BRUSSELS, BELGIUM — Trade needs predictability and the move by several countries in Eastern Europe to block grain and agricultural imports from Ukraine is not beneficial, said traders during a panel discussion hosted by COCERAL, a European association representing trade in cereals, oilseeds, rice, pulses, olive oil, oils and fats, animal feed and agrosupply.

“That corridor is crucial for Ukraine and the rest of the world and is under severe threat,” said Philippe Mitko, external relations, Soufflet négoce by Invivo. “Trade needs predictability, otherwise, we’re going nowhere. This corridor needs to be kept whatever it takes.”

Mitko was part of a panel of grain traders who took part in an April 26 webinar that focused on the role of grain trade in supporting food security and the challenges in the current geopolitical climate.

In the last few weeks, countries such as Poland, Hungary, Bulgaria and Slovakia have blocked import of agricultural products, including grains and oilseeds, from Ukraine. The countries became transit routes for Ukrainian grain that could not be exported through the country’s Black Sea ports because of Russia’s invasion of Ukraine in February 2022. Bottlenecks trapped millions of tonnes of grains in countries bordering Ukraine, prompting complaints from local farmers who said they have been forced to compete with an influx of cheap Ukrainian imports.

“When the same countries more or less one year ago were creating export restrictions and now, they are creating import restrictions, it’s a bit hard to follow for us,” Mitko said. “We put some flows in place, then it stops, then we reopen the flows. It costs a lot of money to everyone, including the consumers and it brings the volatility up.”

Food security is a function of a single market, and the network of traders works only if they can rely on each other, Mitko said.

“If some trade restrictions materialize somewhere, in the EU or the borders, then the whole story collapses,” he said. “When it doesn’t work, you create problems, unnecessary costs and added burdens. It’s key that we keep our markets open.”

Although commodity trading is as old as agriculture itself, it’s not a high-profile business, which can sometimes make it seem secretive, Mitko said.

“There is nothing to hide,” he said. “Reputation and trust are fundamental values because you don’t trade big turnovers each year if you don’t have a reputation and trust of customers and suppliers on the market.”

It's the job of traders to move commodities from surplus areas to deficit areas and move them on time. Grains also have to be moved from periods of excess to periods of deficit, and during exceptional circumstances, such as war, drought and embargoes, Mitko said.

“A trader’s presence gives confidence to the farmers that they are not limited to only local demand." - Irina Butenko, senior trader, CHS Inc.

Traders also allow small farmers to be a part of supplying larger end users, said Irina Butenko, senior trader, CHS Inc. A small farmer in Ukraine producing 10,000 tonnes of wheat per year alone cannot supply an Indonesian end user who requires two Panamax size vessels of wheat per month. But a trader will pool grain from that farmer with others in order to meet that demand, she said.

“A trader’s presence gives confidence to the farmers that they are not limited to only local demand,” Butenko said. “By knowing this, you invest in your farm, you become more efficient and decrease the cost of production.”

Ever since Russia invaded Ukraine, commodity trading has become more interesting to the general public, who are questioning food security and prices, said Ted Swinkels, managing director, Cefetra.

“They realize we are part of a very important food system that needs to keep on working,” he said. “There are a lot of risks associated with trade; the list is endless. There are a lot of barriers to trade that eventually either lead to major disruptions or small disruptions. It’s risky, but it also makes it challenging.”

Russia’s invasion was one of the biggest disruptions in the last several decades. It made execution of existing contracts and the writing of new ones difficult, said Butenko, adding that grain production is expected to fall by 25 million tonnes this year and 30 million tonnes next year.

“We are losing significant volumes, which the world needs,” she said. “We will need to look for other sources.”

The missing volumes from Ukraine haven’t been felt as much this year because there was carryover from the 2021 crop, Mitko said, but that will change next season when production is expected to drop in Ukraine.

Russia used to have many private companies exporting grain, but many are now leaving, and trade is becoming nationalized, Swinkels said. That will bring a lack of transparency to the market, Mitko said.

“We’re going to lose something, and customers are going to lose something,” he said. “What’s happening in Russia today is a concern for everybody.”

History has shown that government intervention in the market is expensive, much more so than when it is run by the private sector, several of the panelists agreed.

“The efficiency of the private sector has shown that employees of state don’t take the same measures as a private company,” said Giorgio Dalla Bona, chief executive officer, Cereal Docks International.  

From the humanitarian perspective, there is a positive role that the government can play in the markets, said Amer Badawi, head of charters and operations unit ocean transportation, World Food Programme.

“Adjustments that are intended to serve a good purpose and support other nations within a geographical area is something that is helpful to trade and the humanitarian community that ultimately works with the trade to source what it needs to help the people who need to be fed,” he said.

The Black Sea Grain Initiative is the result of government intervention, and while it’s not perfect, it has allowed access to a lot of the “bread basket,” Badawi said.

“There’s no question if this continues, as we hope it would, it will continue to help stabilize prices,” he said. “If any time we do something that shakes up the system and provides uncertainty or a lack of predictability, you will cause another shock to the system.”