Why does Russia agree to extend the grain agreement with Ukraine?
Grain export through Black Sea ports of Ukraine will be able to continue for at least four months. The agreement reached between Russia and Ukraine on July 22 will continue to be applied for an additional 120 days thanks to the mediation of Turkey, said the Minister of Infrastructure of Ukraine Alexander Kubrakov. Turkey also confirmed the information. The initial contract was for four months and expired on November 19.
Since last July, this agreement has allowed Ukraine to export more than 10 million tons of grain by sea. The agreement provides the right of passage to Black Sea ports for civilian ships inspected in Turkey under UN supervision. These grains are added to the 20 million tons exported by land thanks to the mobilization of Europeans.
The agreement allowed trade to be smoothed and the world price of the grain to fall at a time when many African countries, which depend heavily on imports of Ukrainian wheat, fear for food security. Last August, the price of a tonne of wheat returned to its pre-Russian attack level of €330 per tonne, after rising more than 80% in March. “With this update, prices should drop a bit further to below €300. According to Thierry Pouch, Chief Economist of the Permanent Assembly of Agricultural Chambers. During the Covid epidemic we were €250. »
The tension in the markets existed even before the war
The recovery of Ukrainian exports was all the more necessary because the world price of cereals had increased before the war: “Between the beginning of 2021 and the conflict in Ukraine, world grain prices have already almost doubled,” Global Sovereign Advisory (GSA) is a specialist in advising sovereigns on their debt.
He believes that the continuation of Ukrainian exports will not be enough to remove any tension in the markets. Canadian wheat production is expected to increase next year “It will be compensated by the decrease in wheat production in Ukraine”. The country actually needs to produce only 20 million tons next year due to the ongoing war in its territory. “This is 38% less than the previous year” GSA calculates.
The conflict in Ukraine pits two countries against each other, important for the grain market. Before the war, Ukraine and Russia accounted for 30% of world wheat trade and 78% of sunflower oil exports. According to the World Food Program, more than 30 wheat-importing countries depend on Russia or Ukraine for more than 30% of their imports.
Russia is under international pressure
Russia accepted the renewal of the treaty because it was under strong international pressure from both developed and developing countries. This topic attracted attention at the G20 summit held in Bali on November 15 and 16. The final communique of the summit clearly calls for the continuation of food exports. “To reduce stress and prevent food insecurity and global hunger”.
If Russia surrenders, it is also due to the fact that it received guarantees for the resumption of its exports. The agreement signed on July 22 consisted of two parts. The first one organized the resumption of exports from Ukrainian ports, but the second component was supposed to allow Russia to resume fertilizer exports. But that part was never implemented because carriers and insurers were afraid of being hit by sanctions and didn’t want to get involved.
Corridor for Russian fertilizers
But as the November 19 date approached, discussions between Russia and the UN led to a solution. At the G20 summit, French President Emmanuel Macron said that the World Food Program will be implemented. “A new corridor to bring Russian fertilizers to Africa, like we did for cereals. The first shipments will be delivered next week.”he said.
Russia is also asking for ammonia, used in fertilizers, to be able to resume exports from the Russian Volga city of Togliatti to the Ukrainian port of Odessa via a pipeline. It is owned by wealthy Russian businessman Dmitry Mazepin (also known as the father of Formula 1 driver Nikita Mazepin). Exports of his company “Togliattiazot” practically stopped as a result of the war. So far, this issue has not been resolved.
