Grains in Ukraine: Suspension of the Agreement, What Are the Consequences?
On Monday, July 17, Russia terminated the agreement allowing Ukraine to export its grain through the Black Sea. This corridor, established a year ago, has allowed nearly 33 million tons of grain to leave Ukrainian ports, despite the conflict. What will the short- and medium-term consequences of this suspension be? The FARM Foundation takes stock.
Suspension of the grain agreement: an inevitable outcome
On May 16, 2023, after long days of negotiations between Turkey, the UN, Russia and Ukraine, the parties agree in extremis to extend the Black Sea grain agreement for two months. A relief for all parties, but one that remains temporary. Three weeks later, on June 6, the destruction of a Russian ammonia pipeline (Togliatti-Odessa), essential for the export of fertilizers, marks a turning point in relations between Russians and Ukrainians.
The very next day, Kremlin spokesman Dmitry Peskov announced "negative" consequences for this action. Moscow also demanded, in vain, more guarantees for its own fertilizer exports. This time, Turkish and UN diplomacy were not enough to convince Moscow to extend the grain agreement.
Few short-term consequences...
The suspension of the agreement announced by Dmitry Peskov on July 17 is not expected to have any impact on the global market in the short term—that is, during the coming weeks of the summer. In recent months, the corridor has lost interest. Since the last extension on May 16, half as many food products have passed through the corridor. (nearly 40,000 tonnes/day between May and July compared to 90,000 tonnes/day between March and May 2023). The end of the wheat and corn marketing campaign on the one hand and the decline in the rate of registration and inspection of vessels by the Russian authorities on the other hand, may also explain this sharp decline.
Furthermore, the EU Council did not wait for the end of this agreement to try to find alternative solutions to increase the capacity of the infrastructures of the solidarity lanes. These latter have allowed the transit of a significant portion of Ukrainian cereals (nearly 2 million tonnes per month) before their partial re-exportation.
…but many concerns in the medium term
Despite this, the many countries importing Ukrainian and Russian grain will intensify their monitoring of current events and weather. While global corn and wheat harvests are expected to be good across much of the Northern Hemisphere, it is difficult to assess the impact of the drought currently affecting the Great Plains in the United States and MediterraneanIn the longer term, the impact of El Niño on crops in the Southern Hemisphere is also a source of serious concern.
Will prices soar at the end of August? For now, the trend remains downward, despite the doubts that have been hovering around the suspension of the agreement for several weeks.
The main threat to global food security remains the resurgence of inflationary pressures on food prices. Many countries dependent on grain imports have seen their economies undermined by the latest crises linked to Covid and then to consequences of the Russian-Ukrainian conflict.
The African continent is the first to be impacted, particularly North Africa and the continent's major cities. Wheat supplies depend, more than ever, on the European Union's capacity – leading importer of Ukrainian wheat– to “move” even more grain out of Ukraine, store it in good conditions and then re-export it. These are major challenges ahead.
