The United Nations-brokered Black Sea grain deal, which was signed in July of last year, came to an end this week when Russia officially announced it was withdrawing from the agreement.

Under the deal, Ukraine was able to export its agricultural produces through Black Sea ports without Russian interference.

Since it was signed, just under 33m tonnes of grains and seeds have made their way on to world markets through the route (Figure 1).

While the direct exports to Ireland through the route only amounted to 60,000t of corn, the effects on Irish agriculture from the suspension of the deal could be long-lasting.

  • Agreement signed in Istanbul on 22 July 2022. However, it was 1 August before the first shipment under the agreement takes place. The deal initially was for four months - until mid-November.
  • Russia briefly suspended its participation in mid-October as it accused Ukraine of using a cargo ship to launch an attack on the Crimean port of Sevastopol. It rejoined four days later following interventions from Turkey and the UN.
  • The deal was extended for a further four months on 19 November. UN secretary general António Guterres said the organisation is fully committed to removing the remaining obstacles to exporting food and fertilisers from the Russian Federation.
  • In mid-March, the agreement was extended again. This time, Russia would only agree to another 60 days as it complained the UN was not meeting its commitments to overcoming obstacles to its products being freely traded.
  • The deal gained another 60-day extension in mid-May, but it was already becoming clear that it was increasingly in difficulty. Ukraine was effectively reduced to exporting from two of its three major ports after Russia used a technicality to end shipments from the port of Pivdennyi.
  • Russia expressed continued frustration with the lack of progress on re-opening its export markets. The port of Pivdennyi had been a major hub for the export of ammonia, but remained closed to the piped product.
  • Russia formally withdrew from the deal on 17 July at the end of the agreed May extension.

    • During its one-year span, the Black Sea deal saw 1,004 shipments totalling just under 33m tonnes.

    Among customers for the shipments, China was by far the largest, taking 8m tonnes of mostly corn and sunflower meal. That country’s reliance on Ukrainian grain had led some analysts to expect Beijing to put increased diplomatic pressure on Moscow to extend the deal, but there is no sign of that happening yet.

    International grain market reaction to Russian withdrawal

    While the outlook remains highly uncertain, it is notable how calmly international grain markets reacted to the Russian withdrawal.

    Major commodity prices were little changed on the day of the announcement.

    There are a couple of reasons for this.

    Firstly, forecasts for global production from the July USDA World Agricultural Supply and Demand Estimates (WASDE) show that global supply of corn for 2023-24 is expected to rise by almost 70m tonnes, while ex-Russia wheat supplies are expected to increase by around 19m tonnes.

    So, there is very unlikely to be a global shortage caused by the loss of the Black Sea route.

    Improvement

    Secondly, the situation with Ukrainian grain exports by land and river, through Europe, has vastly improved since the summer of 2022.

    The amounts moved this way have steadily increased and further investments are underway to remove some of the bottlenecks. The European Bank for Reconstruction and Development last week announced it was lending €9.6m to improve a grain export rail terminal near the Polish border.

    The EBRD loan is accompanied by a €1.5m investment grant from the US.

    Thirdly, even if global production misses targets for this year and Ukrainian efforts to expand overland exports are delayed, current global stocks of key grains are in a very healthy place. Any actual shortage would take some time to materialise, and should be well flagged.

    The real effect from the closure of the Black Sea route will be felt in something that doesn’t happen. Before the Russian withdrawal this week, it seemed increasingly likely that global grain prices would fall further. That scenario now seems less likely.

    Black Sea region.

    While the loss of 30m tonnes of grain from world markets may sound like a lot, it barely counts for 2% of annual global production.

    At the margins, that supply arriving on global markets will have some effect on prices, but it should not be a game-changer when production is rising elsewhere.

    The bigger price effect comes from the fact that Russia is still willing to unilaterally act to disrupt trade flows.

    Certainty

    There is nothing markets love more than certainty and nothing they hate more than volatility.

    Until there is some certainty over the outlook for Ukrainian exports, and more certainty over Russia’s plans, there will continue to be a considerable premium in wheat, corn and oilseed prices globally.

    For Irish farmers, it probably means slightly higher-than-long-term-average prices. French Matif wheat for December held above €230/t, close to a 20% premium on its pre-Covid-19 average.

    This means that tillage farmers will avoid a complete collapse in income – providing they have been able to keep their costs under control.

    For anyone in the business of feeding cattle, then this obviously is bad news as another cost that might have been expected to fall further is instead set to weigh on profits for another year.

    Russia’s stated reason for ending the Black Sea deal was that the international community had not done enough to restore its ability to ship its own agriculture and fertiliser production.

    The truth is, Russian grain and fertiliser is not sanctioned, and, despite being cut off from the global financial system, a workaround had been found to enable importers to pay for Russian output.

    It seems that maybe, rather than any specific barrier to shipments, a lot of the world would rather just not trade with Russia at the moment. This is a problem which Russia has caused for itself, and one for which there is no easy solution.

    With this in mind, the logic for the withdrawal from the Black Sea deal seems to be more like an attempt to show strength from a position of weakness, rather than a need to meet any specific demand.

    As long as the war continues and Russia uses any lever it can to pressure the international community, we will see higher than average food prices.

    Russia is ensuring there is more risk in the world, and while it may not be exactly quantifiable, it certainly has to be included in the price of global agricultural commodities.

    Russia takes control of Danone business in the country

    Moscow issued a decree at the weekend in which the Kremlin said it was taking “temporary control” of French dairy giant Danone’s Russian subsidiary.

    In a statement following the announcement, Danone said it is investigating the situation and that it is preparing to take “all necessary measures” to protect its rights as shareholders of Danone Russia.

    The company added that the action by Russian authorities would have no impact on its financial guidance for this year.

    The Kremlin also took control of Carlberg’s stake in a Russian brewery. Carlsberg said it was not officially informed of the move. This is not the first time western companies have been targeted, with the Russian subsidiaries of Germany’s Uniper and Finland’s Fortum taken under State control earlier this year.

    There are not many western companies operating as normal in Russia after a large number pulled out of the country in the wake of the invasion of Ukraine.