Russia’s UN Grain Deal Boomerang: Implications for the Deal and Global Food Prices

Russia rejoined the UN Black Sea Grain Initiative on Wednesday after pausing its participation over the weekend when its Black Sea Fleet was attacked off the Crimean city of Sevastopol. The deal, signed in July for a 120-day period, is up for renewal on November 19. What do Russia’s decisions this week bode for the future of the grain deal? And what does the grain deal mean for Ukrainian agriculture and global food security?

Q1: What happened over the past week?

A1: On Saturday, October 29, Russia announced that it was pulling out of the Black Sea Grain Initiative citing the attack on its Black Sea fleet near Sevastopol. Markets reacted quickly to the news: weekend trading on futures markets saw prices for wheat and corn rising 6 percent and 2 percent, respectively. Facing strong international condemnation, Russia agreed to rejoin the agreement on November 2 but also indicated that extension of the agreement, which expires later this month, was in jeopardy. Before rejoining the agreement, Russia claimed to have received guarantees over the safety of its ships passing through the Black Sea corridor, though security has not presented a challenge to date: there have been no reports of incidents involving the hundreds of cargo ships that have transited the Black Sea under the agreement since July.

Q2: What is the Black Sea Grain Initiative and why is it important?

A2: The Black Sea Grain Initiative is a UN-supported agreement brokered by Turkey between the Russian Federation and Ukraine, which has allowed exports of grains and related foods to resume from three Ukrainian ports that had been effectively blocked since mid-February. Prior to the war, these three ports—Odesa, Chornomorsk, and Pivdennyi—accounted for about 50 percent of Ukraine’s maritime agricultural exports. Signed on July 22, the 120-day agreement would need to be reapproved by the parties, or it will terminate on November 19. Even prior to the temporary suspension this past weekend, Russia had been critical of the agreement and had threatened in numerous public statements that it was not inclined toward extension.

As of November 3, over 10 million metric tons of grains, oilseeds and other foodstuffs had been exported under the agreement. The deal has allowed Ukraine to more than double its exports compared to the period prior to the signing of the agreement, significantly easing pressure on regional markets and on Ukrainian farmers unable to move their products.

Q3: What are Russia’s complaints about the agreement, and are the complaints justified?

A3: Since the first ships left Ukraine’s ports on August 1, the agreement has been instrumental in easing global food prices and getting supplies to food-importing countries, including those experiencing high levels of food insecurity.

Russia has claimed that the deal mainly benefits high-income countries. However, this criticism fails to account for distortions in export patterns caused by the war. When the deal took effect, corn exports swelled (4 million metric tons from August to October versus 1.36 million metric tons for the same period in 2021). This is because many of the ships blocked in Ukraine’s ports since February carried corn, so corn was among the first grains to move under the agreement.

Under the agreement, some of the poorest countries, particularly in sub-Saharan Africa, have received the same share as last year in wheat exports. In addition, about 150,000 metric tons of wheat have been exported through the UN World Food Program to poor countries in the Horn of Africa and to Afghanistan. Wheat exports increase in the fall and winter months, after Ukraine’s late-summer wheat harvest. The United Nations provides up-to-date information about grain shipments under the Black Sea Grain Initiative, including types of grains shipped and countries of destination.

Russia has also indicated that it would like to extend the agreement to allow Russia exports of anhydrous ammonia (a fertilizer feedstock) through Odesa. Prior to the war, Russia shipped much of its anhydrous ammonia exports via pipeline through Odesa. Ukraine has indicated its unwillingness to modify what it sees as the original terms of the agreement.

Q4: What is the likelihood of Russia agreeing to extension later this month?

A4: Participation in the deal gives Russia leverage, and Russia may continue to threaten to leave the deal to obtain other guarantees from Ukraine or other countries. Despite its threats to pull out of the agreement, Russia will be under strong international pressure to extend. While many countries have remained neutral (some even supporting Russia) throughout the war, there has been broad support for the Black Sea Grain Initiative. Breaking the agreement risks losing support from those countries.

Q5: What is the long-run outlook for Ukrainian and global agriculture, assuming the agreement is renewed?

A5: The agreement has boosted Ukraine’s exports, which has helped provide grain and other food products to markets around the world and has eased global prices. It has also helped Ukraine by moving grain into export channels and thus freeing up local storage for new crops. Unfortunately, as long as the war continues and export volumes, despite the agreement, remain at 50 percent of prewar levels, Ukrainian farmers will continue to face great risks and low returns. Agriculture Ministry officials indicate that farmers will plant 30 percent less fall-planted wheat this fall than last year, which means that 2023 would mark the third consecutive crop cycle impacted by the war. With tight global supplies, this will put pressure on producers elsewhere to make up the balance, which would help quell global grain prices that remain at least 50 percent higher than January 2020.

Joseph Glauber is a senior adviser (non-resident) with the CSIS Global Food Security Program and a senior research fellow at the International Food Policy Research Institute (IFPRI). David Laborde is a senior research fellow at the International Food Policy Research Institute (IFPRI). Caitlin Welsh is the director of the Global Food Security Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2022 by the Center for Strategic and International Studies. All rights reserved.

Joseph Glauber
Senior Adviser (Non-Resident), Global Food and Water Security Program
Caitlin Welsh
Director, Global Food and Water Security Program

David Laborde

Senior Research Fellow, International Food Policy Research Institute