Wednesday, November 30 2022

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The port of Odessa. Photo: George Chernilevsky/Wikimedia Commons

On July 22, 2022, Russia and Ukraine separately signed UN-brokered side agreements with Turkey that allow the export of food crops from Ukraine and fertilizers from Russia. The deal allows ships to be escorted and cargo monitored and has been hailed as a major step towards alleviating the 2022 food crisis which saw grassroots stables reach record prices around the world.

It has been described by the UN Secretary General as a ‘glimmer of hope’ that would help tackle the global food crisis.

Three weeks after signing the agreement, the level of shipments is still modest. The United Nations has set up a website that provides regular update ships that left Ukraine, and as of August 16, there had been 16 shipments.

Previously, analysts pointed to the loss of wheat exports from Ukraine. However, only one of them carried a cargo of wheat, the rest being corn, sunflower products and soybeans. Perhaps more importantly, the first 16 shipments were not intended for the poorest countries.

Instead, half of the ships sailed to Turkey and the rest to China, Iran, Italy, South Korea and the UK. The UN has also chartered a ship, the Brave Commander, which is expected to carry the first humanitarian cargo to Ethiopia..

The first 15 ships had been trapped in Ukraine since the start of the war. Eleven other ships were inspected and arrived in Ukrainian ports from August 7 to 15. These ships will carry only a modest proportion of the 23 million tons cereals and seeds stored in Ukraine, a total which will increase after the summer and autumn harvests. Transporting 23 million tonnes would require around 370 shipments by medium-sized vessels, double the size of smaller vessels that could deliver grain directly to ports in sub-Saharan Africa.

On July 22, when the deal was announced, Ukrainian officials warned that it would be months before grain exports by sea could reach pre-war levels. Further Russian attacks on ports, storage facilities and transport infrastructure would further extend this delay.

Global food prices, however, have been falling since the record highs seen immediately after the Russian invasion of Ukraine. the UN FAO World Cereal Price Index peaked in May 2022 and declined in June and July. Chicago grain futures were August 16 stock exchange roughly where they were immediately before the Russian invasion, and remained largely flat in the weeks following the announcement of the export deal with Ukraine. Ukraine’s loss of wheat exports appears to have been offset globally by increased production from China, Canada, Russia and the United States.

Despite these increases, world grain prices in July 2022 are still about a third higher than they were in July 2020. The Russian invasion has exacerbated a pre-existing gap between demand and supply, and many of these broader structural factors remain.

Falling world prices have not passed through to retail prices in some developing countries. The World Food Program Price Database includes information on wheat flour prices in Bangladesh and Benin through July 2022 (at the time of writing July 2022 data was not available for this product for other countries). In either case, prices had not started to fall in line with world markets – this is likely because the flour sold in July had originally been purchased months earlier as wheat from a producer. The fall in prices in Bangladesh is probably due to government grain subsidies.

Note: Data was not available for Benin in March 2022.
Source: statistics produced by the World Food Program and compiled by the author.

FIGURE INN SHE

In summary, the decline in world grain prices to pre-war levels was achieved due to improved production in regions outside Ukraine. The agreement allowing exports from Ukraine has yet to deliver food to the most hungry areas, and the total volumes delivered to date will have had only a modest effect on food stocks. Ukraine and world supplies or prices. The deal may have helped calm the markets.

Even before the February 2022 invasion, there was a gap between global supply and demand and prices were already high. One consequence of the Russian invasion of Ukraine is that the global supply shortfall will persist despite increased production from several key suppliers. Global price declines have yet to lead to cheaper flour in two developing countries.

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