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Ukraine grain deal failure will have an effect over the next few years

On August 1, 2022, the export corridor officially opened, ensuring supplies for importing countries and lowering prices.
Photographed by Ozan KOSE for AFP/File

Although it shouldn’t have much of an immediate effect, the closure of the Black Sea export corridor, which allowed for the export of more than 32 million tonnes of Ukrainian grain during the previous year, will likely lead to market tension and higher food prices in the long run.

little affect right away

When Russia invaded Ukraine in February 2022, it blocked off Black Sea shipping, the main export route for Ukrainian agricultural products, and the situation has changed significantly since then.

In May, prices reached record highs as a result of Kyiv’s withdrawal from the global market. Kyiv was the fourth-largest exporter of wheat and corn and the world’s top exporter of sunflower seed oil.

Even though the conflict has reduced Ukrainian agriculture output, the inauguration of the export channel on August 1, 2022, helped assure supply for importing countries and lower prices.

The amount of wheat produced is anticipated to decrease from 33 million tonnes in the 2021–2022 season to 17.5 million tonnes in the 2023–2024 season.

Production of corn is anticipated to decrease from 42 million tonnes to 25 million tonnes.

According to Gautier Le Molgat, an analyst at Agritel, which offers data and research on agricultural markets, “Ukraine should export six million tonnes less of wheat and 10 million tonnes less corn in 2023-2024.”

Due in part to timing—the northern hemisphere is currently in harvest season—the absence of immediate impact.

At the conclusion of the harvest, Le Molgat stated, “Future requirements will be clear.”

The announcement of the deal’s suspension received minimal response from the markets, he continued.

Wheat futures in Europe increased somewhat, while those in the US decreased.

In addition, Russia’s decision not to renew the agreement was anticipated and has already weakened it.

According to Edward de Saint-Denis, a trader at the commodities trading company Plantureux & Associes, “we’ve observed a bottleneck in the Bosphorus with very slow traffic” over the past few months, specifically since there are not enough Russian inspectors for the ships utilizing the passage.

road networks

Before the Black Sea Corridor was established, the EU established “Solidarity Lanes,” land and river routes intended to make it easier for EU agricultural products to be exported through Europe.

According to The Farm Foundation, a research group that focuses on agricultural issues, these routes are already used by 50% of Ukraine’s agricultural exports.

“One of the questions that needs to be asked is whether the EU, which has taken half of the Ukrainian grain on offer since the start of the conflict, has capacity to re-export these volumes,” said Olia Tayeb Cherif, research director at the Farm Foundation.

By coordinating the rail gauge with Ukraine, the EU hopes to increase its capacity for transportation.

The issue with the volumes in question cannot be resolved by merely increasing the tempo, according to Saint-Denis.

Middle-term issues

Wheat is readily available on the international market right now. However, “most exportable wheat is in Russia with 12.5 million tonnes of stocks, and it is the cheapest wheat in the world,” remarked Damien Vercambre of the Inter-Courtage commodities brokerage.

Any deficit of wheat on the global market brought on by a lack of Ukrainian wheat could be somewhat relieved by Russia. However, many nations may find it bitter to depend more on Russia.

The EU, which is anticipated to have a typical harvest, can also assist in supplying import-dependent nations.

However, bad weather might swiftly alter the forecast.

The markets for corn and wheat are currently in extremely dissimilar circumstances. Brazil, which had a record harvest and is selling at a reduced price, might be a source of grain for China, the world’s largest corn importer.

Although the production of wheat may be enough, a decline in Ukraine’s export volumes could provide a challenge.

“An extended closure of the corridor will have an impact on food price inflation, which will affect food security,” said Olia Tayeb Cherif of the Farm Foundation.

Some importing countries, like Egypt, are already having trouble making ends meet at the going rate.

According to Cherif, the UN’s World Food Programme runs the risk of being disrupted because it imports wheat from Ukraine for use in Afghanistan, Yemen, and other African countries.



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