Secondary gain: Who benefited from the collapse of the grain deal?

After the cessation of the Black Sea Grain Initiative, Ukraine's allies are urgently working on alternative ways to supply Ukrainian grains to foreign markets and are also making efforts to restore the operation of the 'grain corridor'. For instance, the President of Turkey, Recep Tayyip Erdoğan, announced his desire to revive the agreement on the eve and even urged the West to make this initiative a basis for reconciliation between russia and Ukraine.

According to Erdoğan, negotiations are already underway for a "broad-scale restart" of the initiative. However, the final decision will depend on whether the "Western countries fulfil their promises." The specific commitments that were breached were not specified by the Turkish president.

russia claims that the share of grain that was transported through the 'grain corridor' to the poorest countries constituted less than 4%. But the export directions of Ukrainian grain that russia is trying to speculate on have nothing to do with economic reality. The mere presence of Ukrainian products in the global market and the increase in supply have driven down grain prices, regardless of where it was destined.

During the year of the previous agreement – effectively from August 2022 to May 2023, world grain prices fell by more than a third (35%). And it's not just about global market presence, but also about worth.

Ukraine actively sold off residual stocks (by the beginning of the 2022/2023 marketing year, it had accumulated around 20 million tonnes) at minimal prices, even considering the complicated logistics. For comparison, in Romania, Ukrainian grain was trading at $200 per tonne compared to $470 per tonne of local produce.

Nevertheless, according to Ukrainian statistics, over 60% of the grain exported through the Black Sea corridor goes to countries with low and middle-income levels. The World Food Programme purchased about 750,000 tonnes of Ukrainian grain, which was immediately sent to Afghanistan, Ethiopia, Somalia, and Sudan.

The significance of the grain deal for the global agricultural market was vividly demonstrated by its cessation: it led to an increase of more than 3% in the American benchmark wheat futures, Chicago Wheat Futures, reaching $6.4 per bushel. World wheat prices reached around $7.70 per bushel after the agreement was terminated, increasing by over 10% in a week. The subsequent escalation in the Black Sea region triggered another price surge: on 7 August, futures in Chicago rose by 3.4% to $6.545 per bushel, while in Sydney, they were traded at $6.4725. This is historically high, although it's still lower than the $12 per bushel seen at the beginning of 2022, right after russia's invasion of Ukraine.

However, blocking Ukrainian exports, like any temporary removal of a competitor from the market, has its beneficiaries. It's worth noting that most of them do not support russian aggression or remain indifferent to it, viewing the war solely through the lens of their own interests. Mind investigated for whom the cessation of the Istanbul Agreement turned into good news and profit.

Why does the termination of the grain deal destabilise the situation in the global food market? The High Representative of the EU for Foreign Affairs and Security Policy, Josep Borrell, blamed russia for undermining humanitarian stability. "We already know that this is going to create a huge food crisis in the world," he emphasised.

UN Secretary-General António Guterres had previously warned that hundreds of millions of people would face hunger as a result of the russian démarche. This impact is most pronounced in countries with emerging economies, which are suffering from severe drought. Particularly affected is the African Sahel, where acute food shortages and hunger threaten millions of people.

Other key cultivation regions, including the United States, have been hit by extremely hot weather and a lack of rainfall. This has led to a downward revision of wheat crop forecasts in the US, with wheat stocks expected to fall to a 16-year low. China, the largest food importer, also risks poor domestic harvests due to unfavourable weather conditions, which will increase its demand for foreign agricultural products. In Europe, predictions regarding grain harvests are decreasing as well. All of these factors contribute to the rise in global prices.

While the grain deal is suspended, who is benefiting? At the same time, three global groups have gained direct or indirect advantages from the temporary suspension of maritime exports of Ukrainian grain.

The first of these groups is African countries (surprisingly enough)

Africa, perhaps for the first time in history, finds itself in the status of a 'desirable bride', around which a significant struggle has unfolded. russia is attempting to strengthen its influence on the continent while simultaneously securing markets for its goods, which are not highly desired in most countries around the world. And russia is willing to pay for it.

In 2022, russia exported 11.5 million tonnes of grain to the African continent, and in the first six months of 2023, it was nearly 10 million tonnes. The total trade turnover between russia and African countries in 2022 reached $11 billion. For comparison, this figure with China was $212 billion, and with the European Union – over $400 billion.

Within the framework of the forum, it was ceremoniously announced that russia had written off a $23 billion debt for African countries and announced an allocation of $90 million "for the development of the poorest regions of the continent." This also involves providing free arms and equipment "to ensure security."

As believed in russia, "debt forgiveness and the provision of free grain will allow them to gain advantages on the global stage in both the short and long term." It is not a new concept that nations with friendly relations often find themselves paying a price for it.

The second group consists of grain producers in other parts of the world

After the termination of the 'grain corridor', agricultural producers in the Southern Hemisphere are experiencing price increases for their products. This has been good news for them, especially considering that, for instance, in Australia, this year will be the fourth consecutive year with a good harvest.

Australian farmers typically harvest major grain crops in late October and start locking in most of their buying and selling deals at that stage. There is no doubt that the disturbances in the Black Sea are expected to lead to increased demand for Australian grain, the prices of which were lowered before russia exited the grain agreement on 17 July, 2023.

According to forecasts, wheat production for the upcoming harvest in Australia is expected to reach around 30 million tonnes, significantly higher than long-term predictions. Additionally, producers of soybeans and corn in Brazil could also benefit from the price increase.

The third, indirect beneficiary is the maritime logistics operators circumventing the Black Sea

russia's démarche implies a potential disruption of commercial shipping in the Black Sea, which could have serious negative consequences for the global economy.

Any disruption of commercial navigation in the form of blockades or high wartime insurance premiums, as well as ship shortages, can lead to price increases for several significant commodities.

This goes beyond just wheat – there is a risk for oil and fertiliser supply. Almost half of russia's crude oil exports are carried by tankers from the Black Sea. Ukraine's Ministry of Defence has already issued a circular considering these ships as potential military targets.

Furthermore, it has already been revealed that Poland has plans to develop maritime logistics to "help Ukraine export its grain." Polish Minister of Agriculture and Rural Development Robert Telus made the corresponding statement.

Telus mentioned that the export of Ukrainian grains through Polish ports on the Baltic Sea had increased to 260,000 tonnes in June. This is twice as much as a few months ago, when the main shipments were going through the Black Sea. It is highly likely that exports through the Baltic will continue to grow. Therefore, Poland is in negotiations with Lithuania about relocating phytosanitary control from the land border between Ukraine and Poland to Lithuanian ports.

"We need to help Ukraine and we understand that. We are thinking of building ports that will be exclusively for grain transportation, so-called agro-ports," Telus said, urging the EU to finance this project.