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What Russia’s suspension of grain deal could mean

Following Russia's announcement of the deal's suspension on its part, wheat futures prices jumped more than 5% on Monday in Chicago, while key oil futures prices rose in Asian markets.

Cargo ships anchored in the Marmara Sea.Cargo ships anchored in the Marmara Sea wait to cross the Bosphorus Straits in Istanbul, Turkey, Tuesday, Nov. 1, 2022. (AP Photo/Khalil Hamra)

By Cara Anna and Courtney Bonnell

Russia has suspended its part of the deal allowing Ukraine to ship grain from its Black Sea ports safely amid a monthslong war, and it appears that the remaining partners are now left to take their chances. On Monday, Ukraine said a dozen ships had sailed despite initially reporting that more than 200 vessels, many loaded and ready to travel, were stuck after Russia’s weekend announcement.

Such exports are crucial: Ukraine and Russia are key global suppliers of wheat, barley, sunflower oil and other food to countries in Africa, the Middle East and parts of Asia where many are already struggling with hunger. It’s not immediately clear who would take the risk of sailing from Ukraine without Russia’s protection after Moscow alleged a Ukrainian drone attack against its Black Sea fleet.

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Kremlin spokesman Dmitry Peskov said implementing the grain deal is “hardly feasible” in a situation when “Russia talks about the impossibility of guaranteeing the safety of navigation in the mentioned areas.” Here is what Russia’s decision could mean for a world increasingly worried about food security and high food prices:

What has the deal achieved?

The grain initiative has been a rare example of cooperation between Ukraine and Russia since Russia’s invasion in February. Brokered by the United Nations and Turkey, it has allowed more than 9 million tons of grain in 397 ships to safely leave Ukrainian ports. The grain agreement has brought down global food prices by about 15% from their peak in March, according to the U.N., and the U.N. secretary-general had urged Russia and Ukraine to renew the deal when it expires Nov. 19.

Following Russia’s announcement, wheat futures prices jumped more than 5% on Monday in Chicago, while key oil futures prices rose in Asian markets. With global markets tight, prices will rise and poorer countries will have to pay more to import grain, said Joseph Glauber, senior research fellow at the International Food Policy Research Institute in Washington. Before the grain deal was brokered, the U.S. and Europe accused Russia of starving vulnerable parts of the world by denying exports. Since the deal, Russian President Vladimir Putin has alleged that most of the exported grain was going to Europe instead of the world’s hungriest nations.

The U.N. Conference on Trade and Development, however, said in a report published last week that wheat is mostly going to poorer countries, with nearly 20% of exported wheat going to the least developed nations. Ukraine has said more than 5 million tons have been exported to African and Asian nations, with 190,000 tons of wheat sent to countries that are getting relief from the U.N. World Food Program.

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What about the ships still moving?

A ship carrying 30,000 tons of wheat for Ethiopia under that program sailed Monday, Ukraine said, one of a dozen ships with more than 354,000 tons of agricultural products that Ukraine said left port after the U.N. and Turkey agreed on the traffic of ships through the humanitarian corridor.

Ethiopia, along with neighboring Somalia and Kenya, is badly affected by the region’s worst drought in decades. The question is if new ships take the risk to sail without Russia’s safety assurances, said Glauber, a former chief economist at the U.S. Department of Agriculture. “I suspect the answer is no,” he said. For “insurance companies and others who are insuring these boats … rates are going to go up and likely be prohibitive.”

William Osnato, a senior research analyst with agriculture data and analytics company Gro Intelligence, echoed that, saying ship tracking maps don’t show any vessels heading toward Odesa. A spokeswoman for the Joint Coordination Center overseeing the logistics and inspection of ships didn’t immediately respond to questions about which vessels might sail. Asked about about Turkey’s intention to continue implementing the deal without Russia’s participation, the Kremlin spokesman said only that “contacts continue with the Turkish side, as well as the U.N.”

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What happens now?

Russia has requested a meeting Monday of the U.N. Security Council to discuss the issue while offering to supply up to 500,000 tons of grain “to the poorest countries free of charge in the next four months.” While sanctions on Russia don’t affect its grain exports and a parallel wartime deal was meant to clear the way for Moscow’s food and fertilizer shipments, some businesses have been wary. Ukraine, the U.S. and its allies again accused Russia of playing “hunger games.”

Developing nations will have to find new suppliers and pay more from countries such as the U.S., Argentina and Australia, where dry conditions or rain are posing problems, Glauber said. But high prices mean producers will plant more, and those not typically big wheat exporters, like Brazil and India, have shipped more. “What the world needs are some really big crops,” he said, and with Ukraine having accounted for 10% of world wheat exports, “that’s a big hole to build.”

What else affects food supply?

Peter Meyer, head of grain and oilseed analytics at S&P Global Platts, said he doubts that Russia’s decision will have a lasting impact on the price and supply of corn and grain. Commodity traders were skeptical that the deal would last, he said, one reason that corn prices have gone up, not down, since the arrangement was reached in July.

Grain markets are more focused on other issues, Meyer said, including low water levels in the Mississippi River that slows the export of U.S. farm products, a disappointing corn crop in the American West and the threat of a U.S. rail strike.But in parts of the African continent, where prices have remained high, concerns are rising again. “This will send another mini shockwave through the markets, and I think it will lift prices for a while,” said Shaun Ferris, a Kenya-based adviser on agriculture and markets for Catholic Relief Services, a partner in World Food Program distributions. “This will mean that prices in East Africa, at record highs, are not going to come down anytime soon.”

After four failed rainy seasons in the Horn of Africa, millions of people are hungry, and millions of livestock that are a critical source of food and wealth are dying. Pastureland has disappeared. Ferris said he’s spoken with companies that are sending hundreds of tons of processed feeds to northern Kenya to keep weakened animals alive. The latest setback in Ukrainian exports is another layer of stress on food security systems, he said. In poorer North African and Middle Eastern countries where bread is a critical part of people’s diets, there may not be alternatives like rice in Asia or sorghum elsewhere in Africa, Glauber said. That raises the spectre of turmoil in places where bread prices fueled the Arab Spring uprisings. “The wheat’s out there, but it’s just going to come at a high price,” he said.

First published on: 01-11-2022 at 16:17 IST
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