June 15, 2024

Russia Kills Grain Market, Seriously Constrains Global Supply

LONDON (AP) – Russia halted a landmark wartime deal Monday that allows grain to flow from Ukraine to countries in Africa, the Middle East and Asia where hunger is a growing threat and high food prices have more pushing more people into poverty.

Kremlin spokesman Dmitry Peskov said Russia would suspend the Black Sea Grain Initiative until its demands to supply the world with its own food and fertilizers are met. Although Russia has complained that restrictions on shipment and insurance have hampered its agricultural exports, it has shipped record amounts of wheat.

“When the part of the Black Sea agreement concerning Russia is implemented, Russia will immediately return to the implementation of the agreement,” Peskov said.

The suspension ends an agreement brokered by the UN and Turkey last summer to allow food to leave the Black Sea region after Russia’s invasion of its neighbor exacerbated a global food crisis. The initiative is credited with helping to lower rising prices of wheat, vegetable oil and other food commodities.

Ukraine and Russia are major global suppliers of wheat, barley, sunflower oil and other affordable food products to developing nations.

The grain agreement gave assurances that ships entering and leaving Ukrainian ports will not be attacked, and a separate agreement facilitated the movement of Russian food and fertilizer. Although Western sanctions do not apply to Moscow’s agricultural shipments, the measures initially made some companies wary of doing business with Russia.

Ukrainian authorities did not immediately respond to requests for comment on Monday.

The suspension of the contract sent wheat prices up about 3% in Chicago trading, to $6.81 a bushel. Analysts do not expect more than a temporary bump in food commodity prices as wheat and corn exports have increased in places like Russia and Brazil, but food insecurity around the world is increasing.

The Black Sea Grain Initiative has allowed three Ukrainian ports to export 32.9 million metric tons of grain and other food to the world, more than half of that to developing nations, according to the Coordinating Coordination Center in Istanbul.

The agreement was renewed for 60 days in May, but in recent months, the amount of food sent and the number of vessels leaving Ukraine has stagnated, with Russia accused of additional ships prevented from participating.

The war in Ukraine sent food commodity prices soaring last year and added to a global food crisis linked to other conflicts, the ongoing effects of the COVID-19 pandemic, droughts and other climate factors.

High costs of staple food grains in places like Egypt, Lebanon and Nigeria have exacerbated economic challenges and helped push millions more into poverty or food insecurity.

Rising food prices disproportionately affect people in developing countries, as they spend more of their money on meals. Poorer nations that rely on imported food priced in dollars are also spending more as their currencies weaken and climate change forces them to import more. Places like Somalia, Kenya, Morocco and Tunisia are struggling with drought.

Under the deal, prices for global food commodities like wheat and vegetable oil have fallen, but food was already expensive before the war in Ukraine and the relief didn’t trickle down to kitchen tables.

“The Black Sea market is really important for the food security of some countries,” and its loss will increase the problems for those with high levels of debt and climate crisis, said Simon Evenett, professor of international trade and economic development at the University. St. Gallen in Switzerland.

The UN’s Food and Agriculture Organization said this month that 45 countries need food aid from outside, with high local food prices “a driver of worrying levels of hunger” in those places.

The grain market has been blocked since it was brokered by the United Nations and Turkey: Russia briefly pulled out in November before rejoining and extending the deal.

In March and May, Russia would only extend the deal for 60 days, instead of the usual 120. The amount of grain shipped per month fell from a peak of 4.2 million metric tons in October to a record low of 1.3 million metric tons in May. since the market started.

Exports in June increased to just over 2 million metric tons, thanks to larger ships that can carry more cargo.

Ukraine has accused Russia of preventing new ships from entering service since the end of June. There has also been a significant delay in joint investigations to ensure that vessels only carry grain and not weapons that could help either side.

When asked on Monday whether an attack on a bridge connecting the Crimean Peninsula with Russia was a factor in the grain deal decision, a Kremlin spokesman said it was not.

Meanwhile, Russian wheat shipments hit all-time highs after a bumper harvest. It exported 45.5 million metric tons in the 2022-2023 trading year, and another record 47.5 million metric tons is expected in 2023-2024, according to US Department of Agriculture estimates.

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