Ukraine has about 22-million tonnes of grain (wheat, maize, sunflower seed and other grains) in silos that has for the past few months been unable to reach export markets. This was mainly because of disruptions caused by the war with Russia, the destruction of infrastructure and attacks on vessels transporting goods.
A deal signed by the two warring nations last week promised to change that, with Russia agreeing not to attack grain vessels and to allow the restoration of the grain trade in the Black Sea region. The deal came about through a multinational effort to avert the global food crisis and is likely to contribute positively to grain supplies, though it was on shaky ground within days after Russian missiles hit the southern Ukrainian port of Odesa.
There should be short-term relief in the form of lower grain prices, which are expected to soften after the agreement, even if marginally, as it implies that there will be an increase in supplies available to the world market.
This possibility will add to an already positive picture regarding global grain prices, which have come off record highs reached in the weeks after Russia’s invasion of Ukraine. The UN Food & Agriculture Organisation’s global food price index was down 2% in June from the previous month, the third consecutive monthly decline. Still, as this is 23% higher year on year, any relief brought about by the recent deal and possible resumption of trade would still be extremely welcome.
However, prices won’t go back to pre-war levels, as a range of factors that have been driving agricultural prices up over the past two years are still prevalent. For example, drought in South America, East Africa and Indonesia and rising demand for grains in China have weighed on global grains supplies these past few seasons, and thus pushed prices up before the war.
Importing countries
The possible price decline and increase in supply due to the Russia-Ukraine grain deal is likely to benefit all importing countries and consumers in the medium term. This assumes that shipping lines will start taking orders and moving the grain.
From an African perspective, the continent imports about $80bn worth of agricultural products a year, mainly wheat, palm oil and sunflower seed. Therefore, however marginal, a potential decline in the prices of these commodities would be a positive for the importing countries in the continent and African consumers.
Africa imports $4bn of agricultural products from Russia, 90% of which is wheat and 6% sunflower seed. The major importing countries are Egypt (50%), followed by Sudan, Nigeria, Tanzania, Algeria, Kenya and SA.
Similarly, Africa imports $2.9bn worth of agricultural products from Ukraine annually. About 48% of this has been wheat, 31% maize and the rest mainly sunflower oil, barley and soybeans.
A resumption in Ukraine's trade activity would release about 22-million tonnes of grains, and one can assume Russian orders might also increase. The countries that would benefit most from physical supply in Africa are the ones mentioned above. The softening in prices after this decision would benefit the global consumer.
The World Food Programme will also be able to source food for donations in some struggling African regions such as East Africa, where there is a severe drought, and parts of Asia. This is therefore a good development for consumers overall, specifically in the poor, developing nations.
• Sihlobo is chief economist at the Agricultural Business Chamber of SA.
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