A worker handles wheat grain in a storage granary at Aranka Malom kft mill in Bicske, Hungary on Tuesday, May 16, 2023. Image Credit: Bloomberg

GENEVA: The United Nations is racing to extend a deal that has allowed shipments of Ukrainian grain through the Black Sea to parts of the world struggling with hunger, helping ease a global food crisis exacerbated by the war Russia launched more than a year ago.

The breakthrough accord that the UN and Turkey brokered with the warring sides last summer came with a separate agreement to ease shipments of Russian food and fertilizer that Moscow insists hasn’t been applied.

Russia set a Thursday deadline for its concerns to be ironed out or it’s bowing out. Such brinkmanship isn’t new: With a similar extension in the balance in March, Russia unilaterally decided to renew the deal for just 60 days instead of the 120 days outlined in the agreement.

UN officials and analysts warn that a failure to extend the Black Sea Grain Initiative could hurt countries in Africa, the Middle East and parts of Asia that rely on Ukrainian wheat, barley, vegetable oil and other affordable food products, especially as drought takes a toll. The deal helped lower prices of food commodities like wheat over the last year, but that relief has not reached kitchen tables.

Russia has five main demands, according to Gatilov:
— A restoration of foreign supplies of farm machinery and replacement parts.
— A lifting of restrictions on insurance and access to foreign ports for Russian ships and cargo.
— Resumed operation of a pipeline that sends Russian ammonia, a key ingredient in fertilizer , to a Ukrainian Black Sea port.
— An end to restrictions on financial activities linked to Russia’s fertilizer companies.
— Renewed access to the international SWIFT banking system for the Russian Agricultural Bank.

“If you have a cancellation of the grain deal again, when we’re already at a pretty tight situation, it’s just one more thing that the world doesn’t need, so the prices could start heading higher ,” said William Osnato, a senior research analyst at agriculture data and analytics firm Gro Intelligence. “You don’t see relief on the horizon.”

UN humanitarian chief Martin Griffiths told the Security Council on Monday that the deal was “critical” and talks were ongoing.

Negotiators who gathered in Istanbul last week made little apparent headway. Ukrainian Deputy Prime Minister Oleksandr Kubrakov said the grain deal “should be extended for a longer period of time and expanded” to “give predictability and confidence” to markets.

Moscow says it opposes broadening or indefinitely expanding the deal. Kremlin spokesman Dmitry Peskov said Tuesday that there’s an “intense session of contacts” but that ”a decision is yet to be made.”

Russia, meanwhile, is rapidly shipping a bumper harvest of its wheat through other ports. Critics say that suggests Moscow is posturing or trying to wrest concessions in other areas — such as on Western sanctions — and claim it has dragging its heels on joint inspections of ships carried out by Russian, Ukrainian, UN and Turkish officials.

Average daily inspections — meant to ensure vessels carry only food and not weapons — have steadily dropped from a peak of 10.6 in October to 3.2 last month.

Russia denies slowing the work, with shipments of Ukrainian grain also declining in recent weeks.

Positive impact

“We cannot agree that the role of the Russian representative (inspector) should be reduced to automatic rubber-stamping, or approval, or appeals submitted by Kyiv,” Russia’s ambassador in Geneva, Gennady Gatilov, told reporters last month.

Asked whether a blockade of Ukraine’s coast or more attacks on its ports could follow any withdrawal from the agreement , Gatilov said Russian authorities were “considering all possible scenarios if the deal is not extended.”

The UN says it’s doing what it can, but those solutions mainly rest with the private sector, where it has little leverage.

The deal has allowed over 30 million metric tons of Ukrainian grain to be shipped, with more than half going to developing nations. China, Spain and Turkey are the biggest recipients, and Russia says that shows food isn’t going to the poorest countries.

UN Secretary-General Antonio Guterres says Ukrainian corn for animal feed has headed to developed countries, while “a majority” of grain for people to eat has gone to emerging economies.

Even if a “meaningful part” of the shipments goes to developed nations, that “has a positive impact to all countries because it brings prices down,” Guterres told reporters in Nairobi, Kenya, this month. “And when you bring prices down, everybody benefits.”

Osnato, the analyst, said markets aren’t reacting to Russia’s threats to exit the deal, with wheat recently hitting two-year lows. If the agreement isn’t extended or negotiations drag on, the “loss of Ukraine grains wouldn’t be a disaster” for a month or two, he said.

He says there is “bluster” coming from Russia to push for easing some sanctions because it’s shipping record amounts of wheat for the season, and its fertilizers are flowing well, too.

“It’s more about trying to get a little leverage, and they’re doing what they can to put themselves in a better negotiating position,” Osnato said.

Trade flows tracked by financial data provider Refinitiv show that Russia exported just over 4 million tons of wheat in April, the highest volume for the month in five years, following record or near-record highs in several previous months.

Exports since last July reached 32.2 million tons, 34% above the same period from last season, according to Refinitiv. It estimates Russia will ship 44 million tons of wheat in 2022-2023.

The issue is more pressing with Ukraine’s wheat harvest coming up in June and the need to sell that crop in July. Not having a Black Sea shipping corridor in place at that point would “start taking another large chunk of wheat and other grains off the market,” Osnato said.

Ukraine can send its food by land through Europe, so it wouldn’t be completely cut off from world markets, but those routes have a lower capacity than sea shipments and have stirred disunity in the European Union.

Uncertainties like drought in places including Morocco, Tunisia, Algeria, Syria and East Africa — big importers of food — are likely to keep food prices high, and an end to the UN deal wouldn’t help.

“Any shock to the markets can cause massive harm with catastrophic ripple effects in countries balancing on the brink of famine ,” said Shashwat Saraf, emergency director for East Africa at the International Rescue Committee.

“The expiration of the Black Sea Grain Initiative is likely to trigger increased levels of hunger and malnutrition, spelling further disaster for East Africa,” Saraf said.