Against the grain: What's the latest with the UN's grain deal?

Jul 16, 2023

In July 2022, a deal agreed by Russia, Ukraine, Turkey, and the UN allowed Ukraine to resume exports of grain, other foodstuffs, and fertiliser, from three of its Black Sea ports. Picture: ALEXEY DRUZHININ/RIA NOVOSTI/AFP via Getty Images

Everything in the world of farming and food starts with grain.

About 2.9 billion tonnes are produced globally, with 1.3 billion estimated to be for human food, and nearly 1.6 billion for animal feed, biofuels, and other uses.

There has been disquiet globally about just four companies (ADM, Bunge, Cargill and Dreyfus) getting control of between 75% and 90% of the €750bn global grain trade (the export value of grains and oilseeds in 2020 before prices jumped).

However, such fears have receded into the background, since Russia started bombing its way further into the grain trade.

This started when Russia invaded Ukraine in February 2022. There were dozens of missile strikes on cities all over Ukraine, but it was noted that facilities for storing and shipping Ukraine's huge grain production suffered disproportionately.

For more than four months, Russian military vessels blocked Ukraine's Black Sea ports, halting grain exports. The US accused Russia of "weaponising food" to gain leverage in its failing invasion of Ukraine. Grain exports are a key revenue source for Ukraine, which accounts for 9% of global wheat exports (Ukraine and Russia together provide 30% of the world wheat supply).

In July 2022, a deal agreed by Russia, Ukraine, Turkey, and the UN allowed Ukraine to resume exports of grain, other foodstuffs, and fertiliser, from three of its Black Sea ports. More than 1,000 ships full of grain (almost 33 million tonnes) and other foodstuffs left Ukraine from the three ports (Chornomorsk, Odesa and Yuzhny-Pivdennyi) in the next year. This freed up storage space for Ukraine's 2022 harvest tonnage, estimated to be reduced by one-third due to the war.

The extra grain coming on the world market stabilised the price at about €800 per tonne, down from a wartime high of €1,360.

Western sources say 61% of the 2022-23 Ukraine exports went to low and middle-income countries (including 750,000 tonnes bought by the World Food Programme for Afghanistan, Ethiopia, Somalia and Sudan). But Russian sources say less than 4% went to the very poorest countries.

In July 2023, Russia announced its decision to terminate the Black Sea grain agreement.

This was not unexpected, after Russia slowed ship inspections last October. By April, there was a 29% decrease in food exports, and 66% by May.

Russia reimposed a maritime blockade in mid-July and launched air strikes on Ukraine's ports, again bombing port infrastructure, grain silos, and processing equipment.

Russia warned that any ships sailing to Ukraine’s Black Sea ports would be seen as “potentially carrying military cargoes”.

Ukrainian government sources said the Russian bombing last month knocked out “a significant part” of the grain export infrastructure, and it will take “at least a year” to repair, at the ports of Odesa and Chornomorsk. Bombs also destroyed an estimated 60,000 tonnes of grain.

Russia even bombed Reni, a Ukrainian port town on the Danube River, about a mile across the river from Romania, a NATO member. Apparently, another effort to cripple Ukraine’s exports of agricultural products, it was the closest Russia has come to hitting the military alliance’s territory and risking direct military confrontation with the US and European allies. The Danube and other routes through the EU have been used for Ukraine to export about 16 million tonnes of grain in the past year.

The new Russian port blockade and attacks pushed benchmark Chicago wheat futures towards their biggest weekly gain since the February 2022 invasion.

Egypt condemned Russia’s actions. This was significant, because Egypt has a high economic dependence on Russia. But it is one of many African countries which depend heavily on Russian and Ukrainian grain to feed its people. Egypt’s state buyer, GASC, bought 300,000 tonnes of Russian wheat in mid-July.

The United Nations warned that millions in poor countries were at greater risk of starvation from the rising prices. Russian President Vladimir Putin told African leaders Russia was ready to replace Ukrainian grain exports to Africa on both a commercial and aid basis. The EU, in turn, warned developing countries that Russian cheap grain would "create new dependencies".

"As the world deals with disrupted supplies and higher prices, Russia is now approaching vulnerable countries with bilateral offers of grain shipments at discounted prices, pretending to solve a problem it created itself," said EU foreign policy chief Josep Borrell.

Top US State Department sanctions official James O'Brien said Russia needs to be clear in its demands, pointing out that Russia is already exporting record amounts of grain, and its "complaints amount to minor allegations about a system that is working very well." Russia may export at least 55 million tonnes in the 2023/24 marketing season, slightly less than the estimated record-breaking 57 million tonnes in the 2022/23 season, Russia's Grain Union said.

The intergovernmental International Grains Council says world total grains production is heading for a new peak of production in 2023/24, with the output of maize and sorghum jumping, to more than offset declines for wheat, barley, oats, and rice. But consumption is also predicted at a record level, and carryovers are forecast to tighten for a seventh successive season.

The IGC said there was market unease about ongoing events in the Black Sea region, along with the usual news of difficult cropping and harvesting weather around the world. The IGC grains and oilseeds price index rose in July for a second consecutive month, by 4%, but it is running about 15% lower than in May.

Ukraine's President Zelenskyy said, "Moscow is fighting a battle for a global catastrophe. These lunatics need the world food market to collapse, they need price crises, supply disruptions. Someone in Moscow thinks they can make money on this."