Russia pulls out of Black Sea Grain Initiative, UN moves to change Putin’s mind as wheat prices rally

31 Oct 2022 --- Russia has pulled the plug and officially suspended its participation in the Black Sea food corridor, which has offered markets some price relief in the last months and boosted food security around the world. According to Ukrainian authorities, the corridor showed little movement recently, as over a hundred vessels have been stuck in a queue awaiting inspection.

“The [UN] Secretary-General is deeply concerned about the ongoing situation regarding the Black Sea Grain Initiative,” says Stéphane Dujarric, spokesperson at the UN, which has prompted the decision of Antonio Guterres to delay by one day its plans to travel to Algiers (Algeria) for the Arab League Summit.

“The Secretary-General continues to engage in intense contacts aiming at the end of the Russian suspension of its participation in the Black Sea Grain Initiative. The same engagement also aims at the renewal and full implementation of the initiative to facilitate exports of food and fertilizer from Ukraine, as well as removing the remaining obstacles to the exports of Russian food and fertilizer,” he highlights.

“Russia’s decision to suspend participation in the Black Sea deal puts at risk the main export route of much needed grain and fertilizers to address the global food crisis caused by its war against Ukraine. The EU urges Russia to revert its decision,” adds Josep Borrel, high representative of the EU for Foreign Affairs and Security Policy.

According to The UN Conference on Trade and Development the deal has helped move eight million metric tons of food.

Wheat prices concern
Wheat prices already propped up this September by 1.5% after months of decreasing commodity prices due to “the heightened uncertainty about the Black Sea Grain Initiative’s continuation,” according to the UN Food and Agriculture Organization.

Future prices of wheat jumped with the news of the end of the food corridor, with the staple Chicago Board of Trade wheat futures prices rising over 6% today at the opening of the market trading hours. 

However, the end of the food corridors might offer some relief to vegetable oil traders, as the FAO Vegetable Oil Price Index reached in September its lowest price since February 2021, as heavy inventories plague producers. 

Future prices of wheat jumped 6% with the news of the end of the food corridor.Suspension not withdrawal?
The Russian News Agency Tass reports that Russia still has to decide to fully withdraw from the deal, which officially ends on November 19, if it is not extended. Putin called into question the peaceful use of the food corridors after the attack on the Crimea Millenium Bridge earlier this month – in a Russian-controlled territory. 

Russia also criticizes that most of the food exports have gone to Europe, with Putin claiming that countries urgently needing relief do not benefit much from the trade corridor – African countries have received less than 20% of the food exports.

In September, the Joint Coordination Center (the body that supervises the food corridor functioning) revealed that low-income countries received 27% of the food. From these countries, Egypt got 9% of grains and other foodstuffs, followed by Iran and India (4% each), Bangladesh, Kenya and Sudan (2% each) and Djibouti, Lebanon, Somali and Yemen (1% each). 

The UN latest data, updated today, puts Spain as the highest winner of the food corridor, receiving 1.8 million metric tons of food, followed by Turkey with 1.3 million metric tons, China with 906,300 metric tons and Italy 860,300 metric tons.

Egypt, in comparison, received 428,800 metric tons of food from the food corridor. 

Supplying fertilizers on timeAccording to The UN Conference on Trade and Development the deal has helped move 8 million metric tons of food.  
The UN estimates that the decline in prices in the last few months, partly due to the food corridors, has prevented “100 million people from falling into extreme poverty.”

“If food and fertilizers do not reach global markets now, farmers will not have fertilizers at the right time and at a price they can afford as the planting season begins, endangering crops in all regions of the world in 2023 and 2024, with dramatic effect on food production and food prices worldwide. The current crisis of affordability will turn into a crisis of availability,” says Guterres.

In the same vein, the World Food Programme warned of a looming crisis of availability in 2023, cautioning the food crisis might not have reached its peak.

The UN leader is calling all parties to continue shipping food through the food corridor, as he reaffirms his “unwavering commitment” to try and make Ukraine and Russia’s food reach global markets “at the speed and price needed to avert a global food crisis and ensure food security.”

“Governments, shipping companies, grain and fertilizer traders and farmers all over the world are now looking for clarity on the future,” he concludes.

By Marc Cervera