Logistical challenges likely to restrict Ukraine grain exports in MY 2022-23

Despite various challenges amid Russia's invasion, farmers in Ukraine were able to plant a significant share of their intended crops for the marketing year 2022-23 (July-June), but the challenge ahead in shipping that crop out of the country is likely to limit exports to around 50% of the harvest, market sources told S&P Global Commodity Insights.

Ukraine – which is a leading supplier of wheat, corn, and sunflower oil among other agricultural commodities – typically exports nearly 70%-80% of its agricultural produce.

In MY 2021-22 as well, Ukraine was able to export only 48.5 million mt of grains, 43% of the 86 million mt that the country had produced, according to Svitlana Lytvyn, analyst with Ukrainian Agribusiness Club. "The country's domestic demand did not exceed 19 million mt, and about 18.5 million mt of grain crops intended for export still remain in Ukraine and cannot be used domestically," Lytvyn said.

Ukrainian exports are heavily reliant on the country's vast coastlines and ports, and the blockade to those facilities by Russia has halted exports. Nearly 95% of Ukrainian agriculture products were exported through its ports.

As the war continues, Ukrainian grain exports from the new MY 2022-23 are expected to be limited at 18-24 million mt, while the harvest is expected close to 60 million mt, various analysts told S&P Global.

Limited exports

For the next marketing year 2022-23, Ukraine's realistic grain export capacity is difficult to assess right now but based on current figures it will likely be at 18 million mt, Lytvyn said. "This is catastrophically small both for the Ukrainian market and for the world," she added.

According to her estimate, Ukraine is likely to harvest 50-55 million mt of grain crops.

On an average, Ukraine can currently export nearly 2 million mt of grains in a month, according to analysts' estimates.

"Bearing current situation remains the same, it looks like we can have a maximum of 24 million mt of grain exports for the upcoming year," said Matt Ammerman, Vice President Eastern Europe/Black Sea Region at Stone X.

Elena Neroba, analyst with Ukraine-based firm Maxigrain, echoed the view saying, as the current export capacity stands at 2 million mt in a month, we can expect 24 million mt for the upcoming year.

"Without Ukrainian ports, new equipment at European ports and without fast wagon reloading, we will not be able to export a lot," Neroba added.

According to the Ukraine's agriculture ministry, its currently has 18 million mt of old crops stored, which also needs to be exported. Another 60 million mt are expected from the new harvest, from which 20 million mt will be sent for domestic consumption -- so a total of 58 million mt of crops will need to be exported.

Logistical issues

The export pace from Ukraine can improve over the next few months, but it will still be lower on the year due to bottleneck at the borders, Neroba said.

"Due to phytosanitary, veterinary, customs issues and low reloading facilities....sometimes wagons queue up to 40 days on the borders, while for trucks the queues can be 8-10 days long," added Neroba.

Due to the difference in train track and gauges, grains moving outside Ukraine need to be reloaded at the borders.

Another issue hovering with impending harvest in the country is of storage. "At the current low rate of export, Ukraine may have a deficit of 10-15 million mt of storage for the harvest," Deputy Minister of Agrarian Policy and Food of Ukraine Markiyan Dmytrasevych was quoted saying at a conference.

Before the war, the total storage capacity was 75 million mt of grain, but today there are only 60 million mt of storage left -- the rest was lost due to destruction and temporary occupation, he had said.

Owing to storage problems, farmers are likely to leave their crops in the fields for longer than usual, risking its quality, analysts said. Storage issues, if not resolved, may result in crop wastage.

Long-term implications

"The inability to export grain from Ukraine could lead to a significant reduction in the sown area for export-oriented crops at the next sowing season, because Ukrainian farmers will simply not have the money to continue their activities," UCAB's Lytvyn said.

The cost of logistics in Ukraine has increased by more than 4-5 times, while the glut in the market has resulted in a lower price for agriculture goods, which is making farmers sell their products below the cost of production.

"This may also lead to a reduction in acreage and cultivation of products only for domestic needs of Ukraine with minimal exports," Lytvyn added.

The agriculture minister of Ukraine has also recently emphasized that there was need of permanent alternative routes for grain exports from Ukraine citing the Black Sea route as unsafe even after the war.

Additionally, food insecurity issues emerging from the Russia-Ukraine war have made headlines for months now.

Ukraine is a large supplier of food grains globally and the prolonged export disruptions from the country continue to stoke food insecurity fears.