Ukrainian Grains: What Are the Consequences of the Status Quo Agreement?
On September 4, the meeting between Recep Tayyip Erdogan and Vladimir Putin failed to revive the agreement on Ukrainian grain exports to the Black Sea*. At the same time, the extension of the grain embargo imposed by Poland and its neighbors** beyond September 15 is provoking heated debate among European Union member states. What are the real consequences of this status quo, especially for Africa? What role will the EU play in the coming weeks? The FARM Foundation takes stock.
A corridor that lost its appeal even before it was closed
Since July 17, the non-extension of the Black Sea corridor has caused a stir on the international diplomatic scene. But, paradoxically, this corridor has, for several months, lost its usefulness at agricultural markets. Before the suspension, half as many food products were transiting through the corridor (nearly 40,000 tonnes/day between May and July compared to 90,000 tonnes/day between March and May 2023). The suspension of the agreement came as the trade season was coming to an end. At the same time, the maritime route, due to doubts surrounding the corridor's renewal, was becoming increasingly unreliable.
Moreover, the conflict has escalated. Several infrastructure projects (bridges and dams) have been bombed. And, in recent weeks, attacks on Ukrainian grain storage facilities have increased in frequency and scale.
Yet, in the face of this, Wheat prices remained very calm, despite some oscillations, proof that these events had little impact on agricultural markets.
Good harvests coming?
Wheat harvests are nearing completion in the Northern Hemisphere. Despite dwindling inventories, global wheat production is once again on the rise (according to the latest USDA estimates from August). Meanwhile, Ukraine harvested almost as much wheat as last year (21 million tonnes), despite increasingly difficult growing and market conditions related to the conflict. It also managed to reduce grain stocks that had accumulated during the first months of the war.
At this point, the status quo still applies. Sufficient agricultural supplies on the market do not, for the moment, cause any concern, while the first volumes of wheat exported from Ukraine transit through the solidarity corridors (solidarity lanes).
A balancing act for the European Union
Since the beginning of the conflict, the European Union has provided significant support to Ukraine, whether through aid for storage infrastructure or logistics chains. The steady increase in solidarity lanes, particularly via the river from the end of the corridor, is a success. The EU has therefore recently expressed its desire to increase the capacity of these routes so as to do without the maritime corridor. The goal is to transport 4.7 million tonnes of Ukrainian crops per month, the majority of which – 4 million tonnes – via the Danube “routes”.
However, a price problem persists. Since the beginning of the conflict, these are next to 50% Ukrainian grain who transit or complete their journey in the European Union. However, these cereals display a much lower price than wheat produced in the EU, especially in Central European countries.
This angered Polish producers last spring. A temporary solution, which is expected to extend beyond its September 15 deadline, was put in place with the five-country embargo**.
Today, at the end of the harvest period and the start of the marketing campaign, It is now up to the European Commission to decide, the only competent one to determine the rules for the operation of the Community market. It is also concerned with maintaining the internal cohesion of the EU by including the various positions of the Member States. In the absence of the renewal of the maritime corridor in the near future, the effective re-export of Ukrainian grain will depend on the arbitrations made at its level.
Africa: Food security (for now) far from Ukrainian issues
With low prices and sufficient availability, supply to the main importing countries, particularly in Africa, is not a major concern. The EU and Russia remain Africa's main suppliers. Both countries have historically high exportable supplies (48 Mt for Russia and 38.5 Mt for the EU for the 23/24 marketing year).
After last year's historic harvest and significant stock carryovers, Russia is in a very advantageous market position with very competitive prices. The promise of Vladimir Putin of deliver grain free of charge to six African countries "in the coming weeks" fits into this context.
As long as grain prices do not rise again, global food security is therefore not threatened by the situation in Ukraine. Because, let us remember, one of the main determinants of food insecurity remains food price inflation which contributes, throughout the world, to reducing access to food for the poorest sections of the population.
In areas where food crises are most acute, rising food prices are combined with armed conflicts or climatic accidents (droughts, extreme weather, floods, etc.). This leads to population displacements, which in turn lose their ability to meet their food needs. Africa is currently weakened by numerous factors, including several conflicts and natural disasters. However, its primary challenge in improving its population's access to food is to restore its economic health, while the public finances of many countries have been severely tested by the inflationary crisis that followed the Covid pandemic.
At this time of year, the situation in Ukraine has little impact on market balance. Attention must be paid to other parameters. First, the situation in the Sahel, particularly following the coup d'état in Niger. An escalation into armed conflict would be very damaging in this region, which is already severely affected by chronic insecurity that has worsened in recent years.
Ua coming rice crisis?
At the end of July, following unsatisfactory harvests, India decided to apply restrictions on its exports of broken rice, this same rice strongly imported and consumed in West AfricaAs global rice prices have been slowly but steadily rising since the fall of 2022, observers are concerned about their future trends. A significant increase in rice prices could have a very strong impact on food security in certain regions by leading to further inflation of food prices.
Finally, the balance of the grain markets is mainly dependent on the weather. In the coming months, we will have to monitor the progress of the Northern Hemisphere corn harvest during the fall as well as the beginning of the Southern Hemisphere wheat harvests from November. Doubts persist about the impact of several climatic phenomena (droughts, El Nino, etc.) on future harvests.
*: Russia has affirmed its intention not to re-engage in negotiations until its demands – to be able to export its own agricultural products – are taken into account.
**: Poland, Romania, Bulgaria, Hungary and Slovakia
