What does Russia’s withdrawal from the Black Sea Grain Initiative mean?

Prices of wheat and corn jumped in global commodity markets on Monday after Russia withdrew from the Black Sea Grain Initiative.

The collapse of the agreement threatens to raise food prices for consumers around the world and drive millions to starve.

The White House said the deal was “crucial” to lowering food prices around the world, which soared after Russia’s invasion of Ukraine in February last year.

In this context, US National Security Council spokesman Adam Hodge said in a statement: “Russia’s decision to suspend participation in the Black Sea Grain Initiative will exacerbate food insecurity and harm millions of vulnerable people around the world.”

Chicago Board of Trade wheat futures jumped 2.7% to $6.80 a bushel and corn futures rose 0.94% to $5.11 a bushel as traders feared an impending supply crisis of the staple.

While contracts gave up these gains later in the day. But wheat prices are still 54% lower than their all-time high in March 2022 after Russia’s full-scale invasion of Ukraine, while maize prices are 37% lower than they were in April 2022, when they reached a 10-year high.

grain initiative

grain initiative

The Black Sea Agreement — originally brokered by Turkey and the United Nations a year ago — guaranteed safe passage for ships carrying grain from Ukrainian ports.

So far, the deal has allowed nearly 33 million metric tons of food to be exported through Ukrainian ports, according to UN data.

The agreement was renewed 3 times, but Russia repeatedly threatened to withdraw, on the pretext that it had obstructed the export of its products, according to what was reported by CNBC, which was viewed by Al Arabiya.net.

Over the weekend, Russian President Vladimir Putin signaled that he would not renew the agreement, saying that its main objective – the supply of grain to countries in need – had not been achieved.

far reaching effect

The collapse of the deal is likely to have repercussions far beyond the region.

Before the war, Ukraine was the world’s fifth-largest wheat exporter, accounting for 10 percent of exports, according to the Organization for Economic Co-operation and Development.

Ukraine is also among the top 3 exporters of barley, corn and rapeseed oil, according to Gro Intelligence, an agricultural data company. It is also by far the largest exporter of sunflower oil, accounting for 46% of world exports, according to the United Nations.

Last year, economic shocks that included the effects of the Ukraine war and the pandemic were the main causes of “acute food insecurity” in 27 countries, affecting nearly 84 million people, according to a report by the Food Security Information Network, a funded data-sharing platform. by the European Union and the United States.

cereal agreement

cereal agreement

The International Rescue Committee (IRC) said in November that the collapse of the deal would “harm those on the brink of starvation the most”. The warning came after Moscow suspended its participation in the deal for several days following drone attacks in the port city of Sevastopol in Russian-controlled Crimea.

In turn, UN Secretary-General Antonio Guterres said at the time that the collapse of the agreement would avert “the affordability crisis.” [الغذاء] It could lead to an availability crisis” if farmers around the world could not get the needed fertilizers before the planting season.

Russia is the world’s largest supplier of fertilizers, according to Gro Intelligence. As part of the broader deal, a related agreement was brokered to facilitate shipments of Russian fertilizer and grain.

Last week, Shashuat Sarraf, regional emergencies director for East Africa at the International Rescue Committee, called for a long-term extension of the deal to create “predictability and stability” in the region, which has lost massive amounts of crops to drought and floods.

“With nearly 80 percent of East Africa’s grain exported from Russia and Ukraine, more than 50 million people across East Africa face hunger, and food prices have increased by nearly 40 percent this year,” Sarraf said in a statement.

Why did Russia withdraw from the agreement?

Russia has said it will not extend the agreement unless the West removes barriers it has placed on exporting grain and fertilizer, in addition to demanding that it reconnect the Agricultural Bank of Russia to the global system of money transfers, SWIFT.

Russia also identified some other demands, including the resumption of the supply of agricultural machinery, spare parts, the lifting of restrictions imposed on insurance and reinsurance, the resumption of work on the ammonia pipeline that connects the Russian city of Tolyatti with the Ukrainian Odessa, as well as the unfreezing of assets and accounts of Russian companies working in the field of export. Food and fertilizers.

There are no indications that the West will agree to these demands, according to Reuters.

Can the agreement work without Russia?

Ukrainian ports were closed before the deal was reached in Turkey in July last year. It is unclear whether the grain could be shipped in as Russia withdraws.

The cost of ship insurance, which is already high, will also rise, especially since there are many risks that ships may face, including the presence of Russian warships in the Black Sea and floating marine mines. Ship owners can also hesitate to bring their ships into a war zone without Russia’s consent.

The International Grains Council predicted that Ukraine’s corn production would drop to 21 million tons, from 27 million during the last season, and exports were expected to drop to 15 million tons from 20.5 million tons.

As for wheat, the council’s expectations indicate a decrease to 20.2 million tons from 25.2 million tons in the 2022-2023 season, while exports will reach 11 million, compared to 14.5 million tons in the previous season.

Exporting these numbers across the eastern European Union is difficult, both logistically and financially, especially for crops grown in the eastern regions of Ukraine, which face a long and difficult journey just to reach the border.

Can Ukraine export via land?

Ukraine has been exporting large amounts of grain through eastern EU countries, notably Hungary, Poland and Romania, since the start of what Russia calls a “special military operation”.

However, there were many logistical challenges, including differing rail gauges between countries.

The Ukrainian railway network measures 1,520 mm, while the countries of the eastern European Union use a measure of 1,435 mm, which means that it is impossible to run trains from one network to another without interruption.

Another problem is that the flow of Ukrainian grain through the eastern EU is already causing unrest among farmers in the region. Farmers say Ukrainian exports undermined domestic supplies and were bought by millers, leaving them without a market for their crops. As an example of the above, Poland temporarily blocked imports of Ukrainian grain last week to ease the impact on prices, although it said it was still allowed to cross the country. Romanian farmers also prevented border checks with tractors and trucks. These unrest could increase if Kiev wants to export more volumes.

The largest Arab country benefiting from the grain agreement

According to United Nations data, which was reviewed by Al Arabiya.net, 32.9 million metric tons of grain have been exported through the Black Sea Agreement since September of last year. The share of high-income countries was 43.65% of those grain exports, while the share of countries in the middle class was The upper middle income is 36.7%, which includes China as the largest beneficiary of the agreement – China got about 8 million tons of Ukrainian grain that was exported through the agreement – while the share of countries in the lower middle segment was 17.15%, while poor countries got only 2.5% of that. shipments of grain.

Egypt came as the largest beneficiary of the agreement, as it obtained more than 1.55 million tons of Ukrainian grain since last September, while Tunisia imported more than 713 thousand tons of Ukrainian grain.

While Libya was the third largest beneficiary with 558 thousand tons, followed by Yemen with 260 thousand tons through the United Nations aid program, while Iraq imported 146 thousand tons through the agreement, Algeria 212 thousand tons, Morocco 111 thousand tons, Lebanon 98 thousand tons, and Oman 86 thousand tons, Sudan 95 thousand tons, Saudi Arabia 246 thousand tons, and the UAE 65 thousand tons.

Food prices

The global food price index complied with by the Food and Agriculture Organization of the United Nations hit an all-time high in March 2022, but has fallen steadily since then. The decline in food exports caused by Russia’s withdrawal from the agreement could reverse this trend.

Caroline Payne, chief commodity economist at Capital Economics, told CNN that richer countries are less vulnerable to the fallout than some countries in the Middle East and Africa.

In recent months, food price inflation has overtaken energy as the main driver of stubborn general inflation in the UK and the 20 euro-using countries, although it is starting to ease. In May, food prices increased by 18.4% in the UK and by 12.5% ​​in the Eurozone compared to May 2022.

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