Status of Ukrainian Agricultural Exports

tendata blogTrade Policy

ten data blog24-07-2023

ukraine agricultural exports,agricultural exports,ukraine exports

Russia called off a groundbreaking wartime agreement on July 17: the Black Sea Food Initiative. The initiative was credited with helping to lower the spiraling prices of wheat, vegetable oil and other global food commodities.

Kremlin spokesman Dmitry Peskov said the Black Sea Grain Initiative would be suspended until Russia's requirements for supplying the world with food and fertilizer are met.

Ukraine is a major supplier of wheat, corn and sunflower oil. The trading pause caused Chicago wheat prices to rise about 3 percent to $6.81 a bushel, still about half last year's peak.

Russia's February 2022 invasion of Ukraine had a dramatic impact on global inflation, particularly food and fuel inflation. Russia blocked Ukraine's Black Sea ports early in the conflict, disrupting exports for months and triggering a global food security crisis.

As prices peaked last July, one economist writing in Barron's estimated that the war in Ukraine had led to a 17 percent increase in food prices.

In 2022, Ukraine exported about 7 billion euros worth of agricultural products to neighboring countries, about half of which were grains, said EU farm director Janus Wojciechowski. "But at the same time, our neighbors increased their agricultural exports by €18 billion."

Meanwhile, Ukraine's exports are expected to fall by about 40 percent this year.

"When you talk about increasing Ukrainian exports, you have to talk about other important situations," he said, referring to drought-stricken countries such as Spain and Portugal, which rely on Ukrainian grain to make up for their own supply shortages.

Ukraine's Black Sea ports remain the largest export route for agricultural products; to date, the initiative has exported more than 30 million tons of food, easing pressure on global food prices, with 56 percent of that going to developing countries, preventing starvation in Africa and other countries that have borne the brunt of the world food crisis.

Nonetheless, according to the Ministry of Agricultural Policy of Ukraine, Ukrainian food exports have declined by 27%. According to the International Food Policy Research Institute (IFPRI), lower producer prices and higher input costs are holding back sowing in 2023, meaning production is expected to fall further.

The country has also had to deal with a setback - the destruction of the Kahovka Dam, which damaged the region's crop irrigation system and quickly led to a spike in global wheat and maize prices.

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Exploration of additional export routes

Against this dynamic backdrop, USAID is supporting Ukrainian and European partners in exploring additional export routes. The program aims to create "strategic redundancy," i.e., multiple connections between two parts of the system to increase the resilience of the market system. For example, if Ukraine is able to transport grain to Danube ports controlled by Romania, or to other EU ports such as Trieste and Hamburg, then the market can better adapt and function during a temporary export ban.

The U.S. Agency for International Development's Agricultural Resilience Initiative (AGRI-Ukraine) announced in August 2022 an investment of $100 million to support Ukraine's agricultural sector to increase exports. The project aims to boost crop production and trade by increasing farmers' access to financing, supporting crop processing, and improving export logistics and infrastructure to transport crops from farms to other neighboring European countries by land. Despite political challenges in some transit countries in the first half of 2023, ongoing negotiations have helped to resolve many of these issues.DAI supports AGRI-Ukraine through an economic resilience event, which last year focused on assessing infrastructure bottlenecks and developing solutions to increase exports.

Oleksandr Stetsenko, an infrastructure expert on the project, explained that billions of dollars have been invested in Black Sea export and shipping infrastructure over the past two decades. "We don't have that much time or money to invest in alternative export routes, but we can remove some of the existing bottlenecks. Before the war, less than 10% of Ukrainian exports were transported via non-Black Sea routes. With these AGRI-Ukraine initiatives, we hope to triple our exports through alternative routes."

Russian export inspections of Black Sea vessels often cause delays, Stetsenko said. Sometimes Russia does not allow ships carrying Ukrainian grain to pass or allows only a few ships to pass. Often, 30-50 ships loaded with Ukrainian foodstuffs stand in line near Istanbul for days, reducing Ukraine's credibility as a supplier to its main customers. One of the main goals of the project is to support Ukraine's export credibility and capacity, even if the Black Sea ports are not functioning properly.

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Removing bottlenecks

After last year's report noted that only 21 percent of Ukraine's rail export capacity was used for grain transportation, Stetsenko and the team of experts identified seven interventions to boost exports. Activities include improving railroads and trains, utilizing innovative grain storage and transport mechanisms, and increasing transit efficiency.

Over the past year, rising transportation costs and unreliable rail freight scheduling have discouraged farmers from using railroads to transport grain, despite excess capacity. In response, the team is working to rehabilitate grain wagons, support flexible containers for grain storage and transportation, procure additional equipment, and repair and modernize the Ukrainian locomotive fleet. One innovation that has garnered some attention is the Jumbo Big Bag, a flexible soft container that can be filled in grain silos and loaded onto open wagons for eventual transfer to ships.

We have about 16,000 grain hopper railcars, but 83,000 open wagon railcars," Stetsenko explains. "These huge bags allow farmers to transport their goods in open wagons, which is also nearly three times cheaper than grain hoppers."

The project will also improve transit efficiency by installing new loading equipment, service tracks and inspection facilities. U.S. funding will also help hire additional staff to facilitate transit and purchase laboratory equipment for grain quality testing, a requirement for exports. Locomotive maintenance and modernization will improve the resilience of the rail fleet. Russian attacks often target Ukrainian electricity and power grids, which can cripple rail lines. Natural gas-engine locomotives will allow trains to operate even when the power is cut.

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