As had been widely anticipated, Russia has formally notified the UN, Turkey and Ukraine that it will not renew a crucial deal that allowed Ukraine to export grain through the Black Sea.
The deal, which allowed cargo ships to depart from the ports of Odesa, Chornomorsk and Yuzhny/Pivdennyi, was originally brokered a year ago. Allowing crucial grain exports to leave Ukraine, one of the world’s most important exporters of sunflower, maize, wheat and barley, the deal has helped stabilise grain prices in the past year and prevent food shortages in some African and Middle Eastern countries which relied heavily on Ukrainian grain imports.
But Russia has been expressing concerns for some time and had made many previous threats not to renew the deal. The latest extension expired today, July 17, and Kremlin spokesperson Dmitry Peskov said the agreements had reached a ‘de facto’ end on Monday, the BBC reported.
Russian President Vladimir Putin had complained that parts of the deal allowing the export of Russian food and fertilisers had not been honoured, while Russia also argued that Western sanctions were restricting its own agricultural exports. In particular, Russia asked for its state-owned agricultural bank, Rosselkhozbank, to be reconnected to the Swift fast payment system.
However, Moscow has indicated it would return to the agreement if its conditions were met. Turkish President Recep Tayyip Erdogan told reporters he believed that Mr Putin ‘wants to continue the agreement’ and that they would discuss the renewal of the deal when they meet in person next month, according to the BBC.
Nikolay Gorbachev, the president of the Ukrainian Grain Association, told the BBC that his members had identified alternative means of exporting grain – including through its Danube River ports. But he acknowled that the ports would be less efficient, reducing the amount of grain Ukraine can export and raising the cost of moving it.
Carlos Mera, head of agri commodities markets at Rabobank, said the market had already been anticipating the cancellation of the deal, with wheat prices up by 3% today, and 12% in total since last Wednesday.
”Russia’s decision to pull out of the Black Sea Grain Initiative is a blow to the markets and will halt the flow of agricultural commodities leaving Ukraine by the ports on the Black Sea. Almost 33 million metric tonnes of grains were exported under the previous deal, which supported price stability and prevented shortages across the developing world.
“Ukraine will now be forced to export most of its grains and oilseeds through its land borders and Danube ports. This will significantly drive up transportation costs and pile further pressure on Ukrainian farmers’ profits. The knock-on effect of this is it could prompt them to plant less next season, placing further pressure on supplies going forward.”
In its latest grain report, AHDB said the news was supporting prices in the short term, although it said the situation continues to evolve.
“Longer term, global supply still looks to satisfy current demand, although, Northern Hemisphere harvest will be watched closely, considering a more finely balanced global wheat S&D picture,” it said.
UK feed wheat was quoted by AHDB today at £196/t for November, £199/t for January and £202/t for March.