Can grain agreement with Ukraine help world to tackle food crisis?
After halting its role over the weekend in a move that threatened to worsen famine throughout the world, Russia announced on Wednesday that it will restart its participation in a pact to release essential grain shipments from the war-torn Ukraine.
With some of the world’s poorest countries as consumers, the agreement, struck in July, created a protected marine transit route and was intended to reduce global food shortages. Developing countries like Somalia and Eritrea also significantly rely on wheat shipments from Russia.
The foundation of the agreement was to make commercial shipments easier. The agreement established a secure maritime route for exports from three Ukrainian ports, and one of its initial goals was to allow some ships that had been stuck in the country’s war-torn ports since Russia’s incursion in February to leave.
A total of 9.76 million tonnes of agricultural products, primarily corn but also including soy, sunflower oil, sunflower meal, and barley, have been exported thus far. 2.8 million tonnes of wheat have been shipped, or about 30% of the total.
This is partly due to the invasion’s timing because much of the wheat production from the previous year had already been exported by February. Wheat is typically exported earlier than maize since it is harvested several months earlier. The worldwide food price problem this year has been exacerbated by a decline in supplies from key exporter Ukraine, but there are other significant reasons as well.
Other reasons include the COVID-19 pandemic and the climate shocks, including the recent droughts in both Argentina and the United States, which continue to pose a threat to agricultural productivity. Shipments from Ukraine have partially recovered thanks to the corridor, but they are still significantly below pre-invasion levels and won’t reach full recovery for some time.
While Ukrainian farmers have decreased their sowings of commodities like wheat after frequently selling last year’s crops at a loss and with local prices staying very low, transporting grains to those ports is still difficult and expensive.
Odesa, Chornomorsk, and Pivdennyi, the three ports involved in the transaction, have a combined capacity to ship about three million tonnes each month. Depending on the situation with the three seaports, Ukraine might export between 23.9 and 40 million tonnes of grains in 2022/23, according to estimations by consultants APK-Inform.
According to data from the agriculture ministry, which includes exports via smaller Danube ports and by land, as of Nov. 2, it had exported 13.4 million tonnes, which included 5.1 million tonnes of wheat and 7.1 million tonnes of corn. However, there haven’t been enough big ships arriving to maintain the required volume and velocity.
Can grain agreement with Ukraine help world to tackle food crisis?
Given the risk posed by mines and the high expense of insurance, many larger shipowners have remained reluctant to enter a combat zone. A stronger export drive has been difficult because Mykolaiv, Ukraine’s second-largest grain terminal according to shipment data from 2021, was excluded.
HAS IT REDUCED WORLDWIDE WHEAT PRICES?
Following Russia’s invasion of Ukraine on February 24, wheat prices on the Chicago Board of Trade dramatically increased, but are still just marginally higher than pre-conflict levels.
One factor bringing down prices is Ukraine’s capacity to export millions of tonnes of wheat through the corridor. Other considerations include a record crop this year in Russia, a key exporter, the bleak outlook for the world economy, and a strong dollar.
However, despite the fall in Chicago futures, prices for wheat-based food staples like bread and noodles continue to be significantly higher in many developing nations due to weak local currencies and increasing energy prices, which have increased expenditures such as shipping and packaging.
