Russia is defying the grain market, but importers are still finding a way out

It has been a chaotic week on the international grain market to say the least. Less than a week ago, Russia said it would immediately withdraw from the much-vaunted grain deal with Ukraine. And on Wednesday, the Russians announced that they would participate again.

After the latest announcement, the grain price immediately fell a few percent, although it is still very high: wheat futures on the Chicago exchange are more than 60 percent more expensive than at the beginning of 2020, before the pandemic.

The grain deal to ensure safe exports of Ukrainian grain across the Black Sea since July shows how much additional uncertainty international food markets have faced since the Russian invasion of Ukraine. The trade mainly concerns wheat and maize. Ukraine is the world’s fifth largest exporter of wheat, mainly used for human consumption. It is the largest of maize, mainly used as animal feed.

Grain exports from Ukraine are largely carried out by ship, across the Black Sea. The grains reach the world market via the Bosphorus area in Turkey. Because of the war, passage across the Black Sea is difficult to secure. As a result, grain imports from countries heavily dependent on Russia and Ukraine have fallen sharply or at least become much more uncertain. Therefore (intermediary) traders, who usually buy a lot of grain in both countries, are massively looking for new exporters.

For example, the government of Nigeria, with 217 million inhabitants the most populous country in Africa, encourages traders to also get wheat from other countries. Last year, 51 percent of Nigeria’s wheat came from Russia, Ukraine and other countries around the Black Sea. For the first half of 2022, the diversification seems to have succeeded, the US Department of Agriculture writes in a periodic report: The majority of the wheat for Nigeria then came from countries in the Americas.

also read War in Ukraine raises concerns over Egypt’s bread supply

Egypt, where the government buys centrally and usually gets more than 20 percent of its wheat from Ukraine, quickly began looking for other exporters this summer. These were found in France, Romania and Bulgaria, among others. According to wheat traders, Russia is also exporting more wheat now that less cheap Ukrainian grain is available.

In any case, Russia remains an important trading partner for many countries, whether they like it or not. For example, Egypt can hardly avoid maintaining good diplomatic relations with Moscow, if only because imports from Russia are such an “important part of Egypt’s efforts to maintain food security,” an Egyptian economist told the news site. Al-Monitor.

the superpowers of grains

The fact that the war in Ukraine can disrupt the grain market so much is also due to the emergence of Russia and Ukraine as grain superpowers. While Canada, the USA, Argentina and Australia took a large share of grain exports ten to fifteen years ago, Russia and Ukraine have become increasingly important players – partly because of the low prices.

Before the war, Ukraine was the largest supplier of the cheapest grain, says Bart de Steenhuijsen Piters, researcher in food systems at Wageningen University & Research (WUR). “Ukrainian grain was so cheap because of the fertile soil, the cheap energy, the huge area and the high degree of mechanization. Everyone was dependent on the cheap grain. Holland for the animal feed, Tanzania for the bread.”

That addiction is forced to stop. Now that the grain price has become structurally high due to the market disruption, the United Nations Food and Agriculture Organization FAO is very concerned about the availability and production of grains and other foods for the coming seasons.

The fear is that farmers worldwide are less able to assess how much – also expensive – fertilizer they should buy, how much they should sow and which crop. Should the war continue, problems may arise with the availability of wheat and corn (logistics, high prices) and with their production. This is what FAO Chief Economist Máximo Torero says in an interview with Economy and development, the magazine of the International Monetary Fund. He also expects that the export of fertilizer from Russia and Ukraine will be significantly lower.

‘The weak suffer the most’

De Steenhuijsen Piters sees fewer problems with the global production of wheat for the coming year. He expects Europe and countries such as Canada, the USA, Argentina and Australia to increase production. And that Russia continues to export a lot of grain, regardless of whether the country has produced it itself or stolen it from Ukraine. After all, food is not covered by the sanctions that several countries have imposed on Russia.

However, the high food prices cause concern for the WUR researcher. All alternatives to Ukrainian grains are more expensive. Also, switching to other foods, such as rice, is not the obvious solution. In most countries, agriculture has been so intensified with the help of artificial fertilizers and thus dependent on energy prices that everything has quickly become more expensive.

For countries that have enough money, says De Steenhuijsen Piters, the neoliberal grain market works properly. “But the poorest half of the countries have a problem. Humanity produces enough for population growth, even for global consumption growth. That’s quite an achievement. But the grain market does not take purchasing power into account.”

In addition, adds former FAO economist Abdolreza Abbassian, poorer countries are less able to regulate or pressure grain producers. “If the system doesn’t work properly, the weak suffer the most.”

De Steenhuijsen Piters emphasizes that people in African countries are also resilient. “If wheat is too expensive in Rwanda, more cassava is grown. You can also make flour from it. We must not underestimate that ingenuity.”

But after November 19, the situation may change again. Then the Ukrainian grain agreement officially ends.

Leave a Comment