Agricultural logistics: Maritime exports are in crosshairs of russian sabotage, while ground ones stir up Europe

By 2022, the 90% figure of Ukraine's major commodity exports by sea encouraged billion-dollar investments in port infrastructure for transshipment of agricultural products. As harvests grew, approaching 100 million tonnes (oilseeds and grains in total) at the time of the full-scale invasion, port capacity systematically grew as well. The expansion of maritime infrastructure was dictated by the geography of exports – in the last pre-war year, 30% of foreign agricultural trade came from China, and it could only be provided by sea.

On 24 February 2022, all of these brilliant figures were nullified.

The military blockade of the Black and Azov Seas made maritime exports impossible. Producers found themselves locked into a rapidly shrinking domestic market due to the occupation of part of the land and the outflow of people abroad, with grain stocks of more than 20 million tonnes and prospects for a new harvest. The state, in turn, simultaneously lost 40% of the foreign exchange earnings that had been generated by agricultural exports and faced a crisis in the national economy's main sector, losing about $170 million daily due to the port blockade. However, as of March 2022, these challenges did not seem to be of paramount importance.

One year later.

Ukraine has reached monthly grain exports comparable to pre-war levels (6 million tonnes) and is now in its second wartime sowing season. And agricultural exports have increased their share in the structure of foreign trade, exceeding 52% compared to 46% in 2021. At the same time, the industry is sinking deeper into the crisis and reducing production.

Mind has analysed how agricultural logistics managed to transform and why good news in this area may become infrequent.

Why was the blockade of maritime agricultural exports so critical and sensitive? The sea accounted for 90% of agricultural exports and 75% of national exports. In 2021, 49.8 million tonnes of grain were exported through seaports. This is more than the vast majority of European countries export for their own needs. No alternative routes can provide logistics for such a huge amount in the short and medium term.

According to GMK Center's estimates, the share of pre-war ports in terms of grain transshipment was 95.6%, and oil – 90.2%.

At the outset of the full-scale invasion, Dragon Capital estimated the direct impact of the "port factor" on Ukraine's negative GDP dynamics in 2022 at 5%, depending on whether and when the ports would be opened.

But there are two seas in Ukraine, so why are all the channels blocked? The reason is that the ports are located in the south of the country, in a region that has been the object of active military expansion.

Shipping from the ports of Greater Odesa is blocked by the russian Navy and the danger of mines.

The port of Mykolaiv remains under fire due to the unresolved issue of the Kinburn Spit.

"Since the first day of the invasion, the Danube ports of Ust-Dunaisky, Izmail and Reni have remained 'afloat', with transshipment through them increasing manyfold. During the period of their occasional dominance, these ports accumulated resources for modernisation. And now they develop and implement a programme to expand their capacity, including dredging. Their transshipment potential is 2 million tonnes.

But in addition to the sea, there is also the railway and road transport, isn't there? The main issue in implementing this route is the different gauge. Now Ukraine and neighbouring European countries are close to creating a mono-format (it is going to be the Lviv direction, according to unofficial reports).

However, throughout the season, railway logistics were hampered by the need to change the wheelset. This resulted in huge queues of railcars at the border, as well as corruption when allocating and prioritising them. It should be noted that in Europe, the railway gauge is 1435 mm, while in Ukraine it is 1520 mm.

As for grain trucks, the problem of queues was even more acute for road transport – the infrastructure, including amenities, of the Danube ports was not designed to deal with such a large number, so the losses from waiting were compounded by an acute social factor. At least one driver reportedly died in the heat of the day while waiting in a queue for days.

But in July 2022, grain exports by sea were unblocked under the Grain Agreement, right? Yes, thanks to the declarative support of the UN and the real leadership of Turkish President Recep Erdogan, grain exports from the ports of Greater Odesa were resumed – with some reservations and in a reduced version.

An important role in this was played by the growing famine crisis in Africa, for which russia was unanimously blamed.

As recently as 11 April, the grain corridor was shut down because the Joint Coordination Centre (JCC) did not conduct inspections that day.

Read more: Short corridor: Grain deal extended for 120 days, but de facto for half of this period

How has the export geography changed? Radically. Until 2022, China was the main buyer of Ukrainian agricultural products with a share of almost 30%. In 2022, the EU became the leading destination for agricultural exports with a share of over 50%.

The reason for this reorientation was to maximise buyer support. As part of the so-called solidarity routes to the European Union, duties on Ukrainian agricultural products were zeroed, and the EU's logistics infrastructure was maximally involved in ensuring its exports. At the same time, China's share fell threefold, both due to the impossibility of sea exports and a deliberate reduction in purchases.

There is a new major buyer, a duty-free import regime and well-established logistics – what is the problem? It is in this – in Ukraine's too obvious success in the European market in its highly competitive environment.

Read more: The end of transit surplus: EU may tighten terms for Ukrainian agricultural exports

The import dynamics of Ukrainian products to the EU was enormous. And not all of it, as planned, was in transit – owing to the low price, Ukrainian grain successfully replaced Polish and Bulgarian grain. "We are seeing an increase in supplies, a huge increase in imports for the border countries," said Janusz Wojciechowski, Poland's Commissioner for Agriculture.

In late February, during the Green Week conference in Berlin, six Eastern European countries, Bulgaria, Czechia, Hungary, Poland, Romania and Slovakia, appealed to the European Commission to limit the inflow of grain from Ukraine or compensate them for losses from its presence on the market.

Read more: Friendship of convenience: The EU compensates local farmers for the "inconvenience" of agricultural products from Ukraine

Is it convenient to call them politically biassed or even "masterminded" by the kremlin? That's what the Ukrainian authorities are doing. But the truth is more prosaic: Ukrainian grain has indeed become a threat to European farmers.

And this phobia will only grow. Having seen the success of the protests of their Polish colleagues, Romanian farmers also announced a planned strike. As a result, all the hard-earned logistics with an EU orientation may again become irrelevant or undergo changes.

That national governments in the EU have limited powers, and the European Commission firmly has declared that exports of Ukrainian grain as part of its support for Ukraine is an unshakable priority until the war ends, is encouraging .