On Monday, a Sierra Leone-registered ship, ‘Razoni’, carrying 26,527 tonnes of corn (maize) set sail from Ukraine’s Odesa port. This was the first time since Russia’s invasion on February 24 that any vessel loaded with Ukrainian grain had departed from its ports on the Black Sea. The bulk carrier, destined for Tripoli in northern Lebanon, passed through a specially-cleared “safe humanitarian maritime corridor” near Ukraine’s ports on the Black Sea, whose waters it had mined in order to protect against amphibious attacks by Russia.
How significant a milestone is this shipment? Is there anything beyond symbolic value?
The M/V Razoni ship, which anchored near the Bosphorus entrance off Turkey’s coast on Tuesday and was cleared for further voyage after inspection, is the first under a United Nations-backed agreement enabling resumption of Ukrainian farm produce exports through its Black Sea ports. The so-called Black Sea Grain Initiative – involving signing of separate accords by Russia and Ukraine with the UN and Turkey on July 22 – provides for exports from three ports: Odesa, Chornomorsk and Yuzhny. Under the deal, the ships are to be guided through the Black Sea waters by Ukraine’s navy to avoid mined areas. The vessels will then proceed to Turkey’s Bosphorus Strait along an agreed corridor and, from there, to various ports of the world. The ships are to also be inspected (to ensure only commercial foodstuffs and fertiliser are carried) by teams from a Joint Coordination Centre set up in Istanbul with representatives of the UN, Ukraine, Russia and Turkey.
As far as effectiveness goes, everything hinges upon the agreement’s smooth implementation in the midst of a war that’s showing no signs of ending. Obviously, the more the successful voyages conducted, the more the confidence it will instill among exporters, importers, vessel owners and insurance companies indemnifying the carriers and cargoes. For now, the resumption of maritime exports from Ukraine – there are about 17 other ships in the three designated ports with already loaded grain and “waiting permission to leave” – seems to have created some optimism. Since Friday, prices of wheat at the Chicago Board of Trade commodities exchange have fallen from $296.79 to $280.63 per tonne. So have corn, from $242.61 to $232.86 per tonne.
Ukraine, before the war, was the world’s fifth largest exporter of wheat (after Russia, European Union, Australia and the US) and barley (after Australia, EU, Argentina and Russia), while No. 4 in corn (after the US, Argentina and Brazil); No. 1 in sunflower oil, oilcake/meal and seed; and No. 2 in rapeseed (after Canada).
According to the US Department of Agriculture, Ukraine’s total agricultural exports were valued at $27.8 billion in 2021. That included sunflower oil ($6.4 billion), corn ($5.9 billion), wheat ($5.2 billion), rapeseed ($1.7 billion), barley ($1.3 billion) and sunflower meal ($1.2 billion). The country’s top three markets were the EU ($7.7 billion), China ($4.2 billion) and India ($2 billion). Exports to India largely comprised sunflower oil, which was worth $1.9 billion. Given that much of Ukraine’s trade happens through the Black Sea, the un-blockading of routes is a big deal – both for itself and the world.
The country, as already noted, is a major supplier of sunflower oil. India imported 21.76 lakh tonnes (lt) of it in 2020-21 (April-March) and 20.45 lt in 2021-22, valued at $1.96 billion and $2.88 billion, respectively. Out of this, Ukraine’s share was 17.40 lt ($1.60 billion) in 2020-21 and 14.83 lt ($2.09 billion) in 2021-22. Russia and Argentina were a distant No. 2 and No. 3, at 3.40 lt ($479.16 million) and 1.85 lt ($258.66 million) respectively, in 2021-22.
Sunflower oil is India’s fourth largest consumed vegetable oil (22-23 lt), after palm (80-85 lt), soyabean (45 lt) and mustard/rapeseed (30 lt). An estimated 70% of sunflower oil consumption is in the South, with Maharashtra (10-12%) and the rest of India accounting for the balance. The bulk of imports, too, are through the four southern ports of Kakinada, Krishnapatnam, Chennai and Mangalore, with some tanker vessels also coming to Kandla and Nhava Sheva/JNPT in the West. The top three domestic sunflower oil brands players are the Hyderabad-based Gemini Edibles & Fats (‘Freedom’ brand), Chennai-based Kaleesuwari Refinery (‘Gold Winner’) and Adani Wilmar Ltd (‘Fortune’).
What has been the war’s impact on this segment?
Before the war, nearly 2 lt of sunflower oil was being imported every month into India, 70-80% of it from Ukraine. These were mostly in bulk vessels of 35,000-45,000 tonnes from the ports of Odesa and Mariupol. Following the invasion, imports collapsed to hardly one lt, even as landed prices (cost plus insurance and freight) in Mumbai crossed $2,200 per tonne, from $1,450-1,500 levels till mid-March.
Imports have since recovered, though, to about 1.5 lt a month. But roughly 50% of it is coming from Russia, 30% from Argentina and only 20% from Ukraine. “Russia has stepped up exports, mainly through its ports of Taman and Rostov-on-Don on the Sea of Azov. Landed prices have also eased to $1,500-1,550 per tonne,” an industry official said.
Currently, Ukrainian exports are taking place entirely through the overland route or ports in Romania, Bulgaria and Turkey. “Freight costs from Odesa to Indian ports pre-war were $40-50 per tonne. Now, it is $150-200 per tonne to simply move oil cargo from Ukraine (by road or in small 2,000-3,000 tonne barges) to ports such as Mersin in Turkey. Freight from those ports to India is another $90-100 per tonne,” the official added. Resumption of direct trade from Odesa and other Ukrainian ports would definitely be welcome, but may take time: Under the UN deal, evacuation of wheat and corn will receive priority over sunflower oil.
Are there any other commodities that India imports from Ukraine?
It is mainly ammonia used for manufacture of fertilisers. In 2021-22, India imported 3.63 lt of ammonia worth $220.44 million from Ukraine. The country, in the past, was also a significant wheat exporter to India. These amounted to 29.04 lt ($603.25 million) in 2016-17 and 6.92 lt ($149.93 million) in 2017-18. But any import of wheat is unlikely today. Black Sea origin wheat from Russia for August-September delivery is quoting at $340-360 per tonne, exclusive of freight that will be another $40-50. At these prices, imported wheat will cost Rs 31-32/kg just at the ports. For India, Ukraine’s (and the UN deal’s) importance is essentially limited to sunflower oil.