Escalating tensions and disruptions in the Black Sea grain trade following the suspension of the Black Sea Grain Initiative (BSGI) on 17 July have triggered a significant rally in wheat and maize markets. The suspension of the agreement, coupled with subsequent attacks on Ukrainian agricultural infrastructure and reciprocal threats between the Russian Federation and Ukraine to use military force against grain vessels, has increased uncertainty in the Black Sea, a crucial center of the world grain trade, leading to revived volatility in agricultural markets. In addition, the recent attacks on grain warehouses in Reni on 24 July have further heightened concerns over grain supply disruptions, considering that barge shipments via the Danube constitute one of the few remaining exit channels for Ukrainian products.

Danube and overland exports emerge as the only viable alternatives
The Black Sea Grain Initiative allowed Ukraine to export close to 33 million tonnes of grains and other agricultural products, helping to sustain the country's farming sector and lower international food prices. In the absence of the Black Sea corridor, barge shipments and overland exports via truck and rail are the only viable alternatives for Ukraine's grain exports. Indeed, thanks to significant investment and support especially of the European Union these so-called “Solidarity Lanes” were able to sustain monthly shipments of up to 2.5 million tonnes.

However, the Solidarity Lanes also caused political backlash, especially in Ukraine's neighboring countries where farmers complained about price pressures due to the influx of Ukrainian grain. To address these concerns, the European Union reached an agreement with Ukraine to not sell its grain in those markets, which is currently scheduled to expire on 15 September. However, even with this agreement in place, Ukrainian exports are competing for trucks, railcars, barges, and port facilities, leading to higher transportation costs for all EU grain producers in the region.

The ongoing EU negotiations on grain transit through member states therefore need to be closely monitored as any obstruction to the Solidarity Lanes would further weaken Ukraine's export capacity. The European Commission is currently discussing with Poland, Hungary, Slovakia, Romania, and Bulgaria the transit of Ukrainian grain through their territories, as these countries have indicated that they won't open their borders to Ukraine unless the current ban on grain imports is extended beyond September. To facilitate grain transit, the European Commission is now considering to subsidize transit costs and streamline customs and health procedures for food cargoes from the EU border to its ports.

Implications for world markets and Ukraine
The end of the BSGI and the ensuing trade disruptions have profound implications for both Ukraine and the global grain market. As for Ukraine, the termination of the BSGI has fractured logistics and led to even higher shipping costs, which will mainly have to be absorbed by Ukrainian producers in the form of lower prices. This, combined with the challenges of the ongoing war, has already created strong disincentives for the agricultural sector, resulting in Ukraine’s maize and wheat production expected to be down this year by as much as 40 percent compared to 2021 levels. Evidently, having one of the world's top wheat and maize exporters operate at lower capacity risks having longer-term impacts on global supplies. Despite relatively good global production projected for 2023, inventories are expected to further decrease and continue to remain below the 5-year average level, leaving less cushion in the event of any major production shortfall.