The blockage of Ukrainian seaports is not only a threat to global food security but to Ukraine’s domestic economy.
About 80% of the country’s agricultural sector depends on grain exports as its main source of revenue. Some 25 million tons of grain are currently stuck in storage facilities, which bears down very hard on the domestic market and farmers who have to decide by mid-July what and whether to sow.
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For the last two decades, farmers have been told to abandon the practice of growing mostly sunflower, corn, soy, wheat and rape to adopt a model based on processing of agricultural produce and diversified crop rotation. That model was not designed for wartime.
It is now necessary to rebuild the entire grain logistics operation that has, for 30 years, relied on access to Ukraine’s seaports. In a typical year, 40 million tons are exported by rail, 20-25 million by road and 5-6 million by river. It has now become a bottle with a very narrow neck, with government, grain traders and forwarders rushing to hack a new route to world markets without waiting for the Black Sea ports to be unblocked by diplomatic or military means.
An alternative to seaports
Through 13 border crossing points (four to Poland, three to Romania, two to Slovakia, two to Hungary and two to Moldova) Ukrainian trains can ordinarily transport 3,422 railcars with a total capacity of 120,000 tons. However, only 2,000 railcars cross the border with 357 carrying grain.
ISW Russian Offensive Campaign Assessment, December 24, 2024
According to Valeriy Tkachov, deputy director of the commercial department of Ukrzaliznytsia (Ukraine Railroad Administration), the task is to increase monthly grain exports to 1.5 million tons. Ukrzaliznytsia plans to reach this target figure within the next three or four months. Adding 600,000-800,000 tons transported through Danube ports, the total amount of monthly grain exports could reach 2.3 million tons at best. That is far less than the pre-war 5-7 million tons transported through the seaports. Back in March, market players and government officials expected 2-2.5 million tons of grain and oilseeds to be exported in May. In fact, they only managed 1.7 million tons.
What hinders transportation?
The main problem is the difference between Ukrainian and EU rail infrastructure and railcar capacity. There are only two options: i) reload grain from Ukrainian to European railcars at the border; or ii) replace the wheels.
The challenge with (i) is the limited amount of available rolling stock among European carriers for the huge amounts of grain. The challenge with (ii) is that replacing train wheels can affect transportation costs by 100-150 euros per ton. This is because European railroads use 40-ton railcars while Ukrainian railcars can hold 71 tons.
Another problem is that only five of 13 border crossing points operate at full capacity while the rest operate at 30-50%. Bureaucratic obstacles include border, customs, and phytosanitary control. Three border crossing points do not handle grain at all because they have no phytosanitary control posts. The newly established coordinating council at the Agrarian Policy Ministry is trying to solve these problems and has reported early positive results.
Start from the end point
Experts point to the as yet untapped throughput potential of the border crossing points and advise grain traders to build their logistical chains starting with the destination and working backwards. In other words, find the end customer, locate a seaport if available in one of the European countries, determine the quota, strike a deal with a company to transport the cargo to the port, and only then turn to Ukrzaliznytsia to arrange for transporting the cargo to the border crossing points.
“Sometimes things don’t work the way we expect,” said Yuriy Shchuklin, co-founder of a Ukrainian forwarding company. “In April we sent two freight trains, each loaded with 7,000 tons. But I miscalculated the timeframes for loading the batch on to a small 35,000-ton ship. On a positive note, we were able to detect the flaws in our logistical operation that needed to be fixed.”
Storage collapse
The blockage on exports is putting significant pressure on the storage sector in Ukraine. Before the war, Ukraine’s grain and corn storage capacity totaled 57 million tons. Thus year, some 13 million tons have been lost because of bombardments and occupation, while every second remaining granary is still holding on to last year’s grain, with new grain expected to arrive in August.
According to Tayir Musayev, vice president and commercial director of BZK Grain Alliance, farmers will have to leave their corn in the field until March or April next year. But that leads to potential issues with quality, because corn left in the field is exposed to fungal diseases. Finding a buyer for infected corn is technically possible because it looks the same as healthy corn. But lab tests would then be needed at huge cost and with significant delay, and there could be knock-on reputational issues (Ukrainian corn is renowed for being among the best).
Musayev suggests looking for alternative storage options. Quite a few investors are now exploring Western Ukraine for building granaries. The Grain Alliance had made an even bolder move – the purchase of an abandoned granary in Slovakia. Within a month, the legal and technical issues were cleared, then a team of experts came to Ukraine and now the granary is reaching its intended capacity. Musayev believes that with properly adjusted logistics on both sides of the border, the granary could make two or three turnovers a month.
For the first time in 30 years, the situation in Ukraine’s agrarian sector is experienced serious volatility and unpredictability. Producers and traders not only need to look for new ways to survive in wartime conditions; they also need to look several years ahead, factoring in the possible unavailability of Black Sea ports. That said, there is still hope that the ports will be unblocked by the end of this year.
Mykola Horbachov, president of the Ukrainian Grain Association, was asked: “How soon after our victory could the Black Sea ports resume their operation at full capacity?” He answered, “By our estimates, it would take a month or two.”
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