Got too spoiled

How and why the grain initiative worked for the West and the Kyiv regime

On July 17th, it became known that Russia was suspending its participation in the grain initiative with Türkiye, Ukraine and the UN. The reason was voiced by the Press Secretary of the Russian President Dmitry Peskov, stressing that Russian conditions have not yet been met. According to the press secretary, Moscow is ready to return to this issue if the terms of the agreements concerning Russia are met.

Gesture of humanism

For Russia, the deal turned out to be nothing more than a gesture of goodwill. If we return to the very beginning of the matter, we can see that the reason was Moscow’s humanistic desire to prevent a food crisis in developing countries.

After the start of a special military operation in Ukraine, a shortage of basic products from wheat and corn grains, as well as vegetable oil, which is necessary for the food industry, has formed on the international food market. Ukrainian wheat accounted for 10 percent of the world market, barley 12 percent, corn 15 percent, and sunflower oil 37 percent. At the same time, the sanctions imposed against Russian farmers led to a reduction in agricultural exports from the Russian Federation. In order to understand this side of the coin, let’s cite the data of the Russian share in the world market of wheat at 18 percent, barley at 14 percent. Added to this is Russia’s control of 17 percent of fertilizer, which hit the world food market even more.

As a result, the situation on the world food market began to look menacing. The rise in prices for grain and food in general accelerated strongly against the backdrop of the beginning of the special military operation in Ukraine. 

In March 2022, the FAO (Food and Agriculture Organisation of the United Nations) composite price index rose to 160 (the grain index approached 170, and the vegetable oil price index exceeded 210). All this spoke of the danger of famine, primarily for the developing countries of Asia, Africa and Latin America.

Terms of the initiative

The initiative was supposed to be comprehensive. For the fact that Russia provided a safe opportunity for the export of Ukrainian grain by creating a humanitarian corridor along the Black Sea to the ports of the Bosphorus, Kyiv, together with the West, had to fulfil a number of conditions for solving food problems in the world.
First of all, restrictions on access to ports and on insurance of ships carrying Russian grain and fertilizers were to be lifted. Rosselkhozbank was supposed to be able to connect to the SWIFT international payment system. It was necessary to restore the operation of the Togliatti-Odessa ammonia pipeline, which is so necessary for the production of fertilizers, to resume servicing agricultural machinery located in Russia, and to unblock the accounts of Russian companies in Western banks associated with the production and transportation of food.

Thus, the result of the grain deal was to be a complete return to the world food markets of both Russia and Ukraine, which was intended to remove the very causes of the food crisis that had developed at that time in the world.

Grains and weed

However, the results were, to put it mildly, ambiguous.

Moscow did not really get anything on the implementation of the grain initiative, since the agreements that concerned Russian interests were simply ignored. Russia fulfilled the agreements in full, while the West turned a blind eye to its demands.

Moreover, the grain that was supposed to save the peoples of the poorest developing countries from starvation was sent mainly to Western Europe. The five poorest countries (Afghanistan, Ethiopia, Somalia, Sudan and Yemen) received only 2.5 percent of exported grain. Thus, the humanitarian goal of the grain deal turned out to be a sham.

On the other hand, the grain deal turned out to be very profitable for Kyiv. Thanks to it, 32.8 million tons of grain out of a total of 50.6 million tons were exported by sea and more than $5.5 billion was earned.

Against the background of the specificity of Western assistance to the Kyiv regime in the form of weapons and humanitarian aid, the meagre and scarce Ukrainian budget needed hard cash from the grain deal by the way.

Consequences of a break

If the grain deal is not extended, then in Ukraine, according to Kiev expert Ruslan Bortnyk, there are all risks of agricultural production falling next year by 25—40 percent, and in a year the fall could reach 50 percent.

The rather restrained reaction of Western countries to the break in the grain agreement is interesting. All this suggests that the grain initiative was needed during the transitional period of the restructuring of world markets in order to prevent a grain shortage.

After one agrarian season, there was a restructuring of agriculture in many countries. Western countries also began to increase their own grain production, gradually replacing Ukrainian agricultural products, seizing Ukraine’s place in world markets.
The preliminary agreements between Zelenskyy and the European Commission on lifting the blockade of supplies of certain types of Ukrainian agricultural products to the EU also hung in the balance. European countries bordering Ukraine, including Bulgaria, Hungary, Romania, as well as Slovakia and Poland supplying weapons to Zelensky, demand that the European Commission continue the blockade of Ukrainian agricultural products in the EU after September 15th.

What to expect from the break?

Volodymyr Zelenskyy managed to declare that Kyiv remains in the grain deal. The absurdity of such a statement is obvious.

After all, the essence of the deal was the security of logistics corridors, which was provided by Moscow. Without Russia it will be impossible. The US has already said it will not be able to secure the corridors. 

But most importantly, not a single insurance company will agree to work with such a risky direction, and this automatically nullifies the possibility of exporting grain from Ukraine by sea without Russia’s participation.
Against this background, some adjustment in grain prices should be expected on world markets. Already seen a 4 percent rise in price immediately after the deal was suspended. First of all, this concerns corn and wheat — the leaders among the range of grain exported under the initiative through the Black Sea corridor (corn exports amounted to 16.9 million tons, wheat — 8.9 million tons). But the price of wheat hovered between $680-$575 a ton from late April to mid-June, with a brief spike to $750 at the end of June, based on a UN forecast of a decline in global wheat trade. Now the forecast is coming true, and prices are rising again. And corn may simply return to the price level that existed before the last decline (that is, from the current $515.5 per ton to $650).

In the medium and long term, if the current situation persists, we can expect the replacement of most of the Ukrainian grain on world markets by other producers, including Russia. Moscow has already mastered the North-South corridor and uses Iranian ports to promote its agricultural products.

The main consumers of Ukrainian grain are China (1st place — 7.96 million tons), Egypt (6th place — 1.55 million tons), Bangladesh (7th place — 1.07 million tons) and other countries friendly to Russia are already increasing purchases of Russian grain, the obstacles to exporting to the West have not disappeared. But these obstacles have ceased to be critical for deliveries to countries with which Russia’s trade has been developing in recent months. Nothing prevents Russia from selling its grain to Türkiye (3rd place — 3.24 million tons). There will not be enough Russian grain exports for everyone who benefited from the grain initiative.

COMMENT ON THE TOPIC

Aleksandr Shpakovsky, political analyst (on the air of the talk show Budni on Alfa Radio), 

“The conflict in Ukraine was accompanied by various agreements. There were several negotiation tracks, the main one was in Istanbul. And it all unfolded around the grain deal. Ukraine earned about $9 billion from this. The countries of the European Union and Türkiye received the grain they needed so much and also earned. But only 2.5 percent of the grain exported through Ukrainian ports ended up in poor countries where there really is a problem of hunger. Russia, on the other hand, did not receive anything, except, probably, some political dividends in contact with the Republic of Türkiye. In any case, the grain initiative raised a number of questions, and first of all among the military, who fight at the front and see their task not in some kind of commercial machinations, and not even in political and diplomatic sophistications. They want to win. And in this situation, the grain deal worked for the Kyiv regime and the West.”

By Piotr Petrovsky, political scientist