Lack of Finance and Insurance Adds Further Strain on Grains Trade

By Yusuf Khan

LONDON–A lack of finance and insurance is adding further strain to the trading of agricultural products, with brokers struggling to gain financing to ship from Russia as well as growing skepticism insurers will take the risk even if a Black Sea corridor is established.

Traders have continued trying to ship grains, such as wheat, from Russia given food hasn’t come under sanctions as of yet, but have been struggling to do so because of a lack of finance and insurance.

“A lot of banks are self sanctioning and not providing these [cash] flows,” Fahad Vaipel, vice president of commodity trading firm Olam, said during a panel at the International Grains Council conference in London.

“We have been facing this issue of financing flows out of Russia–it’s a significant issue. The world is expecting Russia to export 35 million-40 million [metric] tons but one of the biggest issues is this: banks are not ready to finance these flows.”

Traders often rely on credit financing from banks to facilitate trade, known as trade finance. However, due to Western sanctions on Russia’s financial sector, many banks have become wary of lending to traders working with Russian sources, even if the motives are legal under current regulations.

“Logistic flow continues but does not continue in normal conditions,” Eren Gunhan Ulusoy, chairman of the International Association of Operative Millers Eurasia, said at the conference. Mr. Ulusoy said the company is looking for different insurers willing to cover the risk associated with moving grain from Russia.

Ship-owners are also worried about bringing ships to ports in Russia and the Black Sea because of the war, he added.

Talks between Russia and Turkey on establishing a grain corridor in the Black Sea have also taken place this week, but again concerns around insurance were put forward, he said.

Speaking to The Wall Street Journal, Nikolay Gorbachov, president of the Ukrainian Grain Association, said, even if the corridor is established, it is unlikely ships would move without international guarantees of safety.

“These are private companies, Cargill, Bunge, etc. It is not the states doing the export,” Mr. Gorbachov said, adding that few insurers would take on the risk of vessels moving through the Black Sea without additional guarantees.

Mr. Gorbachov during the conference called for international support and guarantees for the safe passage of vessels, saying it would be the only solution to getting Ukraine’s stored grain out of the country.

Write to Yusuf Khan at [email protected]

https://www.marketwatch.com/story/lack-of-finance-and-insurance-adds-further-strain-on-grains-trade-271654694129