Russia withdraws from Black Sea Grain Initiative

Tue 18 Jul 2023
Posted by: Richard Cree
Trade News

Port of Odessa, Ukraine

Moscow has followed through on its threat to pull out of the Black Sea Grain Initiative, after reiterating claims that the deal to keep food flowing through Black Sea ports was detrimental to its own interests.

The latest deal ends today (18 July) and Russia has said it will not renew, although it said it would return to the agreement if its conditions are met.

Russian president, Vladimir Putin, had complained that parts of the deal allowing the export of Russian food and fertilisers had not been honoured, reports the BBC.

The Kremlin has also claimed that grain had not been supplied to poorer countries, which was a condition of the agreement, something that the UN, which helped broker the deal, denies.

Russia walks away

Russia had repeatedly threatened to walk away unless its demands are met, including that its state agricultural bank is readmitted to the SWIFT international payment system, reports Politico.

The deal, which was brokered by the UN and Turkey, was vital to keeping food exports for 400m people flowing from Ukraine.

Prior to the deal, war in Ukraine cut off net importers, like Egypt and Libya, from up to two-thirds of their supply of cereals. Other countries were hit by a surge in global food prices

According to the European Commission (EC), Ukraine accounts for 10% of the world wheat market, 15% of the corn market, and 13% of the barley market.

Food flows

Since its implementation, the Black Sea Grain Initiative has allowed for the export of nearly 33m metric tons of foodstuffs from Ukraine, reports CNN.

The World Food Programme has shipped more than 725,000 tons to help relieve hunger in some of the hardest hit corners of the world, including Afghanistan, Ethiopia, Kenya, Somalia, Sudan and Yemen.

Kremlin spokesperson Dmitry Peskov denied that Russia’s was linked to Ukraine’s claimed strike on the Kerch bridge connecting mainland Russia to occupied Crimea on Monday.

“These are absolutely unrelated events,” he said.

Ursula von der Leyen, EC president, said that she “strongly” condemned Russia’s withdrawal, calling it a “cynical move to terminate the Black Sea Grain Initiative, despite UN & Türkiye’s efforts”.

The Ukrainian Grain Association has said that it will be able to move some of the grain by the River Danube, but admitted this would be less efficient and more costly.

Inflationary impact

News of the collapse of the deal has raised concerns on supplies to developing economies suffering from severe food shortages, whiles limiting food supplies may also further fuel inflation, especially food inflation, later in the year.

Dr Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said she was “deeply disappointed” at the termination of the deal and warned “that poor people & poor countries are hardest hit.”

It comes as, according to the Guardian, Kantar analysis shows UK food inflation is finally retreating, with prices up 14.9 in the four weeks to 9 July, a significantly slower increase than 16.5 the month before and near 18% at its peak.

Other commentators expect the impact of the loss of the grain deal this year to be less significant, as Ukraine has started to push for more grain to be shipped via the Danube, although this is a slower and less effective route. Combined with a stronger expected harvest this summer, it could be enough to see global grain supplies maintained.

Time quotes Peter Meyer, head of grain analytics at S&P Global Commodity Insights, who says that in the year and a bit since the invasion, markets have already adapted to the reduction in grain from Ukraine.

“These markets adapt and producers adapt — and boy, the wheat and corn markets have adapted very, very quickly.”