Putin agreed to allow Turkey to clear the shipments in return for Ankara clearing the sea mines in the Black Sea region. The Erdogan government will create a naval corridor and escort wheat-laden ships to the Bosphorus Strait, an international waterway in north-western Turkey, going by preliminary discussions with the back of the US.
This will create a potential sea corridor for agricultural exports, especially from Ukraine, with Russia ensuring free movement with Turkey playing as the coordinator.
“This is an in-principle clearance given on Monday (May 30). Anything can happen until the mines are cleared and the ships begin moving out. But Russia will likely use this opportunity to export its wheat and fertiliser,” said S Chandrasekaran, a trade analyst in the know of the developments.
Putin and Erdogan agreed that Russian Foreign Minister Sergey Lavrov will discuss the issue further next week. Turkish Foreign Minister Mevlut Cavusoglu said Lavrov will arrive in Ankara with a defence delegation on June 8 when the safe shipment issue will be discussed, Reuters reported.
Turkey has come into the picture after Russia declined offers from the UK and Italy to clear the sea mines in the Black Sea. “There will be a lot of distrust on both sides over the demining operations. Ukraine could suspect a Russian attack, while Kremlin could fear the shipping of weapons to Kyiv. It will take at least a month before the protocol could be put down in writing,” he said.
But once this happens, then Turkey traders would take advantage and buy these products. In turn, they could turn suppliers for other countries, the analyst said.
The development comes at a time when Ukraine is finding it difficult to send wheat consignments to Europe and other nations by railway rakes through Poland, Hungary, Romania and Slovakia. Basically, Turkey will facilitate safe exports of Ukraine’s agricultural products, mainly wheat and corn (maize).
“The problem is that the Ukraine railway gauge and Europe’s gauge are incompatible. The wheat has to be unloaded from one wagon and loaded onto another or they have to send it by container, which will have to be physically lifted from one train to another,” he said.
Some 467 wagons were handled in the four European nations and the incompatibility resulted in a delay in shipments as they had to handle them physically, the analyst said. “A Ukraine railway rake can handle only 1,900 tonnes, whereas an Indian railway rake can transport 2,400 tonnes,” he said.
On the other hand, Ukraine is also facing hurdles in sending wheat on barges through the Danube river with delays ranging from four to 10 days at the borders. Currently, trucks have queued up for over 20 km as only seven barges are being cleared each day on the Danube.
“There are logistical problems. Unless the inspection capacity is raised and technical snags are resolved, the volume of Ukraine wheat, in particular, being sent will not increase,” Chandrasekaran said.
There are other problems too for moving the wheat by road. Private trucks are reluctant to move agricultural consignments as insurance firms are not covering the risk of Russian bombing or strafing. “As a result, a convoy of six barges moves on the river totally transporting 18,000 tonnes,” he said.
Russia’s move to allow a safe passage for the shipments is seen as one trying to portray Ukraine as a culprit and comes at a time when the United Nationals World Food Program is fighting to feed millions of vulnerable sections.
Chandrasekaran said Turkey’s offer is backed by the 1936 Montreux Convention in which it was the arbiter for in and out of the Black Sea. “Since the US is backing the agreement, NATO will not impose sanctions on it. Any party involved in removing the sea mines has to spend at least a fortnight,” he said.
Indian wheat rejection
The analyst said this could also have been a reason for Turkey to reject an Indian Durum wheat shipment. The 56,877-tonne shipment was rejected on phytosanitary grounds that Rubella disease was present on the wheat.
However, the Indian seller, ITC Ltd, and the buyer, a Dutch trading house, have both received payments from the Turkish firm that bought the consignment from them, indicating that there could be more than what meets the eye.
The Russian-Turkey talks are crucial for controlling inflation, particularly in food commodities such as wheat, corn and oilseeds. Ever since the Russia-Ukraine conflict broke out on February 24, prices of these commodities have surged resulting in inflation soaring.
The latest development has seen benchmark wheat prices drop by over 7 per cent to a four-week low of $10.56 a bushel ($388 a tonne) on the Chicago Board of Trade (CBOT). Benchmark corn prices on CBOT have declined by about 5 per cent to $7.29 a bushel ($287 a tonne).
June 02, 2022