Why Ukraine allows grain to be shipped during Russia’s war matters to the world

LONDON — Russia has suspended a war deal designed to ship grain from Ukraine to parts of the world where millions are starving.

Thanks to the Black Sea Grain Initiative, brokered by the UN and Turkey, 32.9 million tons of food have been exported from Ukraine since August, more than half of which went to developing countries, according to the Joint Coordination Center in Istanbul.

Some analysts do not foresee a lasting increase in the cost of commodities such as wheat, because there is enough grain in the world. But many countries are already struggling with high local food prices, which contribute to fueling hunger.

Here’s a look at the crucial accord and what it means for the world:

WHAT IS THE GRAIN DEAL?

Ukraine and Russia signed separate agreements in July 2022, one that reopened three of Ukraine’s Black Sea ports that had been blockaded for months after Moscow’s invasion. The other facilitated the movement of Russian food and fertilizer amid Western sanctions.

Both countries are major suppliers of wheat, barley, sunflower oil and other affordable food products that Africa, the Middle East and parts of Asia depend on. Ukraine is also a huge exporter of corn and Russia of fertilizers – other critical parts of the food chain.

Dubbed the “breadbasket of the world,” Ukraine’s interrupted shipments exacerbated a global food crisis and sent grain prices skyrocketing worldwide.

The deal guaranteed that ships entering and leaving Ukrainian ports will not be attacked. Ships were checked by Russian, Ukrainian, UN and Turkish officials to make sure they were only carrying food.

The deal, which was to be renewed every four months, was hailed as a beacon of hope and was extended three times – the last two for just two months as Russia insisted its exports were held up. That despite the fact that Moscow shipped record quantities of wheat.

No new ships have joined the initiative since June 27, and Ukraine blames Moscow. The last ship left Ukraine on Sunday.

WHAT HAS IT ACHIEVED?

The deal helped lower world prices of food commodities like wheat, which hit record highs after Russia invaded Ukraine.

Once the grain deal was closed, the World Food Program regained a top supplier, allowing 725,000 tons of humanitarian food aid to leave Ukraine and reach countries on the brink of famine, including Ethiopia, Afghanistan and Yemen.

“It’s quite a unique phenomenon that two warring factions and two intermediaries agree to create this kind of corridor to get humanitarian products – which this appears to be – to markets that need it most,” said John Stawpert, senior manager of environment and trade for the International Chamber of Shipping, which represents 80 percent of the world’s commercial fleet.

After Russia exited the deal, wheat prices in Chicago trading rose about three percent on Monday to $6.81 a bushel, still about half what they were at last year’s peaks. Prices fell later in the day.

WHY DID RUSSIA TERMINATE THE AGREEMENT?

Russia has said it wants to end sanctions against the Russian Agricultural Bank and restrictions on shipping and insurance that Moscow says have hampered exports of agricultural products.

Some companies are wary of doing business with Russia because of sanctions, but Western allies have assured food and fertilizer are exempt.

“It is not uncommon in situations like this for countries to use whatever resources they have to try to change sanctions regimes,” said Simon Evenett, a professor of international trade and economic development at the University of St Gallen in Switzerland.

Russia has also complained that a commitment to divert its ammonia, a key component of fertilizer, to a Ukrainian port to be exported never commenced under the deal. That’s right, but the UN says the pipeline was damaged in the fighting.

“Unfortunately, the part of the Black Sea agreements regarding Russia has not been fulfilled,” Kremlin spokesman Dmitry Peskov said Monday.

UN Secretary-General António Guterres sent a letter last week to Russian President Vladimir Putin proposing to facilitate transactions through the agricultural bank, a spokesman said.

Russia’s defense ministry said in a statement Monday that the last-minute offer was not feasible and could not be implemented.

Russian “claims that its agricultural sector is suffering are refuted by the reality” that production and exports have risen since before the war, said Caitlin Welsh, director of the Global Food and Water Security Program at the Center for Strategic and International Studies.

Russia exported a record 45.5 million tons of wheat in the 2022-2023 trade year, with a new record of 47.5 million tons expected in 2023-2024, according to estimates from the US Department of Agriculture.

WHO IS AFFECTED?

The International Rescue Committee calls the grain deal a “lifeline for the 79 countries and 349 million people on the frontline of food insecurity.”

The loss of millions of tons of food from Ukraine at a time when many countries are increasingly dependent on imported food due to conflict and drought, “will lead to inaccessibility and unavailability of food, but will also increase prices and affect affordability for households,” says Shashwat Saraf, the group’s regional emergency director for East Africa said in an interview Monday.

While world prices for grain may stabilize, countries that rely on imported food, from Lebanon to Egypt, could see their costs rise for a while if they have to find suppliers further afield, analysts say.

That will increase costs for countries that have also seen their currencies weaken and their debts grow as they pay for food shipments in dollars.

For low-income countries and people, food “will be less affordable,” World Food Program chief economist Arif Husain told reporters last week.

WHAT ABOUT UKRAINE?

Ukraine’s economy depends on agriculture, and before the war, 75 percent of grain exports passed through the Black Sea.

It can send its food across Europe by land or river, but those routes can handle smaller amounts compared to sea shipments and its use has sparked anger in neighboring countries.

Nevertheless, the Ukrainian Grain Association wants to send more grain via the Danube to neighboring Romanian Black Sea ports, saying it is possible to double monthly exports along that route to 4 million tons.

Ukraine’s wheat shipments are down more than 40 percent from the pre-war average, with the USDA expecting 10.5 million tons to be exported in the coming year.

Ukraine accused Russia of delaying ship inspections. Combined with no new ships joining the effort, that has led to exports dropping from a high under the deal of 4.2 million tons in October to two million in June.

WHAT OTHERS HAVE AN INFLUENCE ON THE FOOD SUPPLY?

The effects of the pandemic, conflicts, economic crises, drought and other climate factors are affecting people’s ability to get enough to eat.

There are 45 countries in need of food aid, the Food and Agriculture Organization said in a July report. High domestic food prices are leading to hunger in most of those countries, including Haiti, Ukraine, Venezuela and several in Africa and Asia.

While drought could also be a problem for major grain suppliers, analysts see other countries producing enough grain to offset losses from Ukraine.

In addition to Russia’s massive exports, Europe and Argentina are increasing wheat shipments, while Brazil had a top year for corn.

“These markets are adapting and producers are adapting — and boy, the wheat and corn markets have adapted very, very quickly,” said Peter Meyer, chief of grain analysis at S&P Global Commodity Insights.

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