Ukraine has increased its grain exports through the Black Sea to levels not seen since before Russia's invasion. Yet, the ongoing shipping crisis in the Red Sea presents a fresh challenge to its vital agricultural trade.
Kyiv's unexpected success in replacing a U.N. and Türkiye-brokered Black Sea export deal with its own shipping scheme has brought relief for Ukrainian farmers and importing countries while representing a naval breakthrough for Ukraine's military as a land counteroffensive has stalled.
The export turnaround helped Ukraine's economy to steady last year and further tamed global food prices after Russia's invasion in February 2022 drove them to record highs.
Kyiv shipped around 4.8 million metric tons of foodstuffs, mostly grain, in December from its Black Sea ports, surpassing volumes achieved for the first time under the previous U.N.-sponsored corridor. Moscow quit that deal last July, saying commitments to safeguard its own exports were not being respected.
Before Russia's invasion, Ukraine exported about 6 million tons of food monthly via the Black Sea.
"The alternative Black Sea export corridor from Ukraine has definitely been a positive signal for the agricultural industry," Svetlana Malysh, senior Black Sea agriculture analyst at LSEG, said.
Ukrainian officials cite the effective use of drones against Russian navy ships and the recapturing of an island near the Danube delta as allowing Kyiv to establish the route that hugs the Black Sea coast from Odesa down through Romanian and Bulgarian waters.
Ukraine aims to reinforce the security of the Black Sea corridor, which currently serves three ports in the Odesa region, by winning recognition from the U.N.'s International Maritime Organization, which could send a mission in February.
"We've seen a ramp-up of exports via Odesa that has been truly surprising," Arthur Portier, grain consultant with Argus Media, said.
Argus sees potential for Ukrainian corn exports to reach 24 million tons in 2023/24, well above the 21 million projected in widely followed U.S. Department of Agriculture forecasts, he said.
Red Sea challenge
But strikes on shipping in the Red Sea by the Iran-aligned Houthis, who control much of Yemen, have stymied trade between Europe and Asia. The Houthis say they are acting in solidarity with Palestinians as Israel strikes Gaza.
Ukrainian grain exports by sea in January could drop by around 20% compared with last month, a senior Ukrainian official said last week, mostly because of the Red Sea crisis.
Passage through the Red Sea is very important for Ukraine as almost a third of its exports via the Black Sea corridor are sent to China.
Under its new export scheme, Ukraine is also supplying grain to Pakistan for the first time since Russia's invasion, said Alexander Karavaytsev, senior economist at the International Grains Council.
Grain ships are increasingly being diverted away from the Suez Canal-Red Sea route, according to analysts and traders.
"The Red Sea situation is likely to hamper long-haul shipments from Ukraine," Karavaytsev said.
Better than before
Ukrainian Black Sea exports nonetheless remain at a scale few anticipated when the U.N.-sponsored corridor collapsed.
Backing from London insurers encouraged shipowners to use the route while growing traffic has brought down costs and, in turn, favored larger vessels in which exporters assemble lots sold by multiple small producers.
Ukrainian producers have welcomed the sea route as an improvement on both makeshift routes via the European Union and the U.N.-sponsored corridor, under which protracted cargo inspections with Russia drove up vessel charges.
"Since the invasion, now is the best time for farmers in terms of logistics," said Dmitry Skornyakov, CEO of Ukrainian farm operator HarvEast.
Kyiv now wants to reopen the port of Mykolaiv further east while maintaining transshipment via the Danube, Deputy Infrastructure Minister Yuriy Vaskov told Reuters.
Ukraine sees potential to raise total cargo shipments, including metallurgical products, from the Black Sea and Danube ports to 8 million tons per month, against more than 7 million in December, he said.
Security for Ukrainian exports remains fragile as Russia intermittently strikes ports while the Black Sea is littered with mines.
Russia, however, is seen as unlikely to actively target a food supply route serving countries that have not taken sides in the war, and with buyers lured by competitive Ukrainian prices, the sea corridor is expected to retain a sizeable role in the global grain trade.
"In my view, overall shipments by sea from Ukraine will continue to expand," a European trader said, noting Ukrainian corn was sold to China last week despite Red Sea risks.