Edited By: Siya Kohli
Abstract
The Russia-Ukraine War led to significant economic shocks around the world, not least because of disruptions to the food trade. Ukraine, the “breadbasket of Europe”, is a significant exporter of foodgrains, including maize, wheat, and sunflower products. The Russian invasion of Ukraine was followed by a peak in global food prices, owing to disruptions to agricultural production, as well as to Russia’s blockage of Ukrainian ports, through which grains would be shipped worldwide. The Black Sea Grain Deal of July 2022 opened up a “humanitarian maritime corridor” in the Black Sea, to allow for Ukrainian ships to transport grain exports to the rest of the world. This article explores the significance of Ukraine in the global food trade and the implications of disruptions to this trade for the developing world. Next, this article also analyses the alleviating impact of the deal on global food prices, and finally, the possible implications of Russia’s withdrawal from this deal. The purpose of this article is to bring together the relevant facts of the economics of this deal, and its importance for the developing world.
Background
Ukraine is one of the largest food producers in the world, supplying food grains and oilseeds to the global market. 55% of the country’s land is fit for agriculture, and agricultural products are its single-most important exports. The Russian invasion severely disrupted this sector of the Ukrainian economy, through first and second-order effects. While the war itself–with all the accompanying destruction of life and property and the ensuing internal displacement of civilians–disrupted agricultural production, the Russian strategy also included deliberate shocks to Ukrainian exports. Clearly, having recognised Ukraine’s reliance on agricultural exports, Russian forces blockaded key ports through which these exports flowed out to the global market, effectively cutting off Ukraine from the food trade. Naturally, this had direct ramifications for the global economy, which was already dealing with the post-pandemic recovery and the ensuing inflationary period.
As can be seen in the above figures, foodgrain prices in the January 2021-April 2023 period sharply peaked in the five-month period following the Russian invasion.
Alleviating the situation: The Black Sea Grain Deal
In July 2022, mediated by Turkey and the UN, Russia and Ukraine agreed to the Black Sea Grain deal. As part of this deal, Russia permitted the opening of a “maritime humanitarian corridor” to facilitate the resumption of grain exports from Ukraine. This deal primarily aimed to alleviate the growing food crisis, especially in the developing world, caused by the disruption of these exports. Developing countries, especially in West Asia and Africa, are heavily dependent on these exports for their domestic consumption. Egypt, for instance, depends on Russia and Ukraine for 80% of its foodgrain requirements.
This deal was hailed as a beacon of hope of multilateral coordination despite an active armed conflict. The implementation was overseen by a Joint Coordination Centre, in which Ukraine, Russia, Turkey, the UN (including the World Food Programme, the UN Conference on Trade and Development, and the Office of the Commissioner of Human Rights) participated. As can be seen in the earlier figures, global prices soon eased following the establishment of Solidarity Lanes (land-based trade routes for ferrying Ukrainian grains through Europe) and the announcement of the Black Sea Deal.
This deal came as good news to many West Asian and African countries, such as Somalia and Sudan, who received 53,500 tonnes and 95,000 tonnes of foodgrains respectively from Ukraine. In the 2016-21 period, large chunks of its food exports went to the developing world:
27% to North Africa
7% to Southern Africa
14% to South Asia
19% to Indonesia and the Philippines
The disruption of these exports was likely to put such food-insecure countries on the brink of humanitarian crisis. However, timely intervention and willingness of both sides to cooperate held off this eventuality for a short period.
End of the deal: Crisis delayed?
Unfortunately, and perhaps inevitably, this deal fell through in a year. Amid a flurry of Russian allegations about Ukraine acting in bad faith, the former decided to pull out of the deal, a move strongly criticised by the international community and the UN. This new development therefore forces us to once again evaluate the likelihood of emerging humanitarian crises in food-insecure countries dependent on Ukrainian exports. As the World Food Programme (WFP) has stated, the suspension of the deal “means the main artery for global food exports has been severed.” The developing world, particularly parts of Africa, is the biggest cause for concern here. As per the WFP, around 80 million people in Africa are “acutely food insecure”. While this food insecurity has origins in other factors–particularly the lingering effects of the pandemic-induced shocks, as well as climate change–the disruption of Ukrainian exports is a huge blow to an already bad situation. For instance, wheat prices in Mogadishu, Somalia’s capital, doubled when Russia initially invaded, and fell by around 25% when the Black Sea Deal was announced in 2022.
The disruption of Ukrainian grains constitutes one pillar of the triple crises affecting Northern and Eastern Africa, which is also grappling with climate disasters and armed conflict. In terms of climate disasters, Kenya, Ethiopia, and Somalia have been dealing with a severe drought since October 2020, which is considered to be the worst drought in 40 years in the region. This has put an estimated 20 million people on the brink of food insecurity. And now, heavy rains have struck the region. Flash floods caused by these rains led to several deaths and affected over 300,000 people in Sudan and Somalia. In Libya, a massive flood killed over 5,000 people and displaced thousands more.
Clearly, Russia’s pulling out of the deal could not have come at a more inopportune moment. As per the German Foreign Ministry, every 1% increase in food prices caused an additional million people to fall into poverty across the world.
For the immediate short-term, it is imperative for national, non-governmental, and inter-governmental actors to ramp up their diplomatic efforts to get Russia back onto the negotiating table to allow for the resumption of these exports. Despite the facility of the EU’s Solidarity Channels, Ukraine is still heavily reliant on the Black Sea routes for the export of its grains, without which not only Ukrainian producers suffer, but also the food-insecure poor in some of the most impoverished countries in the world.
In the long-run, however, this crisis has exposed the faultlines of the global food economy, and how vulnerable developing countries are to insufficiently diversified food channels. Developing resilience to global shocks by strengthening local capacities for production, as well as diversifying the international food market will be imperative for the long-run security of these countries, especially as they continue to grapple with rising climate crises. For Ukraine itself, in the long-run, it must ensure diversification of its own trade routes, so as not to be left as vulnerable to Russian aggression as it has been now.
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