Consequences of the Breakdown of the Ukraine Grain Deal: Possible Shortages and Price Increases

(Patria) - The collapse of the Black Sea export corridor, which enabled the export of more than 32 million tonnes of Ukrainian grain over the past year, is expected to have a small immediate impact, but in the medium term it will create tension on the market and raise food prices, AFP reports.

The situation is different from February 2022, when Russia attacked Ukraine, thereby halting transport in the Black Sea, the main export route for Ukrainian agricultural products.

Kyiv was the world's largest exporter of sunflower oil and the fourth largest for wheat and corn, and its exit from the global market led to record prices in May. The opening of the export corridor on 1 August 2022 helped secure supplies for importing countries and lower prices, even as the conflict reduced Ukrainian agricultural production.

Wheat production is forecast to fall to 17.5 million tonnes in the 2023/2024 season from 33 million tonnes in the 2021/2022 season. Corn production is expected to fall to 25 million tonnes from 42 million tonnes.

The lack of immediate impact is partly due to timing; it is currently the harvest season in the northern hemisphere. European wheat futures rose, while they fell in the United States.

Before the Black Sea corridor was opened, the European Union created "Solidarity Lanes", land and river routes designed to facilitate the export of agricultural products from the EU across Europe. Farm Foundation, a think tank specialising in agricultural issues, estimates that half of Ukraine's agricultural exports already go via these routes. The EU would like to improve its transport capacity by aligning its railway gauge with Ukraine.

Medium-term concerns

There is currently no shortage of wheat on the world market. But, "the most exported wheat comes from Russia with 12.5 million tonnes of stocks, and it is the cheapest wheat in the world," said Damien Vercambre of Inter-Courtage commodities brokerage house. Russia could mitigate some of any shortage on the world market due to the lack of Ukrainian wheat. But increasing reliance on Russia could be a bitter pill for many countries. The EU, which is expected to have a normal harvest, could also help meet the needs of importing countries.

The wheat and corn markets are currently in different positions. China, the world's largest importer of corn, could turn to Brazil, which had a record harvest and is selling at a lower price.

For wheat, production could be sufficient, but a drop in the volume of Ukrainian exports could create a problem.

"A longer closure of the corridor will affect food price inflation, which will impact
food security," said Olia Tayeb Cherif of the Farm Foundation.

Some importing countries are already having difficulty paying current prices, such as Egypt. The United Nations World Food Programme is also at risk because it procures wheat from Ukraine that it delivers to Afghanistan, Yemen and African countries, Cherif said.