Agriculture prices soar after Russia pulls out of grain deal

Originally published at Europe in Review on August, 2023

Russia’s decision to pull out of an international agreement that guaranteed safe passage for vessels carrying wheat and other grains through the Black Sea sent agricultural commodity prices soaring and reignited concerns about a global food crisis as Moscow stepped up its attacks on Ukrainian ports.

Kremlin spokesman Dmitry Peskov said on July 17 that the deal had “essentially stopped” and that Russia would no longer cooperate with the deal that was brokered by the United Nations (UN) and Turkey a year ago. Moscow has complained that sanctions were holding up a parallel agreement to allow payments, insurance and shipping for Moscow’s own agricultural exports. [FT]

Russia also warned that it would consider all ships sailing through the Black Sea to Ukrainian ports potential military targets, including civilian crafts. It has since carried out missile strikes against Ukranian port cities after announcing its decision to withdraw from the agreement, including one of Ukraine’s biggest Danube river ports.

Wheat futures for September delivery settled up 8.6 percent in Chicago on July 24, by the daily exchange price limit, at USD 7.5750 per bushel. Corn contracts for December closed up 6 percent at USD 5.6825 per bushel, the highest level in nearly a month. [Bloomberg]

Food Concerns

The development has also raised concerns about global food supplies, particularly for the nearly 350 million people across the world who face food insecurity. The World Bank had forecast in April that food prices were expected to fall by 8 percent in 2023, though it would still be at the second-highest level since 1975. [WorldBank]

But Russia’s decision to terminate the Black Sea Initiative in effect ends a “lifeline” for hundreds of millions worldwide facing hunger and spiralling food costs, UN Secretary-General António Guterres said on July 17.

Countries in the Horn of Africa region, such as Somalia and Ethiopia, are heavily reliant on grain imports from Russia and Ukraine. Due to a harsh drought in the region, food prices are expected to be particularly hard hit, raising concerns about stability. [[Reuters]](https://email.cpg-online.de/t/d-l-vjrkyx-l-dr/)

“Russia’s decision to suspend participation in the Black Sea Grain Initiative will worsen food insecurity and harm millions of vulnerable people around the world,” Adam Hodge, a spokesperson for the US National Security Council, said in a statement. [UN][CNN]

The White House said the deal had been “critical” to bringing down food prices around the globe.

Since the initiative was struck, food prices have dropped over 23 percent from their peak in March 2022, according to the UN Food and Agriculture Organization’s Food Price Index. The accord had allowed over 35 million tons of vital food commodities to be exported from Ukrainian ports on the Black Sea to 45 countries on three continents, the U N said. [CNN][NYTimes][UN]

Drone attacks

The day of the deal’s expiration, the Ukrainian military utilised drones to strike and disable the Kerch Strait Bridge connecting Russia to Crimea. Russia shelled the Ukrainian port city of Odessa on July 18, effectively shutting down grain shipments from the main Ukrainian Black Sea port.

Russia claimed to be striking Odessa in response to the expiration of the grain export treaty, an anticipated and predicted escalation. Ukrainian Foreign Ministry Ambassador at Large Olha Trofimtseva publicly predicted that Russia would not renew the one-year agreement. [Reuters][NYT]

A drone attack also hit the Danube port of Reni, Bloomberg reported, citing people familiar with the matter, who asked not to be named discussing sensitive information. Romania said a grain silo, a fuel depot and cranes were damaged by the Russian attack. [Bloomberg][AP]

Shutting down Odessa as a Black Sea grain export centre may result in an increased amount of Ukrainian grain being redirected through its neighbours via land borders.

Poland, Slovakia, Hungary, Romania and Bulgaria agreed on July 19 to expand support for Ukrainian grain shipments by road, rail and non-Ukrainian Black Sea ports. The Romanian ports of Constanta, Galati and Braila exported twenty million tons of Ukrainian grain transhipped from Ukraine via Danube barges between March and June. [Hill]

Africa Summit

Russia was criticised for pulling out of the deal as Russia hosted an African summit. Egypt has publicly blamed Russia for the collapse of the deal, while Kenya described Moscow’s exit as a ‘stab in the back’.

Just 17 African heads of state attended the Russia-Africa Summit in St. Petersburg on 27 July, down from 43 from in 2019. Together with calls for peace, the grain deal was a prominent and awkward talking point at an event intended to advance Russia’s interests on the continent. Kenyan President William Ruto did not attend.

The Kremlin expressed its dissatisfaction over the poor turnout and pointed fingers at the United States and its Western allies. According to Kremlin spokesperson Dmitry Peskov, they were accused of applying “unprecedented pressure” on African countries to disrupt the summit. [Tendies]

Russia promised to send grain free-of-charge to six African states - all with governments close to Moscow. However, at between just 25-50,000 tons each, the offer is a drop in the bucket for a continent once again paying the price for a war it is not involved in. “Russia is still a reliable supplier of food to Africa,” Putin said, adding he would send grain free of charge to six African nations in the next few months. [Al Jazeera] [Associated Press] [BBC News] [CBS] [CNN] [France24] [Economist] [Guardian] [Reuters]

(ef-rw/gc)