LatAm grains producers balk at costs of GHG curbs

UN proposals to curb emissions from shipping will next week meet resistance from Brazil and Argentina, in view of the likely increased costs to commodities producers from near-term curbs on the speed of ships.

Small island states and EU countries are seeking a defined limit on the maritime sector’s GHG emissions and urgent adoption of measures such as speed restrictions known as “slow steam” - measures that have prompted opposition from Brazil, the world’s biggest exporter of soybeans and sugar, and the second largest exporter of ethanol.

The International Maritime Organisation (IMO), the UN’s main shipping agency, has a self-appointed deadline this year to agree proposals on limiting the carbon footprint of ships and seaborne freight, which, if unchecked, could account for a fifth of the world’s greenhouse gas emissions by mid-century.

Court Smith, an expert on freight rates with London-based analysts vesselsvalue.com, said that Latin American commodity producers fear that speed restrictions would drive up the costs of grains to the point where prices become uncompetitive.

“Slow steam reduces the carrying capacity of the global drybulk fleet. Hire rates for ships are a simple function of supply and demand. If you reduce the supply of ships through slow steaming, rates will go up. When this occurs, demand for grain consumption should slip downwards, or production will be shifted to other locations as the supply and demand curve find a new equilibrium point,” he told Agricensus.

India and Saudi Arabia also put their names to the joint submission, which strikes out parts of the draft global agreement that is due to be finalised at the IMO’s environmental meeting, which begins next week before a ‘high level segment’ on 9-13 April.

Argentina is number two to Brazil in terms of the world’s biggest soy exporters and is also a major supplier of corn, wheat and oils used as additives in transport fuels, as well as biodiesel and ethanol.

“These countries [Argentina and Brazil] oppose slow steaming because it penalises their domestic growers and ore producers, and their presence in the global shipping markets is small. [Proportionately] They benefit more from cheap freight,” Smith points out.

The IMO draft also proposes to use measures such as redesigning ships, and the use of alternative fuels to enable the sector to cut emissions by 70-100% by 2050, which would likely place additional GHG-related costs on the overall price of seabourne commodities.

Moreover, blocking nations have deleted paragraphs proposing to limit GHG emissions from shipping at 2008 levels and cut them “significantly” by 2050.

Instead, the Brazil-led coalition contends that relative measures of carbon intensity should be used.

Impact

The countries also propose watering down the carbon neutrality goal for the sector by 2075 in favour of a goal proposing zero net emissions “no later than in the second half of this century”.

The IMO has acknowledged that suppliers of dry bulk could be adversely affected by a combination of GHG mitigation measures.

In a July 2017 policy document, the UN shipping agency said: “In general, the impact on import prices of commodities with a low value per unit of mass or volume is relatively high.”