The European Commission has no immediate money in the budget and no clear way to help finance the extra transport costs Ukrainian grain exports will face with the end of the Black Sea deal, sources told Reuters, leaving an opportunity for Moscow to cash in.
Russia backed out of a U.N.-led Black Sea grain deal this month that allowed for the safe passage of Ukrainian cargo ships laden with cereals, oilseeds and wheat to reach global markets.
Russia has already promised free grain to some of Ukraine’s African customers.
Ukraine, one of the world’s biggest grain exporters, will now have to rely almost entirely on expensive routes through the European Union and the cheapest alternative artery, the Danube River, may not be able to expand its volume as much as hoped after bombings.
The International Monetary Fund estimated a 10-15% increase in global grain prices as a result.
In a letter dated July 21 and seen by Reuters, Ukraine’s agriculture ministry asked EU trade chief Valdis Dombrovskis for the Commission to provide financial aid for the extra transport cost of using alternate EU routes known as “Solidarity Lanes”. Ukraine estimates the extra cost to be $30-40 a tonne.
This week, EU agriculture commissioner Janusz Wojciechowski said Russia could benefit by undercutting Ukraine unless the EU helped reduce the cost.
However, there is no clear path, the sources said.
“We have not found a solution yet to support the grain transport. People have been scratching their heads since last year,” a source with knowledge of the Commission discussions said.
“A lot of efforts already went to simplifying the system.”
The letter also asked for the Solidarity Lanes to be expanded by 1-1.5 million tonnes a month through “green corridors” including to the Adriatic Sea, the Baltic States, to Germany and the Netherlands.
One diplomatic source said money was very short and substantial funds could only come after the mid-term budget review that could take several more months to hash out, even with the autumn corn harvest around the corner.
A Commission spokesperson confirmed receipt of the letter and said “we are currently assessing such requests and will reply in due course”.
One of the issues is the temporary ban on imports of Ukrainian grains into five neighbouring EU countries. The five states are pushing for an extension beyond Sept. 15. Poland is vehemently against allowing Ukrainian grain into its market and said it was seeking a flexible ban arrangement.
These countries have received some compensatory funds from the Commission for their farmers who were hit hard by the sudden influx of additional grain over the last year.
However, push-back is growing, a second diplomatic source said, as some states do not see the value in paying for the extra transport cost because of this ban.
ALTERNATIVE ROUTES
The EU suspended tariffs and set up the Solidarity Lanes in May last year and the Commission, with other lenders, allocated 1 billion euro ($1.1 billion) that are still being disbursed to alleviate logistical bottlenecks and reduce some costs.
As for direct compensation on transport, the Commission is not sure how to help.
“We have no tools and to whom do you give that money? There’s also a question competition … It’s not the Commission’s role to provide (transport) insurance. States can give guarantees but there are no conclusive discussions,” the source with knowledge of the Commission’s discussions added, referring to the extra costs incurred due to the war risk.
For the last year, Ukraine moved 60% of its exports through the Solidarity Lanes and 40% via the Black Sea thanks to the deal.
Of the volume transported through neighbouring EU countries, about two-thirds move along the Danube River delta, largely through Romania, which is also the most efficient and cheapest corridor.
On Monday, Russia bombed some Ukrainian ports and silos on the Danube. That has tempered EU hopes of increasing the volume transported via the Solidarity Lanes from roughly 3 million tonnes a month up to 5-5.5 million tonnes a month by the end of the year, with the Danube accounting for up to 4 million.
“We’re still assessing the risks and damages,” the same source said.
Another option promoted by Lithuania would be a Baltic corridor, but it involves two rail gauge changes, adding even more costs.
In total, about 45.5 million tonnes of Ukrainian agricultural exports, of which 41 million were grains, moved through the EU and Moldova between May 2022 and June this year.
Source: Reuters reporting by Julia Payne additional reporting by Max Hunder in Kyiv and edited by Mark Potter
