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BBC: Russia's withdrawal from the grain deal could lead to a new food crisis

20-7-2023 |

Wheat prices have risen sharply on global markets after Russia said it would treat ships heading for Ukrainian ports as potential military targets.

Moscow pulled out of a UN deal on Monday that ensured safe passage for grain shipments crossing the Black Sea.

Moscow also warned that from Thursday any ships going there would be seen as siding with "the Kyiv regime".

White House spokesman Adam Hodge suggested Russia was planning to hit civilian ships and blame Ukraine.

Russia had laid more sea mines in the approaches to Ukrainian ports, he said, as part of a co-ordinated Russian effort to justify attacking civilian ships.

Meanwhile in a similar warning to Russia's, Ukraine has said ships heading towards Russian or occupied ports on the Black Sea could be viewed as carrying military cargo.

Wheat prices on the European stock exchange soared by 8.2% on Wednesday from the previous day, to €253.75 per tonne, while corn prices were up 5.4%.

US wheat futures jumped 8.5% - their highest daily rise since just after Russia's February 2022 invasion of Ukraine.

Prices in shops will not immediately increase when market prices go up. But if the interruption in supplies leads to a prolonged period of higher prices, the impact will make itself felt around the world in the coming months.

The sharp increase in grain cost after Russia's full-scale invasion of Ukraine last year lead to rising prices - not just for food items based on grains, but also for meat and poultry, as animals are often fed with grain.

Countries which depend most heavily on Ukraine's supplies are likely to be most affected. Before the war Lebanon received nearly three-quarters of its grain from Ukraine, while Pakistan, Libya and Ethiopia are also very heavily dependent.

Earlier, President Vladimir Putin said he would return to the international grain agreement immediately if his demands were met. They include lifting sanctions on sales of Russian grain and fertiliser and reconnecting Russia's agricultural bank to a global payment system.

The Black Sea grain deal enabled the UN's World Food Programme (WFP) to ship more than 725,000 tonnes of wheat from Ukraine to countries facing acute hunger, including Ethiopia, Yemen and Afghanistan. So Ukraine provided more than half the WFP's wheat grain last year.

More than half the total grain shipped under the deal was corn, however. Of the nearly 33m tonnes exported, the biggest amount went to China (8m tonnes), then Spain (6m tonnes) and Turkey (3.2m tonnes), UN data shows.

On Wednesday Mr Putin accused the West of using the grain deal as "political blackmail". Moscow has accused Ukraine of using the Black Sea grain corridor for "combat purposes".

Ukraine's options for exporting grain by rail are also very limited: rail capacity is smaller than shipping volumes and several EU countries in Eastern Europe are blocking Ukrainian grain, in order to protect their own farmers.

Some Ukrainian grain may now be shipped via the Danube, using Romanian territorial waters, though again the volumes are likely to be relatively small.

Marex Capital analyst Charlie Sernatinger said Russia's threatened escalation could "cut all of the waterborne grain shipments off from the Black Sea, both Russian, and Ukrainian", which would cause a similar situation to that at the start of the war.

Ukrainian MP Oleksiy Goncharenko called on the UK, US, France and Turkey to protect the grain ships with military convoys and provide Odesa with air defences:

"Clearly Putin has an aim to disrupt food security and cause a peak in world food prices, which in the developed countries will lead to inflation, but in developing countries that will lead to social destabilisation, starvation and new waves of migrants."

Source: BBC