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Ukraine and Russia: A fragile link in the global food supply chain

By Sam Warnes | December 16, 2022

The recent “Ukraine corridor” agreement has allowed for considerable agricultural and fertiliser exports from Ukraine and a trickle of trade from Russia - but challenges remain.

The continuance of trade is a positive step in difficult times and thankfully, the regulatory tools to relax the restrictions around the war-time export of similar products already exist to guard against increases in global food insecurity. However, there’s still a cumbersome process for the insurance market and financial institutions to navigate, which can directly impact this fragile supply chain, with on-going consequences for some of the world’s poorest economies.

Russian fertilisers and global crop yields

Russia is the world’s biggest exporter of the fertilisers needed to grow essential food staples such as grains and other agricultural products that the citizens of many food-importing nations depend on; last year Russia accounted for just over 15% of the US$82.5 billion global market for fertiliser exports.

These critical drivers of agriculture are often bought months in advance or when they will be required, so shortages now will impact production this spring, which is bad news in countries such as Brazil, India and China, who are among the top 5 global importers of fertilisers.

It is also potentially detrimental to residents in vulnerable countries where national sustenance is dependent upon key agricultural exports from significant fertiliser importers such as the U.S, the world’s second biggest importer of fertilisers (approx. $10.3bn last year).

Collectively, Russia, the U.S. and Ukraine accounted for just over 42% of the $51.4bn market for wheat exports in 2020; Russia and the Ukraine alone accounted for 28.5% of that market, or about $14.6 billion in wheat exports.

A complex way forward

According to the World Economic Forum, the Russia-Ukraine war has “caused massive disruptions to the global wheat market and adjacent industries”; and this disruption continues even though sanctions were suspended on agriculture and fertilisers products from those countries as part of July’s UN-brokered Black Sea Grain Initiative.

The Russia-Ukraine war has caused massive disruptions to the global wheat market and adjacent industries.”

While that initiative opened the trade lanes for spot shipments (mostly from Ukraine), supported by several underwriters and insurance brokers, almost all the trade in fertilisers and agricultural products from those countries remains subject to the complex and ever-shifting approvals process.

Differences between sanctions regimes and lack of legal certainty, has meant that agricultural exports still carry sanctions risk, despite policy statements by relevant regulators. At present, few farmers, traders or insurers are able to identify a consistent way to export agricultural products and fertilisers from Russia; in the Ukraine, some farms are now in the hands of Russian allies, which further complicates the matter.

While the sanctions do not tend to block the trade of the commodities them­selves, the wider sanc­tions environment is layered with complexity – particularly those in Europe and the U.K. – providing a shifting landscape of associated insurer risks for each shipment. This has dampened appetites for providing cover and, without insurance, the banks, whilst similarly hampered, will not provide the financing required.

Typically, a contract for agriculture shipments of any significant volume or value will involve multiple insurers. Under the current sanctions regimes, each party will need to verify the seller, the buyer, the vessel used to transport the relevant goods and, potentially, every counterparty in the trade for connections to Russian interests.

Even when no expenses are spared in the discovery process, there is limited certainty that the trade will comply with all restrictions under the various layers of sanctions. With no obvious consistency, strategies that work for one transaction seldom work again.

The sanctions environment and lack of legal certainty, which could have been guaranteed earlier in the process by way of general licenses for foodstuffs, agriculture and fertilisers products, has unfortunately engendered a cautious approach in the market. Moreover this situation has been aggravated by the introduction of strict liability enforcement in the UK.

Lack of certainty and increased sanctions risk

Right now, the volatile sanctions environment creates uncertainty for cargo-owners and insurers. Higher levels of procedural and cost surety will be needed for the trade in these essential commodities to return to pre-war levels.

In the interim, officials in many countries such as Nigeria, Indonesia, Bangladesh and Egypt – populous nations who are among the biggest wheat importers in the world – will be watching events very closely and hoping that regulators in areas where food security is less of an issue share their concern.

Vested parties such as the UN and WTW have been working hard behind the scenes to encourage a simplification of the regulatory approvals process for agriculture and fertiliser products moving out of Ukraine and Russia.

This has aided the release of ‘special’ or ‘general’ dispensations, regulatory facilities that grant a specific party permission within the UK and the EU’s jurisdiction to engage in certain transactions that may be impacted by sanctions. In the U.S., where the Office of Foreign Assets Control is the regulator, these facilities are known as ‘specific’ or ‘general’ licences.

As the goal for those working to re-open these commodity trade lanes is to simplify the approvals process on these products, an application of the latter would be most beneficial to insurers, financiers and, ultimately, consumers in nations where food security is now a growing challenge.

Please contact us for more information on how the WTW Global Cargo team is working to support the “grain corridor”.


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Executive Director, Marine

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