Farmers use harvesting vehicles to reap grain in Stavropol Krai, certainly one of Russia’s most vital agricultural lands, in Stavropol, Russia, July 16, 2023.
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Russia’s withdrawal from an all-important war deal that enabled Ukrainian grain exports across the Black Sea has rekindled concerns about global food security, with analysts describing the initiative’s failure as each an inevitable setback and a blow to markets.
Hours before the deal expires, Russia said on Monday that it could not renew the Black Sea Grains Initiative.
The deal, which was brokered by Turkey and the UN last July after Moscow fully invaded Ukraine, was a rare diplomatic breakthrough to avoid a worldwide food crisis.
“Today is the last day of the grain deal,” Dmitry Peskov told the Kremlin. “When the relevant parts are met for the good thing about Russia, Russia will return to the deal.”
The Black Sea Grains Initiative has been prolonged multiple times briefly increments, amid Russia’s growing dissatisfaction with perceived restrictions that limit the complete export of its own grain and fertilizer.
Russian President Vladimir Putin repeated these complaints during a weekend conversation with South African President Cyril Ramaphosa, saying – based on Google-translated report from the Kremlin — that the important thing objective of delivering grain to countries in need, including on the African continent, had not been achieved.
Prices for wheat, corn and soybeans rose after the news. Wheat futures rose 3% on Monday to a high of 689.25 cents a bushel, the very best since June 28 when the contract price was 706.25 cents.
Nonetheless, wheat prices remain well below the height of 1,177.5 cents a bushel reached last May.
Corn futures soared to 526.5 cents a bushel, while soybean futures traded at 1,388.75 cents a bushel.
Bulk carriers dock on the grain terminal of the port of Odessa, Ukraine, April 10, 2023.
Because Amstrup | AFP | Getty Images
Simon J. Evenett, world trade specialist and professor of economics on the University of St. Gallen, said on Monday that Russia’s withdrawal represented “a coup d’état for a deal that was getting ready to exhaustion.” He cited UN data on shipments showed that shipments have been steadily declining for the reason that starting of the 12 months.
“The collapse of the Black Sea Agreement is a blow to nations sourcing cheaper Ukrainian wheat. So long as it doesn’t end in multiple export bans, the deal’s downfall is [a] minor disruption,” Evenett said via email.
“Moving forward, what matters is whether or not Russia uses its wheat exports as a weapon,” he added. “In the course of the last and current harvest cycle, Russia was the most important supplier within the world, exporting about 45 million tons.”
Evenett said market participants should keep a detailed eye on the prospect of Moscow imposing an export tax hike, as it could likely drive up grain prices further and help the Kremlin finance its military campaign in Ukraine.
An “essential role” in global food security
The UN says that because it was signed last July, the Black Sea Grains Initiative has allowed the export of greater than 32 million metric tons of food commodities. exported from three Ukrainian Black Sea ports – Odessa, Chornomorsk and Pivdenny, previously generally known as Yuzhny – to 45 countries across the world.
For this reason, UN Secretary-General Antonio Guterres described the deal as a game of “irreplaceable rolein global food security.
Guterres he said in early July that the deal “must proceed” at a time when conflict, the climate crisis, energy prices and other aspects disrupt food production and affordability while 258 million people go hungry in 58 countries across the world.
Russian President Vladimir Putin meets with soldiers within the Kremlin in Moscow, June 27, 2023.
Mikhail Tereshchenko | AFP | Getty Images
Carlos Mera, head of agricultural commodities markets at Dutch cooperative Rabobank, said on Monday that while investors were preparing for the cancellation, Russia’s withdrawal was a “blow” to the markets.
Mera said the initiative has supported price stability and prevented shortages in developing countries.
“Ukraine will now be forced to export most of its grains and oilseeds through its land borders and ports on the Danube. It will significantly increase transport costs and increase the pressure on the profits of Ukrainian farmers,” he added.
“The knock-on effect is that it could prompt them to plant less next season, putting further pressure on supplies in the long run.”
Ultimately, Mera said the event meant low-income countries in Africa and the Middle East would likely turn into more depending on Russian wheat – a rustic that accounts for greater than 20% of world wheat exports.
— CNBC Ruxandra Iordache contributed to this report.