The conflict in Ukraine has affected few markets more dramatically and directly than the grains and edible oils markets. International and domestic market participants with interests in the region face myriad commercial and legal challenges and uncertainties.

This paper comments on and seeks to summarise some of these challenges and to provide a framework for identifying and planning for them.

The legal and regulatory landscape continues to evolve as the crisis develops. References to the law are correct at the time of publication.

Sanctions, tariffs and legal restrictions

There are currently no sanctions or restrictions imposed by U.S., EU or UK laws directed at transactions for agricultural goods with a Russian or Belarusian nexus. However, a transaction may nevertheless be indirectly affected by sanctions where entities or individuals involved in the supply chain are the subject of sanctions. Due diligence to ensure that no party, transporter or port in the supply chain is subject to any counterparty-related sanctions (such as asset freezing measures or transaction restrictions) is therefore required. In response to some criticism that EU sanctions have inadvertently hampered the trade in Russian-origin agricultural goods, the EU has recently announced an intention to pass new legislation to clarify that transactions in the food and agricultural products sector are not prohibited by EU sanctions.1

As regards goods of Ukrainian origin, the UK sanctions regime2 imposes import bans on certain goods that either originated, or have been shipped, from "non-government controlled Ukrainian territory". Presently this definition extends only to Crimea and the non-government controlled regions of the Donetsk and Luhansk Oblasts. However, the Ukrainian government has accused Russia of confiscating and attempting to sell grain from elevators in occupied territory, particularly in the agricultural regions of Kherson and Zaporizhia.3 Kherson and Zaporizhia Oblasts do not currently fall under the definition of "non-government controlled Ukrainian territory", but the definition may be extended in the future to cover goods sourced from these or other occupied regions, creating legal risks and potentially disrupting contractual arrangements. Even where a buyer is not legally prohibited from purchasing goods that originated or were shipped from Russian-occupied regions within Ukraine, there may be reputational ramifications to consider in doing so, particularly as Ukraine has accused Russia of imposing "bondage" on Ukrainian farmers, ordering them to hand more than 70% of their future harvests over to Russia.4

As regards goods of Russian origin, it is notable that a number of businesses have been unwilling to source Russian-origin goods for their own commercial reasons, including potential reputational implications. We do not anticipate, however, that agricultural goods will be as widely affected by 'self-sanctioning' as other commodities markets have been.

In addition to sanctions, certain countries have imposed additional tariffs on certain agricultural goods originating from Russia or Belarus.5 Conversely, in an effort to boost Ukraine's economy, the UK in particular has removed all tariffs and quotas on goods imported from Ukraine, including agricultural goods, under the UK-Ukraine Free Trade Agreement.6 However, while the import tariff cuts could support Ukraine's economy and increase the supply to local UK markets in the short term, the practical effect is likely to be very limited in view of the constrictions in the supply and movement of goods from Ukraine. 

Ukraine itself has imposed export restrictions in order to ensure its own food security, with new rules restricting the export of millet and buckwheat.7 The Ukrainian government may include other types of crops within the scope of those export restrictions in the future, with the potential further to disrupt performance of contractual arrangements.

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Footnotes

1. Borrell, J. (2022). 'EU's chief diplomat expects Ukraine deal 'this week' to unblock supplies', Financial Times, 18 July. Available at: https://on.ft.com/3yNxVlX (Accessed: 18 July 2022).

2. Department for International Trade (2022). NTI 2953: Russia import sanctions. Available at: https://www.gov.uk/government/publications/notice-to-importers-2953-russia-import-sanctions/nti-2953-russia-import-sanctions#fn:1 (Accessed: 9 June 2022).

3. Reuters (2022). 'Russian-controlled Kherson region in Ukraine starts grain exports to Russia – TASS', Reuters, 30 May. Available at: https://www.reuters.com/markets/commodities/pro-moscow-kherson-region-starts-grain-exports-russia-tass-2022-05-30/ (Accessed: 9 June 2022); Lister, T. and Fylyppov, S. (2022). Ibid. 

4. Semchenko, V. (2022). 'На захопленій частині Херсонщини для фермерів запровадили "рабство": окупанти вимагають 70% майбутнього врожаю', Obozrevatel, 25 May. Available at: https://news.obozrevatel.com/ukr/vojna-v-ukraine/na-zahoplenij-chastini-hersonschini-dlya-fermeriv-zaprovadili-rabstvo-okupanti-vimagayut-70-majbutnogo-vrozhayu/amp.htm (Accessed: 9 June 2022); Zmina (2022). '"Вводять рабство": російські військові змушують фермерів на Херсонщині сіяти зерно і соняшник та віддати більшість врожаю' Zmina, 24 April. Available at: https://zmina.info/news/vvodyat-rabstvo-rosijski-vijskovi-zmushuyut-fermeriv-na-hersonshhyni-siyaty-zerno-i-sonyashnyk-ta-viddaty-bilshist-vrozhayu/ (Accessed: 9 June 2022); Lister, T. and Fylyppov, S. (2022). Ibid. 'Russians steal vast amounts of Ukrainian grain and equipment, threatening this year's harvest', CNN, 5 May. Available at: https://edition.cnn.com/2022/05/05/europe/russia-ukraine-grain-theft-cmd-intl/index.html (Accessed: 9 June 2022).

5. Department for International Trade (2022). Additional duties on goods originating in Russia and Belarus. Available at: https://www.gov.uk/guidance/additional-duties-on-goods-originating-in-russia-and-belarus#:~:text=On%2025%20March%202022%2C%20the,originating%20in%20Russia%20and%20Belarus (Accessed: 9 June 2022).

6. Department for International Trade and The Rt Hon Anne-Marie Trevelyan (2022). UK announces new trade measures to support Ukraine. Available at: https://www.gov.uk/government/news/uk-announces-new-trade-measures-to-support-ukraine (Accessed: 9 June 2022). 

7. Harvey, F. and Butler, S. (2022). 'Ukraine's wheat harvest may fall by 35%, raising fears of global shortage', The Guardian, 6 May. Available at: https://www.theguardian.com/world/2022/may/06/ukraine-wheat-harvest-may-fall-by-35-percent-satellite-images-suggest#:~:text=Last%20year%2C%20Ukraine%20produced%20about,the%20sixth%2Dlargest%20exporter%20globally (Accessed: 9 June 2022); The Associated Press (2022). 'Ukraine bans exports of wheat, oats and other food staples', ABC News, 9 March. Available at: https://abcnews.go.com/International/wireStory/ukraine-bans-exports-wheat-oats-food-staples-83337319 (Accessed: 9 June 2022).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.