Grain deal? Ukraine and Russia close to agreement to flood markets with millions of tons of wheat

22 Jul 2022 --- Ukraine’s grain, sitting in full to the brim silos and about to rot, might soon reach markets, as a deal to free the Black Sea shipment routes from the months-long Russian blockade is set to be signed today.

There are over 20 million metric tons of grain in Ukraine waiting for transport.

“The grain export agreement, critically important for global food security, will be signed in Istanbul under the auspices of President Erdoğan and UN Secretary General Guterres together with Ukrainian and Russian delegations,” says Ibrahim Kalim, spokesperson for the Turkish government.

“We also expect news for our state from Turkey – regarding the unblocking of our ports,” notes Volodomyr Zelensky, President of Ukraine.

Turkey is hosting the negotiations and has received praise internationally for its mediating role.

The situation is critically time sensitive as silos must be emptied before the August harvest; otherwise, the wheat will perish.Hope amid uncertainty
The deal will particularly help 45 African and least developed countries, which import at least one-third of their wheat from Ukraine or Russia. 18 of those countries import at least 50%. This includes Burkina Faso, Egypt, the Democratic Republic of the Congo, Lebanon, Libya, Somalia, Sudan and Yemen.

Some reconciliatory moves in the last days from the West toward Russia’s President Vladimir Putin have given markets some optimism, as the US is rejecting duties on Russian fertilizers and the EU is softening its sanctions on Russian banks to assist the global food trade.

However, even with a signed deal, Putin’s credibility is highly questioned, with the German Agriculture Minister, Cem Özdemir, saying this Monday that trusting Putin’s word is like “believing in Santa Claus or the Easter Bunny.”

Grain about to rot
The situation is critically time sensitive as silos must be emptied before the August harvest; otherwise, the wheat will perish.

Even if trade is restarted, a massive logistical effort will need to be carried out to move all the millions of tons of grain in time, as before the war in Ukraine, ship routes enabled the transport of five million metric tons of wheat per month.

According to the Food and Agriculture Organization of the United Nations (FAO), Ukraine exported 322,000 metric tons in March, 970,000 in April, 1.2 million in May and over 1 million in June, as land routes have proven to be logistically ineffective.

UN on the ground
UN Secretary General Antonio Guterres arrived in Turkey on Thursday to help with finalizing the negotiations. Previously, Guterres stressed that alternative transport solutions were not an option and that Russia and Ukraine must be reintegrated into world food markets.

“Russian food and fertilizers must have unrestricted access to world markets without indirect impediments,” underscored Guterres in May.

However, according to the International Food Policy Research Institute, the EU continues to restrict the trade of fertilizers from Russia, with EU countries limiting the trade of 20% of the imports of nitrogens, 13% of phosphates and 38% of potash.Cereal prices reached their peak this May before falling 4.1% in June. 

It is also unclear how the alleged foul play by Russia, which might be stealing Ukrainian grain, according to Ukraine authorities, will be dealt with. Observers fear it could complicate the access of Russian produce in the market, as the origin of the grain could be unclear and difficult to trace.

Cereal prices dipping
Meanwhile, cereal prices reached their peak this May before falling 4.1% in June. However, they remain 27.6% higher than last year. In the case of wheat, prices fell 5.7% but still remain 48.5% higher than in June 2021.

FAO signals that the cereal demand is outpacing its supply, with production falling globally for the first time in four years.

Countries including Uganda have been hailing alternatives to wheat such as local food cassava, and other food substitutes are being found on sticky rice and yam.

By Marc Cervera