First grain cargo ship has left Ukraine since war began — how big a deal is this?

On Monday, a ship registered in Sierra Leone, ‘Razoni’, will be carrying 26,527 tons of maize (maize) departure from the Ukrainian port of Odessa. This was the first time since the Russian invasion on February 24 that a ship loaded with Ukrainian grain had departed from its ports on the Black Sea. Destined for Tripoli in northern Lebanon, the bulk carrier passed through a specially cleared “secure humanitarian maritime corridor” near Ukraine’s Black Sea ports, whose waters it had mined to protect against amphibious assaults by Russia.

How important a milestone is this mission? Is there anything beyond symbolic value?

The M/V Razoni vessel, which anchored at the Bosphorus entrance off the coast of Turkey on Tuesday and was inspected after inspection cleared for onward voyage, is the first under a United Nations-backed agreement prohibiting the resumption of exports of Ukrainian agricultural products through the ports on the Black Sea. The so-called Grain Initiative of the Black Sea – including the signing of separate agreements by Russia and Ukraine with the UN and Turkey on July 22 – provides for exports from three ports: Odessa, Chornomorsk and Yuzhny. Under the agreement, the ships must be guided through the waters of the Black Sea by the Ukrainian Navy to avoid mining areas. The ships will then sail via an agreed corridor to the Bosphorus in Turkey and from there to various ports in the world. The ships are also to be inspected (to ensure only commercial foodstuffs and fertilizers are carried) by teams from a joint coordination center in Istanbul with representatives from the UN, Ukraine, Russia and Turkey.

In terms of effectiveness, everything depends on the smooth implementation of the agreement in the midst of a war that shows no signs of ending. Obviously, the more successful voyages have been made, the more confidence it will instill in exporters, importers, ship owners and insurance companies to indemnify the carriers and cargoes. For now, the resumption of maritime exports from Ukraine – there are about 17 other ships in the three designated ports with grain already loaded and “waiting for permission to leave” – ​​seems to have sparked some optimism. Since Friday, wheat prices on the Chicago Board of Trade commodities exchange have fallen from $296.79 to $280.63 per tonne. So have corn, from $242.61 to $232.86 per ton.

Razoni's journey under the flag of Sierra Leone |  First grain freighter The Sierra Leone-flagged cargo ship ‘Razoni’, carrying Ukrainian grain, is seen in the Black Sea off Kilyos, near Istanbul, Turkey, on August 3, 2022. (Photo from Reuters)

How important is Ukraine to global agricultural trade?

Before the war, Ukraine was the world’s fifth largest exporter of wheat (after Russia, the European Union, Australia and the US) and barley (after Australia, the EU, Argentina and Russia), while the fourth largest exporter in maize (after the US , Argentina and Brazil); No. 1 in sunflower oil, oil cake/flour and seed; and No. 2 in rapeseed (after Canada).

According to the US Department of Agriculture, Ukraine’s total agricultural exports in 2021 were estimated at $27.8 billion. That included sunflower oil ($6.4 billion), corn ($5.9 billion), wheat ($5.2 billion), canola ($1.7 billion), barley ($1.3). billion) and sunflower meal ($1.2 billion). The country’s three main markets were the EU ($7.7 billion), China ($4.2 billion) and India ($2 billion). Exports to India were largely made up of sunflower oil, which was worth $1.9 billion. Since much of Ukraine’s trade takes place through the Black Sea, clearing routes is a major problem – both for itself and for the world.

How much does Ukraine matter to India?

As mentioned, the country is an important supplier of sunflower oil. India imported 21.76 lakh tons (lt) of it in 2020-21 (April-March) and 20.45 lt in 2021-22, worth $1.96 billion and $2.88 billion respectively. Of this, Ukraine’s share was 17.40 lt ($1.60 billion) in 2020-21 and 14.83 lt ($2.09 billion) in 2021-22. Russia and Argentina were a distant number 2 and number 3, with 3.40 lt ($479.16 million) and 1.85 lt ($258.66 million) respectively in 2021-22.

Sunflower oil is India’s fourth largest consumed vegetable oil (22-23 lt), after palm (80-85 lt), soya (45 lt) and mustard/rapeseed (30 lt). An estimated 70% of sunflower oil consumption is in the south, with Maharashtra (10-12%) and the rest of India making up the rest. Most of the imports also go through the four southern ports of Kakinada, Krishnapatnam, Chennai and Mangalore, with some tankers also coming to Kandla and Nhava Sheva/JNPT in the west. The top three players in sunflower oil brands are Hyderabad-based Gemini Edibles & Fats (“Freedom” brand), Chennai-based Kaleesuwari Refinery (“Gold Winner”) and Adani Wilmar Ltd (“Fortune”).

What is the impact of the war on this segment?

Before the war, almost 2 liters of sunflower oil was imported into India every month, of which 70-80% came from Ukraine. These were mostly in bulk carriers of 35,000-45,000 tons from the ports of Odessa and Mariupol. After the invasion, imports plunged to barely a liter even as land prices (cost plus insurance and freight) in Mumbai exceeded $2,200 per tonne, from $1,450-1,500 until mid-March.

Since then, however, imports have recovered to about 1.5 lt per month. But about 50% of that comes from Russia, 30% from Argentina and only 20% from Ukraine. “Russia has ramped up exports, mainly through the ports of Taman and Rostov-on-Don on the Sea of ​​Azov. Land prices have also fallen to $1,500-1,550 per tonne,” an industry official said.

Razoni's journey under the flag of Sierra Leone |  First grain freighter Ukraine’s Black Sea ports are connected to the Mediterranean Sea and further through the narrow Bosphorus Channel, which is controlled by Turkey. (Source: Google Maps)

Will the reopening of Ukraine’s Black Sea ports make a difference?

Currently, Ukrainian exports take place entirely via the land route or ports in Romania, Bulgaria and Turkey. “The freight cost from Odessa to Indian ports before the war was $40-50 per ton. Now it costs $150-200 per ton to simply transport oil cargo from Ukraine (by road or in small barges of 2,000-3,000 tons) to ports such as Mersin in Turkey. Freight from those ports to India will cost another $90-100 per ton,” the official added. Resumption of direct trade from Odessa and other Ukrainian ports would certainly be welcome, but may take some time: under the UN agreement the evacuation of wheat and maize will be given priority over sunflower oil.

Are there any other goods that India imports from Ukraine?

It is mainly ammonia that is used for fertilizer production. In 2021-22, India imported 3.63 liters of ammonia worth USD 220.44 million from Ukraine. The country was also a major wheat exporter to India in the past. These were 29.04 lt ($603.25 million) in 2016-17 and 6.92 lt ($149.93 million) in 2017-18. But any wheat imports are unlikely today. Black Sea wheat from Russia for August-September delivery will cost $340-360 per ton, excluding freight, which will be another $40-50. At these prices, imported wheat will cost Rs 31-32/kg in ports alone. For India, the interest of Ukraine (and the UN agreement) is essentially limited to sunflower oil.

Leave a Comment

Your email address will not be published.