Introduction

Russia’s withdrawal from a critically important wartime deal that allowed the export of Ukrainian grain across the Black Sea has reignited fears about global food security, with analysts describing the initiative’s demise as both an inevitable setback and a blow to markets.

Background

Hours before the agreement’s expiry, Russia said Monday that it would not renew the Black Sea Grain Initiative.

The agreement, which was brokered by Turkey and the United Nations in July last year following Moscow’s full-scale invasion of Ukraine, was a rare diplomatic breakthrough designed to avert a global food crisis.

“Today is the last day of the Grain deal,” Kremlin Dmitry Peskov said. “When the respective parts for Russia’s benefit are fulfilled, Russia will return to the deal.”

Reasons for Withdrawal

The Black Sea Grain Initiative has been repeatedly elongated in short increments, amid increasing discontent from Russia over perceived restrictions that limit the full dispatch of its own grain and fertilizer exports.

Russian President Vladimir Putin reiterated these complaints over a weekend call with South African President Cyril Ramaphosa, saying that the key objective of supplying grain to countries in need, including those on the African continent, had not been achieved.

Market Impact

Wheat, corn and soybean prices all rose on the news. Wheat futures jumped 3% on Monday, hitting a high of 689.25 cents per bushel, its highest level since June 28 when the contract traded as high as 706.25 cents.

Wheat prices remain well below the peak levels of 1177.5 cents per bushel reached in May last year, however.

Corn futures soared to a high of 526.5 cents per bushel, while soybean futures surged to a high of 1,388.75 cents per bushel.

Expert Analysis

Simon J. Evenett, a specialist in global trade and an economics professor at the University of St. Gallen, said Monday that Russia’s withdrawal reflects the “coup de grace on a deal that was on its last legs.”

Evenett said market participants should closely monitor the prospect of Moscow imposing an export tax increase given that this would likely raise grain prices further and help the Kremlin to finance its military campaign in Ukraine.

Importance of Black Sea Grain Initiative

Since being signed in July last year, the U.N. says the Black Sea Grain Initiative has allowed over 32 million metric tons of food commodities to be exported from three Ukrainian Black Sea ports — Odesa, Chornomorsk and Pivdennyi, previously known as Yuzhny — to 45 countries worldwide.

It is for this reason that U.N. Secretary-General Antonio Guterres had described the deal as playing an “indispensable role” in global food security.

Guterres said in early July that the agreement “must continue” at a time when conflict, the climate crisis, energy prices and other factors roil the production and affordability of food, while 258 million people face hunger in 58 countries worldwide.

Implications for the Market

Carlos Mera, head of agricultural commodities markets at Dutch cooperative Rabobank, said Monday that while investors had been bracing for a cancellation, Russia’s withdrawal was “a blow” to markets.

Mera said the initiative had supported price stability and prevented shortages across the developing world.

“Ukraine will now be forced to export most of its grains and oilseeds through its land borders and Danube ports. This will significantly drive up transportation costs and pile further pressure on Ukrainian farmers’ profits,” he added.

“The knock-on effect of this is it could prompt them to plant less next season, placing further pressure on supplies going forward.”

Ultimately, Mera said the development means low-income countries in Africa and the Middle East will likely become more dependent on Russian wheat — a country that represents more than 20% of global wheat exports.