The end of the grain deal

Karam Said, Monday 31 Jul 2023

Russia’s decision to withdraw from the Black Sea Grain Initiative threatens a sharp decline in the supplies of essential foodstuffs and a severe global food crisis.

The end of the grain deal
(photo: AFP)


Russia announced on 17 July that it would not renew the UN-Turkish brokered Black Sea Grain Initiative, thereby revoking its commitment to guarantee the safety of navigation in the north-western Black Sea.

The following day, a Kremlin spokesperson cautioned other parties against attempting to apply the agreement without Moscow.

The effective end of the deal is expected to cause spikes in grain prices and disruptions in food-supply chains in international markets, aggravating the already severe economic, trade and food supply crises for the world’s poorest countries.

Ukraine is one of the largest grain-exporters in the world. After the grain deal was signed a year ago on 22 July 2022, some 33 million tons of grain and other food supplies made their way to international markets on about 1,600 ships across the Black Sea and through the Dardanelles.

Of this, the UN World Food Programme (WFP) sent 725,000 tons to the world’s neediest countries of Afghanistan, Ethiopia, Kenya, Somalia, Sudan, and Yemen. Thanks to the agreement, Ukraine also remained the WFP’s largest wheat supplier in 2022, as it was the source of more than half of its global wheat purchases.

The agreement also contributed to stabilising food commodity prices, which had reached unprecedented levels after the outbreak of the Russian-Ukrainian war early last year.

Moscow had made its renewal of the agreement conditional on a set of demands related to the Memorandum of Understanding (MoU) on facilitating the exports of Russian food products and fertilisers signed in tandem with the Black Sea Grain Initiative.

These included relinking the Russian Agricultural Bank to the SWIFT system, the resumption of exports of agricultural machinery and spare parts to Russia, lifting the restrictions on insurance for Russian cargo ships and their cargo, access to ports and port facilities, the lifting of bans on the financial transactions of Russian fertiliser companies, and the removal of obstacles to the reshipment of Russian fertilisers.

Russia claims that none of these demands has been met over the course of the previous year.

Some analysts maintain that Moscow’s decision to withdraw from the initiative was actually motivated by its belief that it had gained little from it while Kyiv had gained a lot. For example, the release of Ukrainian foodstuffs to international markets gave Ukraine the advantage that traders preferred Ukrainian to Russian wheat because the latter was more expensive due to the rising rate of the ruble and high Russian customs tariffs.

The competitiveness of Russian agricultural products has declined as a result, and Russian wheat exports have shrunk since the agreement was signed last year.

Although the EU has explored alternative trade routes for Ukrainian grain overland by road or rail, they could not compensate for the vital Black Sea maritime routes due to the much larger quantities that can be shipped this way and the lower logistical costs.

The end of the grain deal will therefore have major repercussions. On 20 July, international wheat prices hit a record high. This was most likely a market reaction to the warning that the Russian Ministry of Defence issued the previous day that Russia would consider all ships en route to Ukrainian ports as potential carriers of military cargo.

The ministry also declared certain areas in international waters in the Black Sea near Ukraine and Russia to be “temporarily unsafe” for vessels.

The waves of Russian airstrikes targeting the Ukrainian ports in Odessa, Mykolaiv and Chornomorsk, demolishing the port infrastructures, have probably sown further havoc in food supply chains. According to Ukrainian sources, 60,000 tons of grain were destroyed by a Russian missile strike against Odessa.

The Black Sea Grain Initiative had succeeded in staving off poverty for 100 million people in the world’s poorest regions. The collapse of the initiative, depriving the world of Ukrainian grain and fertilisers, now threatens a sharp decline in supplies of essential foodstuffs and a severe global food crisis, especially in African countries and non-agricultural countries that had been dependent on imports from Ukraine.

For Ukraine itself, the termination of the initiative has delivered a stinging blow to the economy. Grain exports have been a main source of the hard currency that Kyiv urgently needs in order to cover its arms imports to fight Russia.

Russia’s decision not to renew the grain deal is likely to drive tensions between it and the West to yet higher peaks. At the recent NATO Summit meeting in Lithuania, the West vowed to stiffen sanctions against Russia and to strengthen economic and military support for Ukraine, one manifestation of which is Washington’s decision to supply Kyiv with cluster munitions.

On the other hand, Moscow might be calculating that the global food crisis might prod the Western nations into rethinking Moscow’s demands and easing sanctions to facilitate Russian grain and fertiliser exports. The UN’s call urging action to transport Russian ammonia through Ukraine signalled such a possibility.

As part of the talks that paved the way to the Grain Initiative last year, Kyiv and Moscow struck a deal to allow the safe passage of ammonia, a key ingredient in the production of fertiliser, through a major pipeline which has been out of operation since the war began.

There are also reports that the EU has begun to study a proposal by the Russian Agricultural Bank to establish a branch that could be reconnected to the SWIFT international payments system.

* A version of this article appears in print in the 28 July, 2023 edition of Al-Ahram Weekly

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