© Reuters. A farmer operates a tractor as he sows corn seeds during sunset in a field near the village of Shaltyr in Rostov Region, Russia, May 5, 2023. REUTERS/Sergey Pivovarov
(Reuters) – Russian President Vladimir Putin said this month that Russia was considering withdrawing from the Black Sea grain deal and accused the West of deceiving Moscow because it still faces obstacles in getting its agricultural goods to global markets.
Putin said he would discuss the future of the grain deal with visiting African leaders on Saturday.
package deal
The United Nations and Turkey brokered the Black Sea Grains Initiative last July to help address a global food crisis exacerbated by Moscow’s invasion of Ukraine and blockade of its Black Sea ports.
It is allowed to export food and fertilizers from three Ukrainian ports – Chornomorsk, Odesa and Pivdennyi (Yuzhny). The deal has been extended three times, most recently through July 17.
Ukraine has so far exported nearly 32 million tonnes, mostly corn and wheat, under the deal. The initiative also allows for the safe export of ammonia—a key ingredient in nitrate fertilizer—but none of it has been shipped.
To persuade Russia to agree to the initiative, a three-year agreement was struck last July in which the United Nations agreed to help Moscow overcome any obstacles to its shipments of food and fertilizer.
While Russian exports of food and fertilizer are not subject to Western sanctions imposed after the invasion of Ukraine in February 2022, Moscow says restrictions on payments, logistics and insurance have impeded shipments.
UN spokesman Stephane Dujarric said last week that “the past months have shown tangible progress” in improving Russian exports, but added: “Challenges remain but we will spare no effort to overcome all remaining obstacles.”
Why were deals needed?
The world’s poorest people are hardest hit by rising global food prices. The United Nations World Food Program warned in March last year that its ability to feed some 125 million people was at risk because 50% of its grain comes from Ukraine.
Between 2018 and 2020, Africa imported $3.7 billion in wheat (32% of total African wheat imports) from Russia and another $1.4 billion from Ukraine (12% of total African wheat imports), according to the United Nations.
The United Nations said last year that 36 countries depend on Russia and Ukraine for more than half of their wheat imports, including some of the poorest and most vulnerable countries, including Lebanon, Syria, Yemen, Somalia and the Democratic Republic of the Congo.
Under the Black Sea Grain Agreement, WFP has shipped more than 625,000 tonnes of grain to date for relief operations in Afghanistan, Ethiopia, Kenya, Somalia and Yemen. In 2022, the World Food Program will purchase more than half of the world’s wheat grain from Ukraine.
Russian complaints
Putin complained that the West had cheated Russia because its exports still had problems.
The United States rejected Russia’s complaints. “They are exporting grain and fertilizer at the same levels, if not higher, than before the full invasion,” US Ambassador to the United Nations Linda Thomas-Greenfield said last month.
Putin said that Russia only agreed to the deal for countries in Africa and Latin America, but only about 3.2-3.4% of the grain goes to the world’s poorest countries while 40% goes to prosperous countries.
According to UN data, about 3% of exports under the Black Sea Agreement went to low-income countries, while high-income countries get about 44% and the rest to middle-income countries.
The United Nations has long said the deal was a commercial project and not meant to be entirely humanitarian, but it did benefit poor countries by helping lower food prices globally.
Russia demands
In a letter to UN officials in March, Russia made clear the demands it wanted to meet in return for its continued cooperation in the grain deal:
Moscow wants to reconnect the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payment system. The European Union cut off the bank from the SWIFT system in June last year because of the Russian invasion. An EU spokesperson said the bloc was not considering returning Russian banks.
As a workaround, UN officials have asked US bank JPMorgan Chase & Co (NYSE: JPM.N) to begin processing some of Russia’s grain export payments with reassurances from the US government.
The top UN trade official told Reuters last month that the UN is also working with the African Export-Import Bank (Afreximbank) to create a platform to help process transactions for Russian exports of grain and fertilizer to Africa.
Russia wants to resume its exports of ammonia in the Black Sea through a pipeline from Russia’s Togliatti to the Ukrainian port of Pivdenye. The pipeline, which pumps up to 2.5 million tons of ammonia annually, was closed due to the war.
In September, Reuters reported that the United Nations had proposed that Russian fertilizer company Uralchem sell ammonia to US-based commodities trader Trammo once it reaches the Russia-Ukraine border through the pipeline.
Until the ammonia pipeline is restarted, Moscow has said it will limit the number of ships allowed to travel to the port of Pivdenye under the Black Sea grain deal. UN data shows that no ships have visited the port of Bivdeni for more than a month.
Russia last week accused Ukrainian forces of blowing up part of the pipeline, the longest ammonia-carrying line in the world, in the Ukrainian region of Kharkiv. Ukraine’s regional governor said Russia had bombed the pipeline. Neither side presented evidence.
More than 400,000 tonnes of Russian fertilizer was also initially stranded in EU ports after the war began, though UN officials negotiated its release for export to Africa after Russia said it would donate it.
Russia also wants to resume supplies to Russia of agricultural machinery and spare parts; lifting restrictions on insurance and port access for Russian ships and cargo; Opening accounts and financial activities for Russian fertilizer companies.
Russian grain and fertilizer exports
While exports of Russian wheat and some fertilizers have risen since the war, exports of Russian ammonia and potassium-based fertilizers have fallen.
In the 2021-22 season, Russia exported 38.1 million tons of grain, including 30.7 million tons of wheat, while in the 2022-23 season, Putin said, Russia is expected to export around 55-60 million tons of grain – potentially be registered.
According to the USDA, Russia’s main wheat export markets are in the Middle East and Africa, and exports to all regions increased in 2022-23.
While exports of urea and fertilizers based on diammonium potassium and monoammonium phosphate increased from Russia, exports of fertilizers based on potassium murate potash (MOP) fell by 37% in 2022, according to trade data.
