Ukraine and Russia to sign breakthrough grain export deal

Ukraine and Russia to sign breakthrough grain export deal
/ Image: bne IntelliNews.
By Theo Normanton July 22, 2022

Ukraine and Russia will sign a deal on Friday to allow the export of grain via Ukraine’s Black Sea ports, according to the Turkish government. The agreement is set to unblock about 22 million tonnes of crops, assuaging fears of a global food crisis as grain prices soar and some of the world’s poorest countries face a critical lack of food imports.

If signed, the agreement will be the first major deal between the two sides since Russia invaded Ukraine in February 2022. The breakthrough deal was brokered in Istanbul with the help of Turkey and the UN. UN secretary-general Antonio Guterres and Turkish President Recep Tayyip Erdoğan will be present at the signing ceremony on Friday.

Ukraine and Russia produce a significant amount of the world’s grain and certain other agricultural products including sunflower seeds. Most of the region’s food exports are shipped out via the Black Sea, an area which is being blockaded by the Russian navy and has been heavily mined by the Ukrainians.

The UN’s Food and Agriculture Organization (FAO) lists Ukraine as one of the world’s largest producers of wheat, corn, sunflower seeds, barley, sugar beet, potatoes and soybeans in 2020. The total value of these crops in Ukraine in 2020 was $21.4bn. It’s also the world’s third-largest producer of potatoes and pumpkins, and the biggest producer of sunflower seeds, providing over a third of global supply.

Meanwhile, Russia is one of the world’s five biggest food producers. Crucially, it is also the world’s third-biggest wheat grower.

Heavy fighting and deep mistrust on both sides has prevented most crops from reaching the market. Ukraine points to satellite photos which appear to show Russian ships stealing Ukrainian grain, while Russia says that western sanctions and Ukrainian mines are restricting its own ability to export agricultural products.

Russia made the removal of obstacles to its own food exports a key condition in negotiations for the deal. Turkish Foreign Minister Mevlüt Çavuşoğlu said that "When we resolve this issue, not only will the export path for grain and sunflower oil from Ukraine be opened, but also for products from Russia… Even if these Russian products are not affected by sanctions, there are blockages concerning maritime transport, insurance and the banking system. The United States and the EU have given promises to lift these."

If the deal is signed, it will allow Ukrainian cargo ships safe passage from Black Sea ports like Odessa using designated routes. But even then, they will have to navigate heavily mined waters. A UN monitoring group based in Istanbul will oversee the shipping agreement.

Ukraine’s foreign ministry spokesperson Oleh Nikolenko stressed that the deal has not yet been signed, and that Ukraine will "support only those decisions that will guarantee the security of the southern regions of Ukraine, the strong position of the Ukrainian Armed Forces in the Black Sea, and the safe export of Ukrainian agricultural products to world markets."

Ukraine is concerned that removing mines could expose it to more seaborne attacks, or that Russian ships could use safe channels to carry weapons instead of food.

Wheat futures in Chicago were down over 3% on Friday as markets priced in the extra supply.