relating to Russia in this Black Sea agreement has not yet been implemented. Therefore, its operation is terminated. The European Union condemned the Kremlin’s withdrawal from the agreement.
In parallel, Ukraine Government’s Press secretary Serhiy Nykyforov added: “We are not afraid. We were reached by companies that own ships. They said that they are ready; if Ukraine will let go, and Turkey will pass, then everyone is ready to continue the supply of Grain”.
The Grain pact allowed the export of commercial food and fertilizer supplies, including ammonia, from the three Ukrainian ports on the Black Sea. Cargo ships proceed through the agreed humanitarian corridor to Istanbul, one of the busiest ports in Turkey, whose administration under President Recep Tayyip Erdogan has been deeply immersed in the negotiations.
Following the announcement, Erdogan expressed his belief that his Kremlin counterpart Putin wants to continue the Black Sea Grain Initiative, hailing the agreement as a diplomatic success. Erdogan added that he will hold phone talks with Putin on the topic ahead of their anticipated in-person meeting in August and that the Turkish and Russian foreign ministers will likewise discuss the agreement.
The Russian RusGrain Union said on Telegram that it plans to continue supplying its customers as part of its commitment to fight world hunger, irrespective of the Ukraine deal development. All contractual obligations of Russian Grain exporters will be fulfilled, according to the Union.
Expert Opinions on Ukrainian Grain Shipments
Wheat prices jumped 3.5% as the news broke. “Ukraine will now be forced to export most of its Grains and oilseeds through its land borders and Danube ports. This will significantly drive transportation costs and pressure Ukrainian farmers’ profits. The knock-on effect of this is it could prompt them to plant less next season, placing further pressure on supplies going forward,” said Carlos Mera, Head of the Agri-commodities markets at Rabobank.
Simon Evenett, a professor of international trade and economic development at the University of St. Gallen, said Russia’s announcement is the “coup de grace on a deal that was on its last legs.” “Shipments have been falling steadily this year,” he added.
“Russia would have you believe it is being forced to end a deal that it benefits from – a deal designed to alleviate some of the global consequences of its war of choice,” Michael Carpenter, U.S. ambassador to the Organization for Security and Cooperation in Europe, said on July 13, estimating that over 32 million tons of Grain and food reached global markets to date as a result of the deal.
Other sources: CNBC
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