Russia announced last weekend its intention to suspend participation in the United Nations (UN) brokered Black Sea grain initiative for an unspecified period.

The suspension, in response to alleged Ukrainian attacks against its ships, is likely to increase grain prices in the short term and could potentially disrupt world markets into 2023 and beyond.

The Black Sea grain initiative was signed by the UN, Ukraine, Russia and Turkey in Istanbul in July. Under the deal, ships transporting grain from three Ukrainian ports, which were blocked since the start of the war, travel along an agreed corridor to global markets.

The UN and Russia also signed a parallel agreement on grain and fertiliser exports from Russia. Since the two agreements were signed, grain exports from Ukraine and Russia increased substantially and food prices declined for six consecutive months, according to head of the UN trade and development agency Rebeca Grynspan.

According to UN estimates, the reduction in prices of staple foods indirectly prevented some 100 million people from falling into extreme poverty.

Supply chain disruptions to recommence

According to David Laborde and Joseph Glauber, who are research fellows at the International Food Policy Research Institute (IFPIRI), supply chain disruptions will begin again.

They predict that the move will have a negative impact on Ukraine, its customers, on world market prices – and global food security, particularly for countries in the Middle East and orth Africa regions.

While these countries are more dependent on Ukrainian wheat and grains, they tend to buy more during the winter to supplement their own harvests, according to Laborde and Glauber.

Russia claims high income countries benefit most

Russia’s suspension is not a surprise, having been critical of the deal which was due to expire in mid-November. Russia argued the deal benefits mainly high income countries.

However, researchers at IFPIRI claim that this fails to account for distortions in export patterns caused by the war.

Shipping was closed from February to July, when Ukraine exports most of its maize, the majority of which goes to Europe. When the deal was implemented, Europe, the Middle East and north Africa saw their maize imports increase dramatically, but in line with 2021 levels.

Meanwhile, some of the poorest countries, in particular in sub-Saharan Africa, have received the same share of wheat as last year. In addition, about 150,000t of wheat has been exported to the Horn of Africa and Afghanistan through the UN World Food Programme.

Significance of the deal

United Nations data show that Ukraine and Russia account for roughly 30% of global wheat and barley exports, one fifth of maize exports and over half of sunflower oil.

Russia is also the world’s largest exporter of fertilisers, accounting for 15% of global exports. Three-quarters of Ukraine’s grain exports are from Black Sea ports, half of which goes through the three ports included in the deal.

Under the deal, almost 9.3 million tonnes of grains, oilseeds and other foodstuffs were exported, according to Laborde and Glauber. It allowed Ukraine to double its exports compared with pre-deal levels, although it’s still operating at 50% of its pre-war 2021 level.

Ukraine’s grain exports are not a food aid operation, according to UN emergency relief co-ordinator Martin Griffiths. However, they do operate as a huge lever on price, with positive ripple effects throughout the world.

Suspension of the Black Sea grain initiative sets back efforts to reduce the impact of the war in Ukraine on global consumers, particularly in the Middle East and north Africa, threatening food security in those regions, according to Laborde and Glauber.

Futures prices for wheat and maize increased following Russia’s suspension. However, Ukrainian farmers will see little benefit from higher prices, as significantly less grain will trade, creating pressure on storage facilities.

According to Glauber and Laborde, lower prices will bring some Ukrainian farmers to the verge of bankruptcy and create further disincentives to plant crops for the following year, resulting in market disruptions into 2023 and perhaps beyond.