In News: Russia has re-joined the Black Sea Grain deal.
United States and Ukraine are accusing Russia of using food exports as a means to strengthen its position in the war.
The UN Food and Agricultural Organisation’s (FAO) Food Price Index, which assesses the monthly change in international prices of a basket of food commodities, fell for the sixth consecutive month in a row this October.
Black Sea Grain deal:
Aims to limit food price inflation emanating from supply chain disruptions because of Russian actions in the world’s ‘breadbasket’ by ensuring an adequate supply of grains.
The deal, brokered by the United Nations (UN) and Turkey, was signed in Istanbul in July 2022.
Initially stipulated for a period of 120 days, with an option to extend or terminate, the deal was to provide for a safe maritime humanitarian corridor for Ukrainian exports (particularly for food grains) from three of its key ports, namely, Chornomorsk, Odesa and Yuzhny/Pivdennyi.
Features:
A Joint Coordination Centre (JCC), comprising senior representatives from Russia, Turkey, Ukraine and the UN for oversight and coordination.
All commercial ships are required to register directly with the JCC to ensure appropriate monitoring, inspection and safe passage. Inbound and outbound ships (to the designated corridor) transit as per a schedule accorded by the JCC post-inspection. This is done so as to ensure there is no unauthorised cargo or personnel onboard. Following this, they are allowed to sail onwards to Ukrainian ports for loading through the designated corridor.
All ships, once inside the Ukrainian territorial waters, are subject to the nation’s authority and responsibility.
Should there be any requirement for removing explosives, a minesweeper from another country would be required to sweep the approaches to the Ukrainian ports, in other words, accompany the vessel with tugboats.
Moreover, in order to avoid provocations and untoward incidents, it is mandated that monitoring be done remotely.
No military ships or unmanned aerial vehicles can approach the corridor closer than a pre-decided distance agreed upon by the JCC. This too would require consultation with the parties and authorisation of the JCC.
Significance:
Ukraine is among the largest exporters of wheat, maize, rapeseed, sunflower seeds and sunflower oil, globally.
Its access to the deep-sea ports in the Black Sea enables it to directly approach Russia and Europe along with grain importers from the Middle East and North Africa.
Russia’s action in the East European country has now disturbed this route, earlier used to ship 75% of its agricultural exports – precisely what the initiative sought to address.
The initiative has been credited for having made a “huge difference” to the global cost of living crisis.
The initiative alone cannot address global hunger; it can only avert the chances of the global food crisis spiralling further.
As per the UN Office for Coordination of Humanitarian Affairs, approximately 9.8 million tonnes of grains have been shipped since the initiative was commenced.
People hoarding the grain in the hope of selling it for a sizeable profit owing to the supply crunch were now obligated to sell.
Concerns on suspension of deal:
Re-introduce the price pressures on grain prices, especially that of wheat, with inventory being at historical lows.
It could particularly impact countries in the Middle East and Africa such as Egypt, Turkey, Lebanon, Sudan and Yemen which have benefitted from the resumption and are particularly dependent on Russian and Ukrainian exports.
Storage facilities in Ukraine are already at capacity even as farmers turn to harvest the crops planted in spring. This, combined with restricted export opportunities, implies lower prices for farmers even as shortfalls spur prices globally. Lower prices will bring some Ukrainian farmers to the verge of bankruptcy and create further disincentives to plant for the next crop year.
Ukrainian farmers are likely to cut the winter grain sowing area by at least 30%.
Ukraine typically accounted for about 10% of global wheat exports before the war, the effect on global markets is akin to back-to-back droughts over three years in a major wheat-producing region, and it likely means that global stocks will not recover for at least another year. Thus, tight stocks are expected to cause higher prices and keep markets volatile.
