The Russian unlawful attack on Ukraine in February 2022 and the following blockade of Ukrainian ports have severely affected global grain supply chains. With Ukraine being a major world exporter of corn, wheat, sunflower and barley, it was imperative for the international community to find solutions to get Ukrainian production out of the country in order to ensure global food security. The responses to this issue consisted in the set up of “solidarity lines” by the European Union in May 2022, followed by the implementation of the” Black Sea Grain Initiative” in July after an agreement between Ukraine, Russia and Turkey under the supervision of the United Nations. More than one year after the breaking of the war, this paper aims to evaluate the efficiency of these mechanisms, and to take stock of the dynamics of the Ukrainian grain market.

The European solidarity lanes

In response to Russia’s maritime blockade on Ukrainian ports, the EU mobilised in May 2022 the so-called “solidarity lanes”. The aim was to facilitate the export of Ukraine’s agricultural products to compensate as much as possible for the loss of sea routes.

In practice, it consisted in the search for other ways to export Ukraine’s agricultural products via alternative land routes and EU ports, and the set-up of better transport connections, faster customs operation and new storage on EU territory.
Since its first exports, the solidarity lanes have been able to unblock around 29 million metric tonnes of grain to be exported in the EU by road, rail or vessels using the Danube delta.

In the framework of the solidarity lanes, the EU market has opened to Ukrainian imports, resulting in an unprecedented flow of Ukrainians products to eastern Europe. This sudden and significant influx has created tension locally, as large quantities of grain flown in areas with limited storage capacities (compared to the new needs) and high logistic challenges to be overcome to export them while at the same time storing and transporting local productions. Confronted with this issue that affects the Member States differently in the single market, and having assessed the pressure on local prices from these tensions in the logistical chains from the increased transit of products from Ukraine, the Commission has proposed on 20 March an aid package of €56,3 million for farmers in the most affected countries by a drop of local market prices (Poland, Bulgaria, Romania). The payment is expected by 30 September 2023.

The Black Sea Grain Initiative

The Black Sea Grain Initiative is a mechanism implemented by Turkey, Russia and Ukraine under the United Nations supervision to create a grain corridor in the Black Sea. Signed on 27 July 2022, it allows ships to transport grain from three key Ukrainian ports – Odesa, Chernomorsk and Yuzhny – across the Black Sea after an inspection of the Joint Coordination Centre, a body created in the framework of the agreement. Before its entry into force, it was estimated that 22 million tons of grain were stuck in the Ukrainian ports due to the war.

Originally scheduled to run until November 2022, the agreement was first extended for 120 days before a second extension was announced on 18 March 2023. While the original agreement was supposed to extend the Initiative for another 120 days, Russia unilaterally decided to reduce this period to 60 days, warning that any further extension beyond mid-May would depend on the removal of some Western sanctions.

From its launch to 15 March 2023, the Black Sea Grain Initiative has resulted in the delivery of 927 vessels. Altogether, 45 different countries received over 24 million metric tonnes of grain and foodstuffs through this channel. The detailed country-by-country data can be found in the following table.

Many third countries have a considerable reliance on Ukrainian grain. Indeed, the countries that have been found to have the highest dependency on Ukrainian and Russian wheat imports, and therefore to be the most vulnerable to these market disruptions, are Somalia (100%), Benin (100%), Laos (94%), Egypt (82%), Sudan (75%), DR Congo (69%), Senegal (66%) and Tanzania (64%). 

Ukraine also accounted for half of the supply of the United Nations World Food Programme before the war.

Share of grain exported in the framework of the Black Sea Grain Initiative (mid-March 2023)

In terms of exported cereals, maize accounts for almost half of the exports. This cereal has always been usually mostly exported to China and the EU (for example, it represented 62% of the maize exported shares in 2021 (USDA)). This explains the weight of these two blocs in the total export share. 

Wheat constitutes a quarter of the exported volume. It is usually exported to developing countries (notably Egypt, Indonesia and Bangladesh). Since the launching of the Black Sea Grain Initiative, two-thirds of the wheat was destined for developing countries, for which it is the most important and most needed food staple, representing 18.1% of the total shipments of the Black Sea Grains Initiative. Furthermore, it allowed the United Nations World Food Programme to restart shipping from Ukrainian ports, and more than 450 000 tonnes of wheat have been shipped to Ethiopia, Yemen, Djibouti, Somalia and Afghanistan.

Data shows that the addition of the implementation of the Black Sea Grain Initiative and of the solidarity lanes initiative has effectively allowed Ukraine’s wheat and corn exports to recover.

Both are necessary to export quantities that are required to answer to world market demand. 

Estimate of the next harvest for 2023-2024

In 2021, the total land sown in spring amounted to 17 million hectares of crops in Ukraine. These pre-war sowings resulted in decent crops in 2022 despite the difficult conditions and loss of land. In contrast, in 2022 around 4 million hectares remained unplanted due to two main factors:

• Losses of cultivable area due to the occupied territories or the fact that some land is too damaged by hostilities to be cultivated, or too dangerous
• Poor profitability for producers: the efforts to facilitate the transportation of exports have resulted in higher costs. Exports by truck, rail or barge from the west are expensive, while long inspection times and associated demurrage charges have added significant costs to shipments through Black Sea ports. These costs have been largely absorbed by Ukrainian producers in the form of lower prices. Furthermore, the prices of input have risen, further reducing producers’ profit margins and discouraging them from planting for the coming year.

In result, Ukraine’s grain harvest could decline by 35-40 million tons in 2023, including 12-15 million tons of wheat and 15-17 million tons of corn, according to the Ukrainian Agribusiness Club.

For comparison purposes, the following graph shows Ukrainian maize, wheat and barley production over the last 10 years. 

In the future, wheat supplies for 2023/24 (composed of the year production and the stocks from the 2022/23 marketing year) are likely to be almost 30% below 2022/23 levels and 45% below 2021/22 level. 

Note that the 2021/22 harvest was an exceptional production year.

Concerning maize, the expected supplies for Ukraine for 2023/24 could be 36% below 2022/23 level and 53% below 2021/22 level.

The issue of storage

During summer 2022, the Ukrainian storage abilities were questioned, as the grain was accumulating and could not be delivered abroad. This issue has strongly decreased since the Black Sea Grain Initiative: actually, the high grain stocks allowed exports estimates to grow while production dropped.

Before the invasion, Ukraine was exporting nearly 80% of its corn crop annually, preventing large year-end stocks. The Russian blockade has forced Ukraine to stockpile: the USDA’s estimate for the 2022-23 corn ending stocks in Ukraine amounts to 6,9 million tonnes, up from 5,1 million the previous year. This is well above the norm, which averages 1,3 million tons. In addition, the stock-to-use for the year is estimated at 27%, compared to 4% before the war.

Concerning wheat, the USDA’s estimate for the 2022-23 wheat ending stocks in Ukraine amounts to 4,2 million tonnes, down from 6,8 million the previous years. Here again, the stock-to-use is well above the average of previous years.

Conclusion

The mechanisms set by the European Union and the United Nations have served their purpose in allowing the export of more than 54 millions tonnes of Ukrainian grain. However, the future of the Black Sea Grain Initiative – which has resulted in the export of 25 millions tonnes since August – is conditional on the goodwill of a Russia determined to use it as a leverage to negotiate an easing of Western sanctions toward it. 

Moreover, the disturbances created by the war are not limited to the Russian blockade. The harvest of 2022 benefited from the pre-war sowings and was therefore moderately affected by the events, but it will not be the same for future crops. The important stock gathered in 2022 mitigated the gap in the 2022/23 campaign as well. 

However, due to the direct and indirect effects of the war, production is expected to decline by 35 to 40 million tons in 2023, with shortfalls of 12 to 15 million tons of wheat and of 15 to 17 million tons of corn. The important stock gathered in 2022 mitigated the gap in the 2022/23 campaign, but in 2023/24 the fall of the production will inevitably affect the international market.

Lastly, with regard to the impact of the Ukrainian products on Eastern European markets, the recently proposed aid package by the Commission may alleviate the pressure for the local farmers. However, the encountered difficulties will remain in these countries, as they are symptomatic of a lack of investment in their infrastructures. It will therefore be crucial for them to be able to invest more in their storage capacities and in the performance of their supply lines on top of the already existing challenge of those countries to develop new outlets for their cereals in their own country, notably based on bio and circular economy. 

Sources

Institutionnal:
Ministry of Agrarian Policy and Food of Ukraine- Export of Agriproduct 
United Nations- Vessel Movements – Black Sea Grain Initiative
OCHA- Black Sea Grain Initiative Vessel Movements – Humanitarian Data Exchange
Council of the European union – Food for the world
USDA- Report Name:Grain Update December 2022
USDA- Ukraine’s wheat and corn exports recover under Black Sea Grain Initiative
USDA- Report Name: Grain and Feed Annual 
USDA- Ukraine Agricultural Production and Trade 

Newspaper:
POLITICO- Who’s feeding the world? We are, say both Ukraine and Russia, as war rages on POLITICO- Ukraine and UN call for Black Sea grain deal extension 
La France Agricole- Les exploitations ukrainiennes « devant un mur -»  
EURACTIV- Commission opens solidarity lanes to strengthen eu-Ukraine food export  
CNBC- Ukraine Black Sea grain deal extended for at least 60 days
Reuters- Column: Ukraine corn crop plunge balanced by huge stocks, aiding exports for now
Reuters- Column: More to Ukraine’s recent grain export success than meets the eye
IICA- Ukraine one year later: Impacts on global food security | IICA Blog

Ahead of the negotiation in 2020, the European Commission (DG Trade) published a “Trade Sustainability Impact Assessment in support of FTA negotiations between the European Union and New Zealand – Final Report”, with a focus on agriculture which is worth recalling and re-assessing as the trade agenda move up on the priorities. 

The Report analyses two scenarios, one called conservative where agriculture tariffs are left untouched, and the other called ambitious where also agriculture trade is liberalized. We have focused on the latter, as the conservative scenario was not pursued in the negotiations. We will qualify the results however, as some sectors will still be subject to TRQs instead of full liberalization.

As background data, the Report recalls that “Trade in agricultural products is important in the EU-NZ trading relationship. Agricultural products comprised 10.8 percent of the EU’s total exports to New Zealand in 2018 (€ 616 million) and 70.0 percent of the EU’s total imports from New Zealand (€ 2.43 billion). The EU in particular imported meat, edible fruits, beverages, spirits and vinegar from New Zealand in 2018. The EU’s large trade deficit with New Zealand in agricultural products comes despite the relatively high EU import tariffs in this sector.”

With regard to the assessment of the overall impact of the FTA, the Report notes that “Ecorys (2009) conducted a study on the impact of FTAs in the OECD, specifically focusing on an EU-NZ and EU-AUS FTA, an EU-US FTA, and an EU-Japan FTA. The results of a possible EU-NZ FTA showed that it would entail an estimated increase of 4.3 percent in exports for New Zealand and an increase of 0.2 percent in exports for the EU.” Or to put it bluntly, NZ would capture all the gains of the FTA.

However the DG Trade IA finds that EU exports would grow 32% versus 28.5% for NZ exports, totally reversing the findings of Ecorys for the OECD. We find it quite surprising, as NZ tariffs are already amongst the lowest in the world and as NZ has so many FTAs around the globe. EU exports already face low tariff barriers, and will face stiff competition from other exporters already present in the NZ market. 

Turning to agriculture, in the ambitious scenario the largest gains for New Zealand’s exports to the EU are seen in agriculture (dairy  €466 million, beef and sheep meat €356 million, vegetables, fruits & nuts and other food).

EU exports gains to NZ are minor: other food €33 million, dairy €27 million, other meat €20 million.

As a result of the FTA, the EU experiences production declines in beef and sheep meat (-1.4 %) and fruits and vegetables (-0.2 %).

The Report also examines in more detail the consequences in two sectors – ruminant meat and dairy.

Ruminant meat sector

As background the Report notes that “In 2017, the average applied tariff on ruminant meat in the EU for imports from New Zealand was 39.3 percent, compared to 24.5 percent for imports from the rest of the world. In contrast, New Zealand has an applied tariff rate of only 0.3 percent on ruminant meat imports from the EU.”

“New Zealand enjoys “comparatively favorable conditions of access to the EU market” for sheep meat, thanks mainly to a zero duty country-specific quota (TRQ) of 228,254 tonnes carcass weight equivalent (c.w.e.) of sheep meat (and goat meat). For beef, according to the WTO tariff data base, EU TRQs for which New Zealand is eligible are open to all other WTO Members, namely a frozen beef quota of 53,000 tonnes with an in-quota tariff rate of 20 percent, and a processing beef quota of 63,703 tons with an in-quota rate of between 20 percent and 20 percent plus €994.5/ton – €2,138.4/ton, depending on the product. These quotas “tend to be dominated by lower cost suppliers (for example from South America)”. Another quota for hormone free and “grain-fed high-quality beef” (HQB), established as a “collateral” result of the WTO dispute on beef hormones, is also accessible to the US, Canada, Australia, Uruguay and Argentina. Within this HQB quota, New Zealand can supply a country-specific quota of 1,300 tonnes p.w. New Zealand (and Australia) supply 94 percent of the EU’s sheep meat and goat meat imports, mostly through their preferential TRQs.”

For the EU, total output of ruminant meat is estimated to decline by 1.4 % under the ambitious liberalisation scenario, compared to a no change scenario. In contrast, for New Zealand, the corresponding estimated percentage change in total output of ruminant meat is positive 4.1 %.

The real impact might however be lower as full liberalization will not be achieved, and new TRQs will instead apply.

Dairy

As background the Report notes that “In 2017, the average applied tariff rate on dairy products in the EU on New Zealand’s exports was 54.6 percent. This is higher than the 41.5 percent the EU levies on imports from the rest of the world. In contrast, New Zealand has an applied tariff rate of 2 percent on dairy imports from the EU. Tariffs between 3 percent and 5 percent are applied on milk and cream and several processed milk products such as yoghurt, buttermilk, but also whey and milk powder products. A 7.7 percent tariff is applied on a range of cheese products, while other processed milk products imports face ad valorem zero tariffs.”

“As concerns EU tariffs and quotas, New Zealand benefits from a large number of Tariff Rate Quotas (TRQs), which the EU opens for all supplier countries (“erga omnes”) or to New Zealand only (either “traditional suppliers” or “new suppliers”). Preferential import quota allocations for the year 2017 are for eight TRQs erga omnes, totaling 83,241 tons, while four large TRQs are reserved for New Zealand (for cheeses and butter), totaling 85,693 tons.”

For the EU, total output of dairy is estimated to fall by 0.1 %. For New Zealand, in contrast, the estimated percentage change in total dairy output is +0.5 %.

The Report adds that “It goes without saying that an even bigger trade gain would result under an ambitious scenario whereby the EU would return to a single tariff border protection by abolishing the TRQ for countries like New Zealand.”

As possible remedies to the negative impacts of the FTA in these sectors the Report offers: “… there would be a need to monitor situation in certain Member States or regions which, due to a higher share of non-dairying cattle farming in economic activity and employment (e.g. in Ireland), may potentially be more affected (in particular if effects of more new FTAs cumulate).”

These conclusions do not offer adequate visibility and do not match the strategic dimension of the agricultural sector. At a time where securing food sovereignty is high on the European agenda, such a move forward in the trade agenda and treatment of the agricultural sector will not be understood by the EU agriculture community, and rightly so.