Why Black Sea grain deal flop risks food price stability

The softening of food prices, witnessed in recent months risks being reversed if a deadlock over Russia’s exit from the Black Sea Grain Initiative is not resolved.

The Black Sea Grain Initiative — which gave Ukrainian agricultural goods a safe channel through the Black Sea — was conceived in July 2022 in Istanbul, Turkey, following a pact involving Turkey, Russia and the United Nations, which paved the way for the resumption of grain exports via the route.

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The United Nations Conference on Trade and Development (UNCTAD) says the initiative has been instrumental in driving a general decline in global food prices over the last 10 months and Russia’s exit presents a big blow to the management of global inflation, especially for developing economies such as Kenya.

“In Istanbul in July 2022 we signed two agreements. The Black Sea Grain Initiative Agreement for Ukraine to be able to export grains through the Black Sea Corridor that was agreed by Russia, Turkey and the United Nations,” said UNCTAD secretary-general Rebeca Grynspan, who also serves as the Task Team of the Global Crisis Response Group on Food, Energy and Finance.

“The second agreement was a memorandum of understanding between the United Nations and the Russian Federation to facilitate trade of food and fertiliser from Russia to the rest of the world.”

The latest available data shows that in 2021, Kenya received imports worth $162 million from Ukraine of which $58.0 million was attributable to wheat.

In July 2023 Kenya’s inflation declined to 7.3 percent, the first time in 14 months that is fell within the Central Bank’s target band.

Among the drivers of the decline was the 1.2 percent average year-on-year decline in the price of wheat flour to Sh188.44 per two-kilogramme packet, according to data from the Kenya National Bureau of Statistics.

It is these two agreements that have had an impact so far in bringing down international food prices for ten consecutive months in which we have seen a 23 percent drop in the food index of the Food and Agriculture Organisation.

Unfortunately, Russia decided to terminate the agreement and the United Nations is disappointed.

Russia argues that the Black Sea Grain Initiative as structured has not been satisfactory to its interests.

The UNCTAD has warned that already that has been evidence of the resurgence of volatility in food prices which will leave economies such as Kenya exposed at a time when inflation was coming under control.

“We have seen in the markets the volatility that we wanted to avoid and volatility is very bad especially for the African continent, which is very vulnerable when trade is disrupted like is now the case with the Black Sea Grain Initiative.

Transaction costs will be much higher, Africa will have to pay more for shipping, it will pay much more for insurance and the households will shoulder the cost,” said Ms Grynspan.

This comes at a time when Kenya is dealing with the global supply shocks that have increased prices of critical staples, including rice, wheat, maize, sugar and onions, fomenting a new food crisis in the country.

Protectionist decisions in India and Eastern Europe to lock stocks of food within their borders have been seen as likely to disrupt the supply of rice and wheat into Kenya, even as poor weather hinders the supply of onions from neighbouring Tanzania.

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Wheat prices have also come under pressure after Russia, which is at war with Ukraine, recently pulled out of the Black Sea deal, putting Africa’s food security at risk.

Russia also destroyed critical storage infrastructure in Ukraine in a bomb attack, triggering supply disruption fears, which is driving up prices.

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