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Russia Stops Ukraine Grain Deal, Shaking World Food Markets

Moscow, which has repeatedly complained that the U.N.-brokered agreement is one-sided in Ukraine’s favor, said it could return to the deal if its demands were met.



Ukraine is a major exporter of foodstuffs, and Africa, in particular, relies on grain stored in silos like these, in Marianske, in the southern Dnipro region, in June. Finbarr O'Reilly for The New York Times

Russia said on Monday it was withdrawing from a wartime agreement to allow grain exports from Ukraine through the Black Sea until its demands to loosen sanctions on its own agricultural exports were met, upending a deal that has helped stabilize global food prices and alleviate shortages in parts of Africa and the Middle East.


The agreement, known as the Black Sea Grain Initiative, was struck a year ago, brokered by the United Nations and Turkey, to alleviate a global food crisis after Russia’s full-scale invasion of Ukraine. Russia had blockaded Ukrainian ports, blocking ships from carrying its grain and sending global prices soaring to record highs. The deal has been extended three times, most recently in May. The latest extension expired on Monday.


The United Nations’ secretary general, António Guterres, said he was “deeply disappointed” by Moscow’s decision, and that millions of people facing hunger, as well as consumers confronting a cost-of-living crisis, would “pay a price.” He also said he had sent proposals last week to President Vladimir V. Putin of Russia to facilitate Moscow’s demands. Mr. Putin never responded directly, a U.N. spokesman said.


Russia has repeatedly complained about the agreement, which it calls one-sided in Ukraine’s favor. Moscow has said that Western sanctions, imposed because of Moscow’s devastating war, have restricted the sale of Russia’s agricultural products, and Moscow has sought guarantees that free up those exports.


In April, Russia’s Foreign Ministry also listed other demands to renew the grain deal: reconnect the state-owned Russian Agricultural Bank to the international SWIFT messaging service that is critical for cross-border payments; lift restrictions on maritime insurance and on the supply of spare parts used in agricultural machinery; end sanctions against fertilizer companies and the people linked to them; and restore an ammonia pipeline that crosses Ukraine.


The Kremlin’s spokesman, Dmitri S. Peskov, who announced on Monday that the Black Sea grain agreement was “halted,” said, “As soon as the Russian part is fulfilled, the Russian side will immediately return to the implementation of that deal.”


Russia’s announcement came hours after a deadly attack on the Kerch Strait Bridge linking the occupied Crimea Peninsula to mainland Russia. Mr. Peskov said the decision to suspend the grain deal was not connected to the attack.



A Turkish-flagged cargo ship carrying grain under the Black Sea Grain Initiative, off Istanbul on Monday. Yoruk Isik/Reuters

Ukraine is one of the world’s major exporters of wheat, corn, sunflower seeds and vegetable oil. It has exported 32.9 million tons of grain and other food under the initiative, according to U.N. data. Under the agreement, ships are permitted to pass by Russian naval vessels that kept other vessels from using Ukraine’s ports since the start of Russia’s war. The ships are inspected off the coast of Istanbul, in part to ensure they are not carrying weapons.


The effects of the suspended grain deal were quickly apparent. It rattled wheat markets, seesawing prices and exposing vulnerable countries in Africa and the global south to the prospect of a new round of food insecurity.


Chicago wheat futures, a barometer for global prices, briefly jumped more than 4 percent as the Kremlin’s move jeopardized a key trade route to global markets for grain from Ukraine. Later, prices swung to more than 1 percent lower for the day.


Secretary of State Antony J. Blinken told reporters at the State Department on Monday: “I hope that every country is watching this very closely. They will see that Russia is responsible for denying food to people who are desperately needy around the world.”


John Kirby, a spokesman for the U.S. National Security Council, called Russia’s move a “military act of aggression” and said that the United States was already seeing a rise in global wheat, corn and soybean prices.


“We urge the government of Russia to immediately reverse its decision,” he added.


Russia’s decision appears to be part of a broader effort by Mr. Putin to reassert an aura of unassailable authority after a failed mutiny by the Wagner mercenary group, said Timothy Ash, a senior strategist at BlueBay Asset Management in London and an expert on Russia and Ukraine.


“It will hurt specific countries dependent on these exports,” Mr. Ash said. But beyond that, “it shows how weak Putin is after the Wagner coup: He is now desperate to take any bit of leverage he can.”


President Volodymyr Zelensky of Ukraine said that Moscow had broken its agreement with the United Nations and with Turkey’s president, Recep Tayyip Erdogan, rather than with his country, given that Ukraine had made a separate deal with the two mediators over grain. In remarks conveyed by his press office, Mr. Zelensky added that Ukraine was ready to restart shipments if the United Nations and Turkey agreed.



Inside the grain storage facility on the outskirts Ternopil, Ukraine, last year, Diego Ibarra Sanchez for The New York Times

With Black Sea ports closed again, Ukraine may have to redouble its use of alternative routes, exporting grain by truck, train and river barge — journeys that take a longer time than shipping by sea, and cannot handle the same volume.


Mr. Blinken said that the United States would help Ukraine find other means of export, but that “it’s really hard to replace what’s now being lost as a result of Russia weaponizing food.”


Mr. Erdogan said he would speak to Mr. Putin about the agreement and signaled hope that it could be revived. “Despite the statement today, I believe the president of the Russian Federation, my friend Putin, wants the continuation of this humanitarian bridge,” Mr. Erdogan said in Istanbul.


The deal between Ukraine and Russia — which is also a major global supplier of grain, oil and other affordable food products — is particularly important in 14 African nations that depend on the two nations for half of their wheat imports, according to the United Nations’ Food and Agriculture Organization. Eritrea is fully dependent on them.


When the grain deal began in July 2022, Célestin Tawamba, the chief executive officer of La Pasta, the largest flour and pasta producer in Cameroon, said, “The noose was tightening, so the deal should help us breathe.”


The initial agreement allowed Ukraine to restart the export of millions of tons of grain that had languished for months. Food prices have dropped over 23 percent from their peak in March 2022, according to the Food and Agriculture Organization’s Food Price Index. The accord has allowed vital food products to be exported from Ukrainian ports to 45 countries on three continents, the United Nations said.


But again and again, before each negotiated extension has run out, Russia has signaled it might withdraw from the agreement. Last year, after accusing Ukraine of attacking its warships in the Black Sea port of Sevastopol with a swarm of drones, Russia pulled out, halting participation in inspections that were part of the agreement. Then it rejoined in a matter of days.



Grain storage last week in the town of Kushuhum in Ukraine’s southern Zaporizhzhia region. Finbarr O'Reilly

The collapse of the grain deal dominated the U.N. Security Council’s session on Ukraine on Monday. China, an ally of Russia’s, stopped short of directly condemning Russia for withdrawing from the deal but called on both sides to resume negotiations to restore the pact.


Mr. Guterres said earlier that to help meet Russia’s demands, he had sent Mr. Putin proposals to “remove hurdles” affecting its financial transactions. He said the United Nations had proposed enabling a subsidiary of the Russian Agricultural Bank — one of several institutions barred by Western sanctions from SWIFT because of Russia’s aggression — to regain access with the European Commission, and that the agency had built a bespoke payment mechanism outside of SWIFT for the bank through JP Morgan.


The U.N. spokesman, Stéphane Dujarric, said that Russia’s response to the letter apparently came in the form of Monday’s announcement. Mr. Guterres said, however, that the United Nations intended to start negotiating a new grain proposal with Mr. Putin.


Despite Russia’s move, analysts say, some factors may prevent food prices from surging to the staggering levels seen just after Russia invaded Ukraine.


For one thing, the global commodity price outlook is weaker than a year ago because of a faltering economic recovery in China. A global cost-of-living crisis has been eroding demand more generally, Mr. Ash, the strategist, said. Supply chain stresses are also easing, and manufacturing and production costs have cooled, according to an analysis by Oxford Economics, a research institute.


Arlan Suderman, chief commodities economist at the financial services firm StoneX, said that Russia was still dumping cheap wheat on the global market, “so we are not running out of wheat right now.”


“This particular development today may not do a lot to risk world hunger,” he said, “but the continual escalation with no resolution in sight means the risks are still growing.”



 

(c) 2023, The New York Times

https://www.nytimes.com/2023/07/17/world/europe/ukraine-grain-deal-russia-war.html

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