3.1 Ukraine and Argentina
Political decisions and military escalations will shape the trading environment in highly remunerative and risky markets, such as Argentina and Ukraine. The free trade agreement between Ukraine and the EU has been in place for five years, contributing to the shift in destination markets, from Russia to Western Europe. Meanwhile, the Chinese appetite for Ukrainian crops has boomed in recent years, and the country is currently China’s top supplier of wheat, sunflower oil, and sunflower meal, which have overtaken metals and ores, as the main export products.
The start of a limited, long-awaited sale of farmland in July, is expected to boost Ukrainian harvest yields, just as food prices reach their highest point in almost a decade. Ukrainian citizens will be able to buy and sell up to 100 hectares a year. Trade by corporations could start in the near future. However, public opinion polls indicate low support for farmland sales to foreigners, a step that is to be decided by a referendum after 2024. The oligarchs’ influence on the market, as well as the regulator’s resolve to prevent consolidation of the land into large estates, are still to be tested. Delivering a healthy land market will be crucial for the country’s turnaround into an advanced, EU-oriented economy. Large investments are expected to have significant effects on prices, multiply international initiatives in the country, and challenge the slow and controversial judicial system. In addition, tight credit conditions and the limited (often zero) track record of local companies as long-term borrowers, expose the agribusiness sector to the dynamics of alternating periods of high and low levels of economic activity, which Ukraine is still subject to.
Shifting from metals to soft commodities has helped maintain a balance in Ukraine’s current account, but has done little to reduce the country’s trade reliance on maritime chokepoints. The entry of western, mainly Anglo-American, ships into the Black Sea increased after April 2021. However, in the days leading up to the NATO summit held on June 13-14, a US destroyer, Dutch frigate, and the British destroyer, HMS Defender, passed through the straits of the Dardanelles and the Bosporus on their way to the Ukrainian port of Odessa. On June 23, the Russian military fired cannonballs and warning bombs at HMS Defender, as it sailed close to the Crimean coastline. President Vladimir Putin subsequently signed a decree in July, granting Russia’s armed forces the right to block the Kerch Strait, connecting the Black Sea and the Azov Sea. The arrival of western ships symbolically marked the start of preparations for Exercise Sea Breeze, a multinational maritime exercise held every year since 1997. Warships from a record 32 nations attended this year’ gathering, which ended on July 10. Skirmishes near Ukraine could lead to a slowdown in the country's development plans, by diverting expenditure from long-term support to logistics and infrastructure, economic pluralism, and military reforms. Infrastructure is already under construction in the western coastal area of the Black Sea, so what appear to be ongoing threats in the Azov Sea, can be circumvented. The presence of so many navies in the area undoubtedly exposes Ukraine to the risk of unforeseen escalations, which could increase arrears, claims arising from pre-shipment guarantees, advance payments, and short-term credits. This situation could subsequently affect other coastal economies, such as Turkey.
Meanwhile, in Argentina, policy developments may put the maritime sector and trade at risk. The government has decided to sub-contract the dredging of the Parana River – the country's key grain export superhighway – for one year, while it prepares a longer-term concession. The decision raised concerns from private grain industry leaders, who opposed an increased role for the state, in the country's main logistics system. About 80% of the country's agricultural exports are loaded at Rosario ports, sent on cargo ships down the Parana River, before arriving at the shipping lanes of the Atlantic Ocean. The Parana River has made Argentina one of the world's most efficient food exporters. Cargo ships loaded directly at Rosario avoid using inefficient barges and trucking that delay shipping in Brazil and the US. However, recent protests by port construction workers in Argentina's key grain hub Rosario have snarled exports, with roads blocked at some of the key terminals. Protests have also taken place in 2021, in solidarity with workers laid off in related industries because of the recession, and as a consequence of the lack of access to vaccines. Several strikes started in March, May, June, and July, paralyzing exports, which brought into question the capabilities of the government to properly respond to these demands.