The collapse of the Black Sea Grains Initiative: what future for the global food market?

The collapse of the Black Sea Grain Initiative, which helped Ukraine export more than 32 million tons of grain last year, will not have an immediate impact, but in the medium term it will create a stressful effect on the market and push up food prices, according to analysts.

Sáng kiến Ngũ cốc Biển Đen sụp đổ, tương lai nào cho thị trường lương thực toàn cầu?

The collapse of the Black Sea Grains Initiative will not have an immediate impact, but in the medium term it will create a stressful effect on the world food market. (Source: AP)

Experts say the current situation is quite different from February 2022, when Russia launched a special military operation in Ukraine, cutting off shipping in the Black Sea – the main export route for Ukraine’s agricultural products. As the world’s top exporter of sunflower oil and the fourth-largest exporter of wheat and corn, Kiev’s withdrawal from the global market pushed food prices to record highs in May 2022.

The subsequent opening of the Black Sea grain export corridor on August 1, 2022, has helped secure supplies for importing countries and helped ease the food crisis, even as Ukraine's agricultural output has declined due to the impact of the conflict.

Wheat output is forecast to fall to 17.5 million tonnes in 2023-24 from 33 million tonnes in 2021-22. Corn output is expected to fall to 25 million tonnes from 42 million tonnes.

Mr. Gautier Le Molgat, analyst of Agritel - a company specializing in providing data and analysis on the agricultural market, forecasts that in the 2023-2024 crop year, Ukraine will export 6 million tons less wheat and 10 million tons of corn and the future of the food market will be clear at the end of the harvest.

“This could be a quiet period in the market, which is less reactive to the news of the suspension of the agreement,” said Mr. Molgat. Currently, wheat prices are rising slightly in Europe and falling in the US market.

Russia’s refusal to extend the agreement was also expected. Edward de Saint-Denis, a trader at commodities trading firm Plantureux & Associes, said that in recent months his company had observed a bottleneck in the Bosphorus Strait with traffic slowing down, especially due to the low number of Russian inspectors on ships passing through the passage.

Even before the Black Sea corridor opened, the EU had created “solidarity routes” – land and river routes designed to facilitate the export of EU agricultural products through European countries. The Farm Foundation, a think tank specializing in agricultural issues, estimates that half of Ukraine’s agricultural exports already travel along these routes.

There is no shortage of wheat on the global market at the moment. However, “the most exportable wheat is from Russia, which has 12.5 million tonnes of reserves and is the cheapest wheat in the world,” said Damien Vercambre, head of commodities brokerage Inter-Courtage.

Russia could be spared any shortage of Ukrainian wheat. But growing food dependence on Russia could be a bitter pill for many countries.

The EU is expecting a normal harvest, which could also help meet the needs of importing countries. But adverse weather could quickly change the outlook.

The wheat and corn markets are also in very different places now. China, the world’s top corn importer, may turn to Brazil, which has a record harvest and is selling at lower prices.

For wheat, production may be adequate, but the decline in Ukraine’s production could have a significant impact. “The extension of the closure of the Black Sea corridor will have an impact on food price inflation, which will affect food security,” said Olia Tayeb Cherif of the Farm Foundation.

Some importing countries are starting to struggle to pay current prices, for example Egypt.

The UN World Food Programme is also at risk of disruption because it mainly sources wheat from Ukraine to supply Afghanistan, Yemen and African countries, Mr. Cherif noted.

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