Black Sea grain deal: risks ahead

There is a global food crisis resulting from several underlying factors. Food inflation has been exceptionally high in most parts of the world, with the effects most felt by those living below the poverty line.

Consequently, cost of living and food protests broke out in 148 countries including the UK Germany, France, Spain, Argentina, Indonesia and Iran in 2022. 

Worsening the situation is the war in Ukraine, which, together with Russia, account for a minimum of 25% of the world’s wheat exports. Russia is the world’s largest wheat exporter, accounting for 20% of the world’s exports in the 2022/23 season.

Russia and Ukraine provide 52% of the world’s sunflower oil export market, 19% of barely supply and 15% of the maize trade, also originated from the region, before the war. As the conflict started, maritime exports of foodstuffs and fertilisers were put on hold and this drove uncertainty, which led to more global food price increases.

The Black Sea corridor, leading to Ukrainian ports was filled with explosive mines and Russia was prepared to attack incoming vessels suspected of bringing in arms for the war. To put it in perspective, more than 20-million tonnes of grain were stockpiled and stuck in Ukraine, until a resolution had to be brokered to ensure the safe passage of vessels required to transport the merchandise through the Black Sea.   

To get to an agreement, there were several negotiations between the UN, Turkey, Russia and Ukraine diplomats, until the Black Sea Grain Initiative, was established on July 22 2022. The pledge designed mechanisms for inspecting incoming ships, to ensure there is no smuggling of armaments.

In return, Ukrainian farmers and the agricultural sector would get the necessary income for sustainability. Ultimately, there would be increased supplies of foodstuffs on global markets, leading to lower prices and the saving of lives from the imminent danger of famine. The initial deal was designed to last for 120 days. Upon its expiration in November 2022, an extension was made for another 120 days, to March 18 2023. Two further extensions, of a combined total of 120 days, were agreed upon thereafter.

The next renewal should be before July 18 if there are to be no further disruptions to international trade and global food prices. The initiative was successful in resolving grain shipments, as more than 30-million tonnes of grain and foodstuffs were exported from Ukraine to the rest of the world by May 2023. With the increased supply there was a consequent reduction of wheat prices by more than 30%, from their peak in June 2022. Other grains and foodstuffs followed the same trajectory, making livelihoods yet more bearable for consumers around the world.  

 The terms on which the deal is based seem reasonable. If all parties involved in the initiative act in good faith there should be a prolonged validity of the agreement, even until the war ends. Ukraine had requested that the maritime corridor of the Black Sea be demined. Additionally, ships were to reach Ukrainian ports without the danger of Russian attack. Those terms have since been fulfilled by Moscow. However, Russia insists that their terms have not yet been fulfilled, which brings uncertainty to the future of the deal. Most of Moscow’s requests are based on allowing their agricultural sector to function without the hindrances of Western sanctions or inhibitions.

These are Moscow’s conditions: 

• Readmission of the Russian agricultural bank (Rosselkhozbank) to the international banking system, SWIFT. 

• Removal of restrictions on bank accounts of Russian fertiliser companies and people linked to them.

• Resumption of operations on the pipeline that pumps ammonia into the Ukrainian port of Odesa.

• Restoring supplies of agricultural machinery and components (parts).

• Removal of restrictions on insurance and port access for Russian cargo.   

If the Russian agricultural sector continues to be hampered, there will be further consequences for global food security. The country is also a major participant in the global fertiliser market. Since 50% of the world’s food production requires fertiliser, the developments in this market must be watched closely.

Russia is the world’s largest exporter of ammonia, with a 30% global market share. Of the 4.4-million tonnes of ammonia that Russia used to export annually, 2.5-million tonnes was pumped into the pipeline to Ukraine, which was shut down since the commencement of the armed conflict. Russia is also the third-largest supplier of MAP (monoammonium phosphate) fertiliser, to the world market. Additionally, 2022 figures show that the country controls about 20% of global urea shipments and 15% of both DAP (di-ammonium phosphate) and MAP  fertiliser. Nominally, the nation produces more than 50-million tonnes of fertiliser, which is 13% of the global total.

Though the EU has increased productive capacity and global demand has been weak, concerns of shortages and further price increases, especially in the medium term, are valid. Africa is more concerning in terms of food insecurity as the continent relies largely on imported food, in spite of the huge land mass which can be used for commercial agriculture. For instance, in 2018-20, the continent imported $5.1bn of wheat products from Russia and Ukraine. About 40% of SA’s wheat requirements are imported from the warring region. Though the nation is fairly food secure it also imports about 30% of its sunflower oil requirements. Tunisia and Libya depend on both Russia and Ukraine for about half of their wheat needs. Egypt, the continent’s second largest economy, relies on the same region for 25%-30% of its requirements. 

In conclusion, it is imperative for nations which are not food secure to understand the Black Sea grain deal and risks that may arise due to its suspension or the worsening of conflict in Ukraine. If the suggestions by Russia, that they will exit the deal on July 18, become reality, food prices will surge, and most likely, fertiliser too. A shortage of commodities on the global market will lead to a scramble for the available supplies which will result in upward price pressures. In Africa, the situation may be worse for countries on the northern half of the continent, which have a larger dependency on Black Sea exports. Nevertheless, it is paramount for all nations to have contingency methods or routes to take, in the case of another impasse in the Black Sea.   

• Tutani is a political economy analyst.