Russia's Exit from Black Sea Grain Deal: Global Impact Forecast
Russia has retreated from renewing the Black Sea Grain agreement, which expired on July 17, 2023, citing unmet demands for an enhancement of their own commodity exports, including grains and fertilizers. Nonetheless, the nation is open to revisiting the agreement if substantial progress is made.
Implications for Ukrainian Grain
The withdrawal of this deal has Ukrainian farmers anxious about potential loss in exports, especially with the ongoing harvest of winter wheat, rye, and oats, and the upcoming harvest of corn and sunflower seeds. The volume of harvested and exported produce from Ukraine has significantly declined since the onset of the crisis, although export volumes did eventually reach 4.2 MMT of oilseeds and grains in October 2022. In absence of the agreement, Ukraine is exploring alternatives to ship its produce, particularly through the European Danube river. In 2022, 2 MMT of grains and oilseeds were successfully shipped through this route, with expectations of doubling this volume in the future.
Farmers' profits are set to be considerably hit
Ukraine's alternative plan of shipping through the Danube river has its challenges. Additional logistical requirements may increase costs, and selling the produce at discounted rates could significantly impact farmer profitability. The safe transport of 33 MMT of crops is now uncertain, potentially forcing Ukrainian farmers to reduce acreage due to decreased profits. The future of insurance, an integral component of grain and oilseed shipping via the Black Sea route, is uncertain due to Russia's withdrawal from the agreement. Reuters suggests that without the agreement, ship owners may be reluctant to sail from Ukrainian ports.
The termination of the agreement could predominantly affect African nations due to their food security concerns. About 80% of grain imports in East Africa are sourced from Ukraine and Russia. Since the crisis, grain prices have soared by nearly 40% YoY. Simultaneously, global corn and wheat prices have risen, exacerbating conditions in countries dependent on Ukrainian corn and wheat exports for food and industry. After initial cooling post-March 2022, the global food price index may revert to an all-time high. The Middle East and Africa are predicted to be the most affected and will need to explore alternative sourcing options.
In a separate move, India has abruptly ceased the export of non-basmati white rice as part of the government's strategy to curb escalating food prices. India is the predominant rice exporter globally, responsible for over 40% of international rice trade. However, the Indian government's declaration stipulates that exports of white rice may continue if the government grants permission to other countries to support their food security needs, based on the respective government's request.
Impact on Africa and the Middle East
Since the crisis began, Ukraine has been a major grain supplier to Africa, the Middle East, and Asia. In August 2022, the first shipment of grains for distribution in Ethiopia arrived in Djibouti. Since then, Ukraine has sent about 1.4 MMT of grain to Africa. The region, already dealing with soaring prices, might need to redirect their supplies to prevent food shortages. The majority of Ukrainian shipments comprised grain, oilseed crops, and feed.
Alternative Sourcing Options
Critical agricultural commodities such as corn, wheat, sunflower seeds, rapeseed, and soybean are heavily dependent on Ukraine by the Middle East and African countries. Diversifying supplies would require assessing current production and export levels in major producing regions. India, China, Australia, Brazil, the U.S., and Argentina could serve as potential alternative sourcing destinations to maintain consistent supplies. However, protectionist measures, including stockpiling grains and oilseeds and reducing export volumes, might be implemented by countries to control inflation. Countries that have increased acreage in the past year may provide a viable alternative to ensure consistent supplies.
Related Insights:View All
Get more stories like this
Subscirbe for more news,updates and insights from Beroe