Russia's grain deal. Russia's reversal from its weekend agreement to export Black Sea grains through the UN will hit shipments to import-dependent countries, deepening the global food crisis, and leading to price increases.
Two Singapore-based traders said that hundreds of thousands of tons of wheat reserved for delivery to Africa and the Middle East are at risk after Russia's withdrawal, while Ukraine's corn exports to Europe will decline.
Russia suspended Ukraine's participation in the UN grain agreement "for an indefinite period" on Saturday, following a major drone attack on Ukraine's Black Sea fleet in Crimea.
Futures rising. Chicago wheat futures hit two-week highs on Monday, up 6% after Russia withdrew from Black Sea export deal. Source: Refinitiv Eikon, Reuters
Earlier this year, global wheat prices jumped to an all-time high and corn hit a 10-year high as Russia's invasion of Ukraine fueled a rally sparked by adverse weather conditions and COVID-19 supply disruptions.
No ships passed through the maritime humanitarian corridor established on Sunday. But the United Nations, Turkey and Ukraine pressed to implement the Black Sea grain agreement and agreed on Monday on a transit plan for 16 ships to advance despite Russia's withdrawal.
"We need to see how the situation will develop. It is unclear whether Ukraine will continue to ship grain and what will happen to Russia's exports," the Singapore-based grain trader said.
According to the UN grain agreement, a Joint Coordination Center (GCC) composed of UN, Turkish, Russian and Ukrainian officials agrees on the movement of ships and inspects the ships. Since July, more than 9.5 million tons of corn, wheat, sunflower products, barley, rapeseed and soy have been exported from the Black Sea.
While global agricultural commodity prices have reached record highs in recent months, local retail food prices remain high and are now facing further rises.
"Typically, it takes about two months for higher grain prices to filter through the supply chain and affect consumers at the retail level," said a Sydney-based analyst.
Geopolitics. In addition to human loss, financial costs are also increasing. A recent article by IMF staff estimates that for those highly exposed to food insecurity, the impact of higher import costs for food and fertilizer will add $9 billion to balance-of-payments pressures in 2022 and 2023. This will erode countries' international reserves and ability to pay for food and fertilizer imports.
Also, the food industry has had to adapt to an endless stream of complications since the pandemic began. From product shortages and empty shelves in grocery stores at the start of the pandemic, to the ongoing global supply chain problems stemming from labor shortages and logistics issues, food and beverage suppliers have had to adapt to a host of tough challenges.
According to Miguel Patricio, CEO of Kraft Heinz, the world's fifth-largest food and beverage company, these challenges, exacerbated by extreme climate and weather events this year, as well as the Ukraine War, have kept the food supply tight and prices high, and people respond to it. It may take some getting used to. "Every day we have a new problem. This is the new normal," Patricio said in an interview with CNN this week. "Initially we thought it was a crisis. We now know that this is the new normal and we have to adapt to it."
Given global warming and the heatwaves we experienced this year, these levels are expected to be reached next year, thereby affecting enormous amounts of crops, fields and water resources. These will deepen the gap by further affecting the supply of agricultural products, even if the Russia-Ukraine war ends. On the bright side, the war has pushed global clean energy to further develop and be available at a cheaper price. The only question remained how long it would take to stop global warming.
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