Ukraine: Russia did not renew the Black Sea grain deal

Event

On 17 July, Russia announced that it will not renew the Black Sea grain deal. The agreement, brokered by Turkey and the UN in July 2022, allowed to resume Ukrainian grain exports from the Black Sea ports. Whereas the deal was renewed every 120 days in the beginning, Russia renewed it for only 60 days as of March 2023. Moreover, Moscow repeatedly requested sanctions relief, notably to permit the Russian Agriculture Bank to use Swift to handle payments related to grain exports.

According to UN figures, the agreement allowed more than 32 million tonnes of food (notably corn, wheat, sunflower meal and oil) to be exported to 45 countries (notably China, Spain, Turkey, Italy, the Netherlands, Egypt and Bangladesh).

Impact

Even if it remains to be seen whether diplomatic negotiations will allow a resumption of the agreement, it is clear that Russia’s withdrawal from the Black Sea grain deal would hit the Ukrainian economy and lead to a sharp increase in food prices worldwide. Indeed, in 2022, food exports accounted for more than 30% of Ukraine’s current account receipts. Finding alternative routes is not easy as they are less efficient, more expensive and a source of tensions with the country’s neighbours. Indeed, following Russia’s announcement, Poland, Hungary, Slovakia, Bulgaria and Romania asked the EU to extend trade controls on Ukrainian grains amid fears that the end of the deal will put pressure on their domestic grain markets. This is a sensitive issue, especially in view of the forthcoming elections in Poland.

The end of the Black Sea grain deal would also increase agriculture prices worldwide. After all, the
implementation of the deal led to a sharp reduction of agriculture prices (see graph below). Renewed pressure on food prices is likely to weigh on inflation, heighten social discontent and increase food insecurity in poorer countries.

Analyst: Pascaline della Faille - P.dellaFaille@credendo.com