Analysing the Russia-Ukraine Grain Export Deal

#1 · 11th August 2022, 5:01 am

Quote from Habiba Ali on 11th August 2022, 5:01 am
Ukraine is listed among the world’s largest exporters of corn, wheat and sunflower oil, and its on-going war with Russia has stalled the supply of these food products. Before the war began, Ukraine’s corn was transported to Black Sea ports like Odesa and Mykolaiv by rail and then shipped towards Europe and Asia. Due to the closure of the ports with the outbreak of hostilities, this corn is now delivered via rail routes through Poland and Romania before being shipped out. These means are problematic as they make logistics inefficient, expensive and slow.
Around a quarter of the world’s wheat is supplied by Russia and Ukraine. The disruptions caused by war could lead to a rise in food prices and social unrest. Being the top importers of wheat, the Middle East and North African regions are more vulnerable than Asia and Europe, and their leaders are concerned over the potential for political instability which could lead to uprisings similar to the Arab Spring. Due to these alarming situations, the international community pressurized Russia to go for a solution to ease the global food crisis.
On 22^nd July 2022, Russia and Ukraine signed separate deals with the United Nations and Turkey regarding the course of action for the export of millions of tons of direly needed Ukrainian grain, as well as some Russian fertilizer and grain across the Black Sea. The talks were initiated by the UN in April as an effort to release the massive amount of wheat and other food items stuck in Ukraine’s Black Sea ports due to the Russian blockade. Analysts believe that President Vladimir Putin’s recent meeting with his Turkish counterpart Recep Tayyip Erdogan in Tehran brought about this development. Separate and identical deals were signed by Russian Defense Minister Sergei Shoigu and Ukrainian Infrastructure Minister Oleksandr Kubrakov with UN Secretary General Antonio Guterres and Turkish Defense Minister Hulusi Akar, at a ceremony held in Istanbul; President Recep Tayyip Erdogan also witnessed the event. The party states did not sign any deal directly with each other. “Today, there is a beacon on the Black Sea,” Guterres said on the occasion, “A beacon of hope, a beacon of possibility, a beacon of relief in a world that needs it more than ever.”
As per the terms of the deal, grain ships will cross through a safe passage in the Black Sea under the supervision of Ukrainian pilots. The ships will then proceed through the Bosphorus strait located in north-west Turkey to reach the global markets. In addition, a Joint Coordination Centre (JCC) with representatives from Ukraine, Russia and Turkey will be established in Istanbul to monitor the ships. Before entering Ukrainian territories, vessels will be checked by Russian, Ukrainian and Turkish officials, to ensure that weapons are not being smuggled into Ukraine. The agreement is binding for 120 days and may be automatically extended without further talks.
African leaders, whose countries were most vulnerable to a food crisis, welcomed the deal. In the words of South African President Cyril Ramaphosa “it has taken much too long.”
Both Russia and Ukraine blamed each other over the blockage of food supply through Black sea. Ukraine argued that the Russian blockade and missile attacks from the Black Sea made any safe shipments unachievable. It demanded international guarantees that the Kremlin will not use the safe passages to attack Odessa. In addition, it blamed Russia for stealing grain from eastern Ukraine and intentionally setting Ukrainian fields on fire. Russia denies the Ukrainian accusation of blockading ports. Furthermore, it criticized Ukraine for laying mines in the Black sea and Western sanctions for halting Russia's own exports. Even though international sanctions did not target Russian food exports, the war has obstructed its shipments because insurance and shipping companies did not want to trade with Russia.
The United States welcomed the deal, but warned that it would hold Russia accountable for implementing it. The U.S. Treasury Department stated earlier this month that banks, buyers and insurers would be permitted to purchase Russian grain.
Food prices all over the world were rising even before the invasion due to factors like bad weather, export restrictions, taxes, high energy prices and poor harvests cutting supplies, while global demand strongly rose after the COVID-19 pandemic. In the wake of the outbreak of hostilities, these elements drastically worsened the situation. Consequently, the blockage of Ukrainian exports following pushed the Food and Agriculture Organization's (FAO) food price index which marks international prices of the top globally traded food products, to its highest point in March 2022 since records began in the year 1990. According to the World Food Programme (WFP), around 47 million people are facing the condition of acute hunger as a result of the Ukraine war.
As per the Washington Post, Nigeria, Somalia, Ethiopia, Egypt and Yemen are the top five countries hit hardest by the grain crisis in Ukraine. Some analysts claim that due to such an alarming situation, the African Union had asked Putin to quickly unblock grain supplies. Human Rights Watch conducted research on the food situation in Cameroon, Nigeria and Kenya which verified that the increasing food prices intensified by the war had had an extreme impact pm people’s living and food security in a number of African countries, particularly where sufficient social protection is absent. Countries such as Lebanon, Egypt and Tunisia have significant wheat imports especially from Ukraine — 81%, 85% and 50% of their total wheat imports, respectively. History shows that in these regions, food insecurity has a deep relation with socio-political instability, and many countries grant food subsidies to avoid such troubles.
According to Ukrainian authorities, more than 20 million tonnes of grain is stuck in storage and the Russian blockade has made it impossible for it to be exported. The supply of all that grain would provide more food for Ukraine’s long-standing customers. Furthermore, it would bring down prices of basic food stuffs by increasing supply. Interestingly, the news of the deal and the mere hope of the grain’s release caused a drop in global wheat prices as traders considered the release of Ukrainian grain in the world market. As the blockade ends and those 20 million tons actually leave Ukrainian ports, the prospect is that prices will settle at a lower level. This will ultimately help broaden food access to millions of people.
Guterres said that lower prices are the key focus of the agreement. They would, he stated, bring “relief for developing countries on the edge of bankruptcy and the most vulnerable people on the edge of famine.”
Both Russia and Ukraine see it as a deal signed with the UN and Turkey, not with each other. It indicates there is a lack of trust as both avoided being at the same table. The very next day of the deal, Russia launched a missile attack on Odessa's port, breaking its pledge and weakening its commitments. It has generated Ukrainian criticism and skepticism regarding Russian commitment to the deal. Russia believes that this deal is not going to affect the war in any way and is not a pathway to peace talks. However, in case of successful execution, the deal could play a major role in easing the global food crisis. Most importantly, it will help control food insecurity particularly in the Middle East and North African. Some NATO allies especially the U.S., the U.K. and Canada have highlighted that they will watch Russia closely to determine if its actions match its words.

Ukraine is listed among the world’s largest exporters of corn, wheat and sunflower oil, and its on-going war with Russia has stalled the supply of these food products. Before the war began, Ukraine’s corn was transported to Black Sea ports like Odesa and Mykolaiv by rail and then shipped towards Europe and Asia. Due to the closure of the ports with the outbreak of hostilities, this corn is now delivered via rail routes through Poland and Romania before being shipped out. These means are problematic as they make logistics inefficient, expensive and slow.

Around a quarter of the world’s wheat is supplied by Russia and Ukraine. The disruptions caused by war could lead to a rise in food prices and social unrest. Being the top importers of wheat, the Middle East and North African regions are more vulnerable than Asia and Europe, and their leaders are concerned over the potential for political instability which could lead to uprisings similar to the Arab Spring. Due to these alarming situations, the international community pressurized Russia to go for a solution to ease the global food crisis.

On 22^nd July 2022, Russia and Ukraine signed separate deals with the United Nations and Turkey regarding the course of action for the export of millions of tons of direly needed Ukrainian grain, as well as some Russian fertilizer and grain across the Black Sea. The talks were initiated by the UN in April as an effort to release the massive amount of wheat and other food items stuck in Ukraine’s Black Sea ports due to the Russian blockade. Analysts believe that President Vladimir Putin’s recent meeting with his Turkish counterpart Recep Tayyip Erdogan in Tehran brought about this development. Separate and identical deals were signed by Russian Defense Minister Sergei Shoigu and Ukrainian Infrastructure Minister Oleksandr Kubrakov with UN Secretary General Antonio Guterres and Turkish Defense Minister Hulusi Akar, at a ceremony held in Istanbul; President Recep Tayyip Erdogan also witnessed the event. The party states did not sign any deal directly with each other. “Today, there is a beacon on the Black Sea,” Guterres said on the occasion, “A beacon of hope, a beacon of possibility, a beacon of relief in a world that needs it more than ever.”

As per the terms of the deal, grain ships will cross through a safe passage in the Black Sea under the supervision of Ukrainian pilots. The ships will then proceed through the Bosphorus strait located in north-west Turkey to reach the global markets. In addition, a Joint Coordination Centre (JCC) with representatives from Ukraine, Russia and Turkey will be established in Istanbul to monitor the ships. Before entering Ukrainian territories, vessels will be checked by Russian, Ukrainian and Turkish officials, to ensure that weapons are not being smuggled into Ukraine. The agreement is binding for 120 days and may be automatically extended without further talks.

African leaders, whose countries were most vulnerable to a food crisis, welcomed the deal. In the words of South African President Cyril Ramaphosa “it has taken much too long.”

Both Russia and Ukraine blamed each other over the blockage of food supply through Black sea. Ukraine argued that the Russian blockade and missile attacks from the Black Sea made any safe shipments unachievable. It demanded international guarantees that the Kremlin will not use the safe passages to attack Odessa. In addition, it blamed Russia for stealing grain from eastern Ukraine and intentionally setting Ukrainian fields on fire. Russia denies the Ukrainian accusation of blockading ports. Furthermore, it criticized Ukraine for laying mines in the Black sea and Western sanctions for halting Russia's own exports. Even though international sanctions did not target Russian food exports, the war has obstructed its shipments because insurance and shipping companies did not want to trade with Russia.

The United States welcomed the deal, but warned that it would hold Russia accountable for implementing it. The U.S. Treasury Department stated earlier this month that banks, buyers and insurers would be permitted to purchase Russian grain.

Food prices all over the world were rising even before the invasion due to factors like bad weather, export restrictions, taxes, high energy prices and poor harvests cutting supplies, while global demand strongly rose after the COVID-19 pandemic. In the wake of the outbreak of hostilities, these elements drastically worsened the situation. Consequently, the blockage of Ukrainian exports following pushed the Food and Agriculture Organization's (FAO) food price index which marks international prices of the top globally traded food products, to its highest point in March 2022 since records began in the year 1990. According to the World Food Programme (WFP), around 47 million people are facing the condition of acute hunger as a result of the Ukraine war.

As per the Washington Post, Nigeria, Somalia, Ethiopia, Egypt and Yemen are the top five countries hit hardest by the grain crisis in Ukraine. Some analysts claim that due to such an alarming situation, the African Union had asked Putin to quickly unblock grain supplies. Human Rights Watch conducted research on the food situation in Cameroon, Nigeria and Kenya which verified that the increasing food prices intensified by the war had had an extreme impact pm people’s living and food security in a number of African countries, particularly where sufficient social protection is absent. Countries such as Lebanon, Egypt and Tunisia have significant wheat imports especially from Ukraine — 81%, 85% and 50% of their total wheat imports, respectively. History shows that in these regions, food insecurity has a deep relation with socio-political instability, and many countries grant food subsidies to avoid such troubles.

According to Ukrainian authorities, more than 20 million tonnes of grain is stuck in storage and the Russian blockade has made it impossible for it to be exported. The supply of all that grain would provide more food for Ukraine’s long-standing customers. Furthermore, it would bring down prices of basic food stuffs by increasing supply. Interestingly, the news of the deal and the mere hope of the grain’s release caused a drop in global wheat prices as traders considered the release of Ukrainian grain in the world market. As the blockade ends and those 20 million tons actually leave Ukrainian ports, the prospect is that prices will settle at a lower level. This will ultimately help broaden food access to millions of people.

Guterres said that lower prices are the key focus of the agreement. They would, he stated, bring “relief for developing countries on the edge of bankruptcy and the most vulnerable people on the edge of famine.”

Both Russia and Ukraine see it as a deal signed with the UN and Turkey, not with each other. It indicates there is a lack of trust as both avoided being at the same table. The very next day of the deal, Russia launched a missile attack on Odessa's port, breaking its pledge and weakening its commitments. It has generated Ukrainian criticism and skepticism regarding Russian commitment to the deal. Russia believes that this deal is not going to affect the war in any way and is not a pathway to peace talks. However, in case of successful execution, the deal could play a major role in easing the global food crisis. Most importantly, it will help control food insecurity particularly in the Middle East and North African. Some NATO allies especially the U.S., the U.K. and Canada have highlighted that they will watch Russia closely to determine if its actions match its words.