The post-Black Sea grain era

It is still early days since the Black Sea grain deal concluded on July 17, yet some implications have already become clear. As grain is a crucial ingredient in the manufacturing of pet food, the disruption caused by the non-renewal of the grain deal has become a concern for the manufacturing industry.

It is estimated that Ukraine accounted for 15% of corn shipments in the years prior to the war, making it the world’s fourth-largest corn exporter. 

Alexandre Marie, Head of Market Research at market intelligence firm Argus Media, explains to GlobalPETS that stopping grain from being transported via the Black Sea is cutting Ukraine’s export capacity from 7–8 million tons to approximately 4 million per month.

Transport shift 

Ukraine has been producing a smaller grain supply this season. Megan Hesketh, Senior Analyst on the UK’s Agriculture and Horticulture Development Board (AHDB), believes that it is likely that Ukraine can continue to export its surplus through alternative channels.

As the Black Sea is no longer an option, channels being used include road, rail and river via the EU borders. 

But experts agree that these alternative routes will “affect the availability of raw material for pet food manufacturing,” states Samir Dani, Professor of Operations and Supply Chain Management at UK’s Keele Business School. 

The viability of the Danube River

Europe’s second longest river, the Danube, has become one of the options for Ukraine as a point of connection to other European countries. Crops transported by the river have increased considerably over the past year, going from 1.4 million tons to 2 million tons each month. 

Shipments passing through the restricted river channel from May to June exceeded those via the Black Sea. However, there are numerous issues facing this alternative.

Firstly, there are logistical restrictions that arise when using the river to export grain. One example is that the ships that pass through are much smaller, resulting in a reduced capacity of pet food ingredients that can be transported. 

Another factor is the current heatwave affecting most of Southern Europe, which has lowered the Danube’s water levels, especially in Romania. In this region, the river is almost 40% lower than the average of July.

Under attack

On 2 August, news broke that Russia had attacked main inland port across the Danube River. Drone attacks demolished buildings predominantly in the port of Izmail, which is located in the Kiliya River estuary of the Danube in southwestern Ukraine. Ships filled with Ukrainian grain en route to the port were halted.

Oleksandr Kubrakov, Ukraine’s Minister of Infrastructure, says the attack damaged almost 40,000 tons of grain. According to the Minister, the grain was destined to reach China, Israel and some parts of Africa. 

Russian state news agency RIA Novosti commented on the event, asserting that the port and grain infrastructure were being used to house foreign mercenaries and store military hardware.

Tensions 

Shipments traveling via the Danube have also caused tensions with some EU neighbors, as farmers are worried that this grain supply will threaten their business and have a negative impact on prices. 

A temporary ban on grain from Ukraine is in place by 5 Member States, including Poland, Hungary, Slovakia, Romania and Bulgaria. 

This has resulted in restrictions on the domestic purchasing of Ukrainian grain but allowing the transport of it through their national territory. The current ban is set to expire in September, but there have been calls for an extension.

Price

The countries that buy the majority of Ukrainian foodstuffs via the Black Sea route are China, Spain and Turkey. Other poorer nations such as Egypt and Bangladesh are also expected to be greatly impacted as they previously imported around 1 million tons each through the former safe passage.

The UN emphasized that shipments under the Black Sea grain deal have helped boost global supplies and bring down prices, regardless of where the grain was shipped. But this now can change as transport via the river is also more time-consuming and expensive. 

According to Megan Hesketh, the impact on domestic pricing needs to be considered in the long term. 

Turkish pet food manufacturer Çağatay shares with GlobalPETS that suppliers warned them about “significant price increases on corn and wheat.” And they warn that there are worries that the price surge could escalate further after the harvest season.

While Izmir-based company does not anticipate any disruptions in its supply chain, it does foresee that the market’s volatility will negatively impact its products’ final prices. 

According to different predictions, grain prices could increase as much as 15% after the end of the deal.