Why expiry of the Black Sea Grains Agreement matters Ship’s crew

LONDON, July 17 (Reuters) – A deal allowing Ukraine to export grain across the Black Sea expires at the end of Monday after Russia announced it would suspend its participation.

The deal, negotiated by the United Nations and Turkey last July, aimed to ease a global food crisis by allowing Ukrainian grain blocked by the Russia-Ukraine conflict to be safely exported.

WHY IS IT IMPORTANT?

Ukraine is a major producer of grains and oilseeds, and the disruption of its exports when war broke out pushed world food prices to record highs. Agreed in July 2022, about five months after the war began, the deal helped bring down prices and ease a global food crisis.

Ukrainian grain also played a direct role: 725,200 tonnes, or 2.2% of shipments, were shipped through the corridor used by the United Nations World Food Program (WFP) to ship aid to countries like Ethiopia, Somalia and Yemen.

WHAT DOES THIS MEAN FOR FOOD PRICES?

Grain and oilseed prices have already risen in response to news that Russia will suspend its participation in the deal. The surge will lead to higher prices for staples like bread and pasta in the coming months.

However, the situation is better than in the months following the start of the war, as grain shipments from other producers such as Brazil and Russia have increased.

Prices of Wv1 Wheat, the main ingredient in bread, are down about 14% so far this year, and Cv1 Corn is down about 23% in price.

However, the current global food crisis is far from over. WFP said last month several emergencies had overlapped, resulting in the largest and most complex hunger and humanitarian crisis in more than 70 years.

In 2022, a record 349 million people were suffering from acute hunger and 772,000 were on the brink of starvation, WFP said in an annual review.

WHAT IS THE STATUS OF THE GLOBAL FOOD SUPPLY?

Global corn stocks started the 2021/22 season at a six-year low and the Russian invasion of Ukraine, one of the world’s largest corn exporters, led to a significant price increase.

However, a sharp increase in exports from Brazil has since helped boost supply, along with nearly 17 million tonnes of corn being exported through the corridor.

The US Department of Agriculture has forecast that by the end of the 2023/24 season, global corn supplies will reach their highest level in five years.

Global wheat stocks are tighter and are likely to end the 2023/24 season at an eight-year low, USDA data show.

What would that mean for the World Food Program?

WFP buys millions of tons of food every year, about 75% of which is grain.

In 2021, WFP purchases totaled 4.4 million tonnes, with Ukraine being the main source, supplying 20% ​​of the total.

Ukraine mainly supplies wheat and split peas.

Most of the food goes to Africa and some countries in western Asia like Yemen. As a result, WFP sources most of its food from Eastern Europe, which is closer than the major producers in North or South America.

WFP shipped 725,200 tons through the corridor. It must look elsewhere, possibly at a higher cost, if a funding shortfall has already forced it to scale back its operations in some countries.

WHAT WAS EXPORTED?

Under the pact to create a safe shipping channel, Ukraine was able to export 32.9 million tons of agricultural products, including 16.9 million tons of corn and 8.9 million tons of wheat.

Before the conflict, Ukraine exported about 25-30 million tons of corn annually, mostly via the Black Sea, and 16-21 million tons of wheat.

The capacity to move grain across the Black Sea under the pact was limited by the inclusion of only three ports.

Why is Russia withdrawing from the pact?

Russia has repeatedly stated that it sees no reason to extend the agreement. It states that commitments made to remove obstacles to Russian food and fertilizer exports have not been fulfilled.

Moscow’s demands included reconnecting the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payment system.

Other demands include the resumption of deliveries of agricultural machinery and parts, the lifting of insurance and reinsurance restrictions, the resumption of the Togliatti-Odessa ammonia pipeline, and the release of assets and accounts of Russian companies involved in food and fertilizer exports.

CAN THE CORRIDOR WORK WITHOUT RUSSIA?

Ukraine’s ports were blocked until the deal last July and it’s unclear whether it will be possible to ship grain after Russia pulls out of the pact.

The additional war risk insurance premiums levied upon entry into the Black Sea region would increase and shipowners might be reluctant to enter a war zone without Russia’s consent.

Insurance industry sources say coverage arrangements could change quickly. War risk insurance for ships has to be renewed every seven days, which costs thousands of dollars.

IS THE CORRIDOR NEEDED WHEN HARVESTS IN UKRAINE SHORT?

Ukraine’s grain exports are forecast to fall in the 2023/24 season after the war caused farmers to plant less corn and wheat.

The US Department of Agriculture has forecast corn exports to fall to 19.5 million tonnes, compared with 28 million in the previous season and well below the record 30.3 million tonnes shipped in the 2018/19 season, when it accounted for 17% of world trade.

Wheat exports are expected to fall to 10.5 million tonnes, compared with 16.8 million in the previous season and well below the peak of 21 million in 2019/20, which accounted for 11% of world trade.

However, exporting even these smaller amounts of grain through the Eastern European Union would be logistically difficult and expensive, particularly for crops grown in the eastern regions of Ukraine that face a long and arduous journey to the border.

CAN UKRAINE EXPORT MORE GRAIN THROUGH THE EU?

Since the beginning of the conflict, Ukraine has been exporting significant amounts of grain through eastern EU countries. However, there were many logistical challenges, including different track gauges.

Another problem is that the flow of Ukrainian grain through the eastern EU has sparked unrest among farmers in the region, who say the grain is eroding local supplies and being bought up by mills, leaving them no market for their crops have.

As a result, the EU has allowed five countries – Bulgaria, Hungary, Poland, Romania and Slovakia – to ban domestic sales of Ukrainian wheat, corn, rapeseed and sunflower seeds while allowing transit for export to other countries. Currently, this will expire by mid-September.

Larger harvests are also expected in the east of the EU this summer and major ports such as Constanta in Romania are likely to struggle to cope with the expected amount of grain arriving, causing congestion and delays in shipping.

(Reporting by Nigel Hunt and Jonathan Saul; Editing by David Evans and Barbara Lewis)

(c) Copyright Thomson Reuters 2023.

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