From Farm to Ship to Fork: The Role of Maritime Insurance in Facilitating Global Food Trade

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Introduction

Developments in agriculture and transportation over the last century have shifted global diets from traditional to staple crops, largely concentrating the source of populations’ nutritional and caloric needs to a limited number of producing countries. Three staple crops—rice, corn, and wheat—now provide more than 40 percent of global caloric intake. The remaining dietary needs of populations are in part met by local markets, but the outsourcing of a significant proportion of food production is now a permanent fixture of food security and nutrition in a globalized agricultural marketplace. More than 80 percent of global trade in staple crops and oilseeds relies on a handful of maritime trade routes that, when disrupted, create a chokehold on food supplies.

Disparate threats to key shipping routes are affecting the flow of food globally, raising concerns over food price increases in vulnerable regions. Russia’s 2022 full-scale invasion of Ukraine is the first conflict between two major agricultural producers in recent history, and its disruptions to Black Sea trade triggered record increases in food prices around the world due to the Black Sea’s importance to food, energy, and fertilizer trade. Since November 2023, the Houthi rebel group’s attacks on commercial vessels in the Red Sea have diverted some Russian, Ukrainian, and European food exports from the Suez Canal to lengthier, more expensive routes around the Cape of Good Hope. These concurrent disruptions have especially affected the flow of Black Sea and European grains to food import–dependent regions particularly vulnerable to price increases.

Breakdowns in agrifood supply chains, including disruptions in maritime shipping, raise transportation costs—thereby raising food prices for consumers and lowering profits for producers in exporting countries. Supporting populations’ access to affordable, diverse diets and ensuring the livelihoods of agricultural producers therefore relies on the confidence of commercial traders to risk shipping through threatened waters.

The maritime insurance industry bolsters this confidence through the provision of hull and cargo insurance to protect traders’ vessels and producers’ goods, respectively. The high-risk environment produced by ongoing security challenges in the Black and Red Seas has complicated the rates and issuance of war risk insurance to the detriment of global food security and agricultural producers. Examining how maritime insurers and affected governments have adapted—or failed to adapt—to these conflicts’ disruptions to trade can inform public and private sector approaches to maritime insurance, vital to ensuring access to the basic building blocks of human health and economic development.

The Black Sea

Prior to Russia’s full-scale invasion, Ukraine was responsible for approximately 10 percent of global wheat exports, 15 percent of global corn and barley exports, and 50 percent of global sunflower oil exports. With more than 90 percent of these products having been exported from Ukraine’s deepwater Black Sea ports prior to the invasion, Russia’s war has forced the development of less efficient, higher cost rail, road, and river trade routes through the European Union’s “solidarity lanes.” Throughout the war, grain and oilseed products have transited by land across Ukraine’s western border through European neighbors as Russia has restricted, and even fully blockaded, exports from Ukraine’s Black Sea ports.

At the same time, Ukraine has managed to export some of its agricultural products through two distinct Black Sea trade routes. The first was the UN-backed Black Sea Grain Initiative (BSGI), which enabled Ukraine to ship 32.9 million metric tons of agricultural products through the Greater Odesa ports from July 2022 until Russia’s withdrawal from the BSGI in July 2023. Russia subsequently intensified attacks on Ukraine’s export infrastructure, damaging 105 port facilities and destroying 280,000 metric tons of stored grain in under two months following the end of the BSGI. The government of Ukraine has since worked to secure a second export route, the Ukrainian corridor, which passes along the western coast of the Black Sea through the territorial waters of NATO member states Romania, Bulgaria, and Turkey. As addressed in previous CSIS analysis, the corridor’s success has seen Ukraine achieve wartime record levels of agricultural exports. This defies widely held expectations that Russia’s withdrawal from the BSGI would precipitate a drastic reduction in Ukraine’s agricultural exports. Supported by the route’s immediate path through NATO territorial waters, the security of agricultural trade through the corridor is due in large part to the success of Ukraine’s air defense in weakening Russia’s naval capabilities in the Black Sea, reducing Russia’s ability to attack Ukraine’s maritime export infrastructure and ships passing through the Greater Odessa ports.

Equally important to Ukraine’s maritime export capacity are the private companies working to insure cargo vessels and Ukraine’s agricultural commodities. Without the security guarantees backing the BSGI, traders were reluctant to risk shipping in sea mine–contaminated Black Sea waters while Russia continued targeting maritime port infrastructure. War risk insurance costs were already prohibitively high, and rose further following a Russian attack on a commercial vessel entering the Greater Odesa ports in November 2023.

Shortly after this attack, Ukrainian prime minister Denys Shmyhal announced the launch of a special mechanism for providing discounted war risk insurance for agricultural product exporters using the Ukrainian corridor. The “Unity Facility” is a multinational public-private partnership among United States- and United Kingdom-based insurance companies Marsh McLennan and Lloyd’s of London with the Ukrainian government (specifically, the Ministry of the Economy, the Export Credit Agency of Ukraine, and Ukrainian state banks Ukreximbank and Ukrgasbank) and Germany’s DZ Bank. Ukrainian state banks extend up to $50 million in hull and separate protection and indemnity war risk insurance to shipowners, and the facility issues cargo insurance with the backing of the Ministry of Economy of Ukraine. Together, this mechanism has more than halved the cost of insurance policies available on the commercial market.

As opposed to the norm of insurance companies independently issuing policies to exporters and shipowners, the Unity Facility’s unique structure involves Ukraine’s state banks offering standby letters of credit to provide first loss compensation to shipowners and charterers. These letters are confirmed by the German DZ Bank and the facility is backed by the Ministry of Economy of Ukraine—thus establishing state-backed assurances for the insurance companies which would otherwise bear the full risks and costs of insuring trade through a war zone. As insurer Marsh McLennan’s president and CEO has stated, the facility mobilizes their “unique expertise to support global food security and stability,” especially benefitting the countries that had come to depend on Ukraine’s agricultural exports prior to the war while supporting Ukraine’s wartime economy and future recovery.

Trade disruptions in the Black Sea due to Russia’s invasion have already shifted Ukraine’s export markets from food import–dependent countries across the Middle East, North Africa, and Asia to the European Union, simultaneously disrupting EU agricultural markets and forcing Ukraine’s previous trade partners to turn to alternative suppliers, including Russia. Maintaining exports of Ukrainian food products to its prewar markets, where food security in countries like Indonesia, Uganda, Yemen, and Kenya is especially vulnerable to increases in food prices and price volatility resulting from transportation cost hikes, necessitates transport through the Suez Canal.