Why the expiry of the Black Sea grain deal matters

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allowing a deal ukraine export grain through Black Sea will end at the end of monday after Russia Said she would suspend her participation.

deal, brokered by United Nations And Turkey last July aimed to ease a global food crisis by allowing it to safely export Ukrainian grain blocked because of the Russia-Ukraine conflict.

Why is deal important?

Ukraine is a major producer of cereals and oilseeds, and global food prices reached record highs when its exports were halted at the outbreak of the war. The accord, agreed in July 2022, nearly five months after the war began, helped drive down prices and ease a global food crisis.

Ukraine grain has also played a direct role in the 725,200 tonnes or 2.2 percent of supplies shipped through the corridor used by the United Nations World Food Program (WFP) as aid to countries such as Ethiopia, Somalia and Yemen.

What does this mean for food prices?

Grain and oilseed prices have already risen in response to the news that Russia will suspend its participation in the deal. If the deal is not renegotiated soon, the prices of staple foods such as bread and pasta will rise in the coming months.

However, the situation is better than in the months following the start of the war as grain supplies have increased from other producers such as Brazil.

Wheat prices, a main ingredient in bread, have declined by about 14 percent so far this year, and corn prices by about 23 percent.

However, the current global food crisis is not over yet. WFP said last month that several emergencies overlap, creating the largest and most complex hunger and humanitarian crisis in more than 70 years.

In an annual review, the WFP said that in 2022 a record 349 million people will experience acute hunger and 772,000 people will be on the verge of famine.

What is the state of the global food supply?

Global corn stocks started the 2021/22 season at a six-year low and so Russia’s invasion of Ukraine, one of the world’s top corn exporters, led to a significant jump in prices.

However, a sharp increase in exports from Brazil has helped boost supplies, with about 17 million tonnes of corn exported through the corridor.

The US Department of Agriculture (USDA) has forecast that global corn stocks will be at a five-year high by the end of the 2023/24 season.

USDA data shows global wheat stocks are low and forecast to be at an eight-year low at the end of the 2023/24 season.

What has been exported so far under the deal?

Under the agreement to create a secure shipping channel, Ukraine is able to export 32.9 million tons of agricultural products, including 16.9 million tons of corn and 8.9 million tons of wheat.

Before the conflict, Ukraine was exporting about 25 to 30 million tonnes of maize per year, mostly through the Black Sea, and 16 to 21 million tonnes of wheat.

Under the agreement the capacity to send grain through the Black Sea has been limited by including only three ports.

Why is Russia withdrawing from this agreement?

Russia has repeatedly said it sees no reason to pursue the deal. It added that commitments made to remove barriers to Russian food and fertilizer exports have not been met. Moscow’s demands include re-linking the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT global payment system.

Other demands include resuming supplies of agricultural machinery and parts, lifting restrictions on insurance and reinsurance, restarting the Togliatti-Odessa ammonia pipeline, and unlocking the assets and accounts of Russian companies involved in food and fertilizer exports.

Can the Black Sea Grain Corridor Operate Without Russia?

Ukraine’s ports were blocked until a deal was reached in July last year and it is unclear whether it will be possible to ship grain now that Russia is pulling out of the deal.

Additional war risk insurance premiums, which are charged when entering the Black Sea region, will increase and shipowners may prove reluctant to allow their ships to enter the war zone without Russia’s consent.

Sources in the insurance industry say that there may be a change in the cover system soon. War risk insurance policies for ships needed to be renewed every seven days, which cost thousands of dollars.

Is the corridor needed if Ukraine’s crop declines?

Ukraine’s grain exports are forecast to decline in the 2023/24 season after the war, which means farmers planted less corn and wheat.

The US Department of Agriculture forecasts that corn exports will drop to 19.5 million tonnes, down from 28 million last season and well below the record 30.3 million tonnes exported in the 2018/19 season, when their share in global trade The contribution was 17 per cent.

Wheat exports are expected to decline to 10.5 million tonnes, down from 16.8 million last season and well below a peak of 21 million in 2019/20, representing 11 percent of world trade.

However, exporting even small amounts of grain through the Eastern EU would be logistically difficult and costly, especially for crops grown in Ukraine’s eastern regions, which would have to travel long and difficult to reach the border. have to face.

Can Ukraine export more grain through the EU?

Ukraine has been exporting substantial amounts of grain through Eastern European Union countries since the start of the conflict. However, there have been several logistical challenges including different rail gauges.

Another issue is that the flow of Ukraine grain through the Eastern European Union has caused unrest among the region’s farmers, who say it has depleted local supplies and been bought up by mills, forcing them to pay more for their crops. has been left without a market for

As a result the EU has allowed five countries – Bulgaria, Hungary, Poland, Romania and Slovakia – to ban domestic sales of Ukrainian wheat, corn, rapeseed and sunflower seeds, while allowing transit for exports elsewhere. As it is, it will be phased out by mid-September. Large harvests are also expected in the eastern European Union this summer and major ports such as Constanța in Romania are expected to struggle to handle the amount of grain being received, causing congestion and shipping delays.

What would this mean for the World Food Programme?

WFP buys several million tons of food items each year, of which about 75 percent is grain.

In 2021, WFP purchases totaled 4.4 million tonnes, with Ukraine being the top source, providing 20 percent of the total.

Ukraine mainly supplies wheat and peas. Much of the food goes to Africa as well as some countries in Western Asia such as Yemen, and so WFP sources most of its supplies from Eastern Europe, which is closer than the major producers in North or South America.

WFP has transported 725,200 metric tons through the corridor. It will have to look elsewhere, potentially at high cost when funding shortfalls have already forced it to curtail activities in some countries.

reuters