Ukraine farming group calls for urgent end to ports blockade | Supply chain crisis

One of Ukraine’s largest farming groups has called for an urgent solution to unblock the country’s Black Sea ports as exports of grain, sunflower and rapeseed are being held up by the Russian naval blockade, driving inflation and shortages around the world.

G7 ministers have held urgent talks about trying to open routes through Romanian and Baltic ports, potentially fed with an army of 10,000 trucks making a five-day trip from Ukraine.

John Rich, the chairman of MHP, which is listed on the London Stock Exchange, said: “If we had a UN agreement in place it would solve an enormous amount of issues.” But he said that without the war ending such a deal was unlikely, piling pressure on prices for grain and seeds used for cooking oil and ethanol around the world into next year.

“We are now in a vicious cycle,” Rich said. “Normally what happens is that farmers cure high prices as [when prices go up] farmers produce more and prices collapse. This time it could be different,” Rich said pointing to a combination of climate change, the Covid pandemic, the war in Ukraine, as well as fertiliser shortages which are hitting production around the world.

He said the world could be looking at a “cascade of export bans”, following India’s block on the export of wheat and Indonesia’s block on palm oil exports, raising the prospect that “the whole concept of globalisation in food production is dead”.

Exports from Ukraine, which produces as much as half the world’s sunflower seeds, a tenth of wheat and up to a fifth of barley and rapeseed, have been severely interrupted by the closure of Ukraine’s ports following Russia’s invasion. Only about 1m tonnes of grain and seed were exported in April compared with more than 5m tonnes of grain and 700,000 tonnes of oilseeds a month in a typical year.

Before the war, about 80% of Ukraine’s grain and oilseeds were exported via the Black Sea but that route is now cut off, creating a bottleneck as farmers prepare to harvest the summer crops.

Efforts are being made to increase the pace of exports, by increasing the use of trucks and improving rail capacity and links, which are hampered by differing track gauges in Ukraine and neighbouring countries. However, Rich said road and rail could replace little more than a quarter of the capacity that once flowed through Ukraine’s ports and would take time to develop.

He said MHP was fairly confident its own crops could be sent out via truck and train to ports in Poland and Lithuania, and the company was processing more sunflower seeds into oil within Ukraine, for example, to help lower transport and storage costs.

The blockade means grain silos are full and farmers are struggling to find storage for the summer crops. Without a solution, he said that many would be reluctant to plant for the winter.

“There is going to be a lot of soul searching when it comes to winter 2022 and it is going to be all about logistics and storage,” he said.

“We are in a real dilemma at present,” he said. “There is a huge bottleneck and it is not easily solved, certainly not in the next six or eight weeks. Unless the Russian fleet is sunk, I don’t see a solution. I can’t see any solution to this in a very, very long time.”

Production of wheat, sunflower oil and other crops in Ukraine is expected to be down by about 35% this year as planting and harvests in east of the country have been affected by fighting.

Rich said production in the rest of the country was good with “growing conditions excellent” and MHP’s farms had been able to secure enough fertiliser and other inputs.

“We are in good shape, the season so far is going well,” he said, although the long range forecast for the region is that it will be unusually hot this year.

But he said production could be lower as it was not clear how many small and medium-sized farms had been affected by shortages and price rises on diesel and fertiliser as well a concerns on storage.