Black Sea Grain Initiative has been renewed – for now. Credit: Ihor Oinua/Unsplash
By Alexander Kozul-Wright
GENEVA, Mar 22 2023 – Given the complex interplay between geopolitics and financial markets, Russia’s invasion of Ukraine in February 2022 sent shockwaves across the global economy. Admittedly, the implications both within and between countries have varied. However, there were some common denominators, including higher commodity prices.
Price disruptions were particularly severe for ‘soft’ agricultural commodities. During peacetime, Russia and Ukraine produced a large amount of the world’s grain, supplying 28 percent of globally traded wheat and 75 percent of sunflower products. Before the war, they were also among the world’s top providers of barley and corn.
After the start of hostilities, exports of grain were severely disrupted. For four months, Russian military vessels blocked Ukrainian ports. Supply constraints triggered market volatility and price rises. Wheat, for instance, reached a record high in March 2022. This left millions of people, particularly in developing countries, at the frontline of a food crisis.
Then, in July 2022, two agreements were signed: one was a memorandum of understanding between the UN and Moscow to facilitate global access for Russia’s food and fertilizer exports; the second was the Black Sea Grain Initiative (BSGI), signed by Russia and Ukraine, facilitating the safe export of grain and other foodstuffs from Ukrainian ports via the Black Sea.
Brokered by the UN and Turkey, the BSGI opened a protected maritime corridor through Ukraine. The agreement assuaged concerns about global grain supplies and led to price declines. Over 900 ships of grain and other foodstuffs have left Ukraine’s major ports since last summer.
Prior to the conflict, between 5-6 million tons of grain were exported from Ukraine’s seaports every month, according to the International Grains Council. By the end-2022, Ukraine had once again reached its historical exporting capacity (at just under 5 million tons). Production responses elsewhere also helped to increase global supplies.
Still, Ukrainian exports to developing countries remain below pre-war levels. And while unblocking the trade corridor did help to address food insecurity in 2022, export backlogs were significant. Today, grain prices (while they have come down in recent months) remain elevated.
Against this backdrop, negotiations between UN officials and Russian Federation representatives – headed by Deputy Foreign Minister Sergei Vershinin – kicked off in Geneva last Monday on a possible extension of the BSGI. Subsequent to a four-month renewal last year, the deal was set to expire on March 18th.
Earlier this month, UN Secretary-General Antonio Guterres highlighted the deal’s importance. He stressed that “it contributed to lowering global food costs and offered critical relief to people…, particularly in low-income countries.” Ukraine’s president, Volodymyr Zelensky, also called for the initiative to be extended.
For their part, Russian officials argued that ‘hidden’ sanctions – targeting fertilizer firms and the country’s main agricultural bank – have undermined commodity exports. By way of background, exemptions were carved out for some Russian food and fertilizer products after Western sanctions first targeted the Kremlin in February 2022.
In Geneva, delegates stressed that over-compliance and market avoidance by private companies had resulted in Russian commodity exports being under-traded. They noted that sanctions on its payments, logistics, and insurance systems created a barrier for Moscow to sell its grains and fertilisers in international markets.
In response, they requested that national jurisdictions enhance exemption clarifications for food and fertilizers products. “I think it’s a fair request,” says Jayati Ghosh, professor of economics at the University of Massachusetts, Amherst. “Hidden sanctions are impeding Russian financial transactions and undermining allegedly exempted exports.”
When the BSGI was last renewed in November, Russia threatened to renege on the deal unless hidden sanctions were addressed. While they eventually agreed to an extension, Moscow has since insisted that its own agricultural exports (notably ammonia) be included in the BSGI as a condition for its renewal.
Under the deal’s latest iteration, Russia’s pre-condition went notably unaddressed. Moscow, in turn, agreed to extend the deal for just two months. Ukraine, meanwhile, issued conflicting statements on the matter. Over the weekend, Deputy Prime Minister Oleksandr Kubrakov tweeted that the agreement had been extended for four months.
So far, the UN has not specified the length of the renewal, but “this could be the last time an extension is agreed,” according to Ghosh. “Russia is probably going to use this latest agreement as a threat. Rejecting a third extension in the spring may force the international community to listen to their concerns”.
IPS UN Bureau Report
!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?’http’:’https’;if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+’://platform.twitter.com/widgets.js’;fjs.parentNode.insertBefore(js,fjs);}}(document, ‘script’, ‘twitter-wjs’);
