Russia suspended participation in the “grain deal”: what will happen to prices and who will replace Ukraine in the world grain market

Russia suspended participation in the grain deal after Kyiv drones attacked Russian ships in Sevastopol.

Russia suspended participation in the grain deal after Kyiv drones attacked Russian ships in Sevastopol.

A photo: REUTERS

So, Russia suspended participation in the grain deal. This happened after Saturday’s drone attack on ships in the Sevastopol Bay. According to the Ministry of Defense, Ukraine is behind the raid, and the attacked ships were “involved in ensuring the security of the“ grain corridor ”. There were no casualties, the sea minesweeper Ivan Golubets received minor damage.

We answer the main questions about the situation with Ukrainian grain.

1. What is the deal?

A small introduction for those who have not been following the events too closely.

The grain deal is an agreement between Russia, Ukraine, Turkey and the United Nations, signed in Istanbul on July 22. Under the terms of the deal, Russia does not prevent the export of grain from Ukrainian ports, and in return, no one prevents our country from trading food and fertilizers on foreign markets. The deal guaranteed safe navigation for Ukrainian ships from the ports of Odessa, Chornomorsk and Yuzhnoye. Ukrainian merchant ships must cross the Black Sea along specially created “grain corridors” that will be cleared of mines. At the same time, they are required to enter Turkey for inspection in order to exclude the smuggling of weapons.

The agreement was signed for 120 days and expired at the end of November.

2. Why was it concluded?

Officially – to prevent starvation in poor countries.

– The conclusion of the deal would bring relief to developing countries and the most vulnerable segments of the population on the verge of starvation, – said UN Secretary General António Guterres at the signing ceremony.

The fact is that Ukraine is one of the world’s leading suppliers of grain. Previously, it exported up to 45 million tons of grain per year. According to media reports, only in Odessa this summer (before the signing of the agreement) about 20 million tons of grain have accumulated.

3. Were the terms of the deal fulfilled?

After the deal was concluded, Russian authorities and experts said more than once that in fact the lion’s share of Ukrainian grain goes by the starving Africa and Asia. The Russian Foreign Ministry recently reported that 390 Ukrainian ships passed through the “grain corridor”, which took out about 8.9 million tons of food. At the same time, half of the deliveries fell on the European Union, Great Britain, Israel and South Korea. And Ethiopia, Somalia, Sudan, Afghanistan and Yemen, who are in dire need of food, got only 3%.

– It turned out that the grain exported from Ukraine for the most part went to Europe as feed for livestock, – he said on the air radio “KP” Alexey Zubets, Director of the Institute for Social and Economic Research of the Financial University under the Government of the Russian Federation. – Europe’s task was to bring down inflation in the domestic food market. This requires cheap feed for farm animals. The food is made mainly from cereals. And the more grain is delivered to Europe at low prices (and Ukraine was selling grain at a discount), the more food prices are falling. As a result, a few grain carriers were sent to the poor countries of Asia and Africa, and everything else went to Europe.

Not respected, according to the expert, and the second part of the deal – about the unhindered access of Russian food and fertilizers to world markets.

– Europe has indeed lifted sanctions on the export of food and fertilizers from Russia. But after that, the European Commission banned Western transport companies from providing vessels for the transport of these goods, and Western insurance companies from insuring them. That is, in fact, there was a deception: we, in a simple way, were “thrown”. After that, it became clear that there would be no deal, – says Aleksey Zubets.

3. What has changed since the drone attack?

“The Russian side cannot guarantee the safety of civilian dry cargo ships participating in the Black Sea Initiative and is suspending its implementation for an indefinite period,” the Foreign Ministry said after Saturday’s drone raid on the Sevastopol Bay.

In other words, there are no more guarantees that merchant ships will pass from Ukraine to the Bosporus safe and sound. Under these conditions, the captains of Ukrainian ships seem to have only one thing left to do – to stay in the ports.

– What’s important. This is not about terminating the deal, but about “suspension”. So…there is still room for creativity, – allows the resumption of the work of the “grain corridor” Evgeny Kogan, professor at the Higher School of Economics, author of the telegram channel Bitkogan.

4. Who can replace Ukrainian grain on the world market?

Guess three times.

“Taking into account this year’s harvest, the Russian Federation is ready to completely replace Ukrainian grain and supply all interested countries at affordable prices,” he said. Minister of Agriculture Dmitry Patrushev.

Our grain harvest this year is simply phenomenal: about 150 million tons (the previous record was 135.4 million tons). For domestic consumption, no more than 100 million tons are needed, so Russia can easily send 50-60 million tons for export. But there is still grain that has not been sold since last season.

At the same time, our country lacks modern storage facilities in which grain can be stored for more than six months without loss of quality. So, not only can and should be exported Russian grain: it is important for farmers to start doing this as soon as possible.

5. What will happen to prices?

Grain is a commodity. That is, its value is formed on international exchanges. Recently, due to record harvests in Russia and Australia, these prices have been falling.

– The message (about the suspension of the transaction, – Ed.) Can cause a strong reaction in all directions. Including a serious increase in grain quotations, previously stubbornly declining, – says Yevgeny Kogan.

Do not panic: even if grain prices rise on international exchanges, this will definitely not cause a jump in prices for loaves of pasta.

Firstly, flour is only one of the components of the cost of bread.

– These are ingredients, logistics, transport, electricity, packaging – probably the most expensive component in bread now, – Oksana Lut, First Deputy Minister of Agriculture, recently explained to journalists.

Secondly, the purchase prices for grain have recently been simply abnormally low: at the level of 2018. If they grow up, no big deal.

Thirdly, let the farmers earn on exports. This will finally allow them to make ends meet: to buy imported equipment that has risen in price sharply, pay off loans, and carry out winter sowing. And then they won’t have to raise prices for their products inside Russia to recoup the costs.


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