Unpacking Russia's Objection to the Black Sea Grain Deal - What You Need to Know

Moscow: In a recent statement, President Vladimir Putin announced that Russia is contemplating pulling out of the Black Sea grain deal. According to Putin, Moscow is facing obstacles in getting its agricultural goods to global markets and accused the West of cheating Russia. As a result of this announcement, Putin plans to discuss the future of the grain deal with visiting African leaders during their meeting on Saturday. The Black Sea Grain Initiative was brokered last July by the United Nations and Turkey to address the global food crisis, which was exacerbated by Moscow's invasion of Ukraine and blockade of its Black Sea ports. Under the initiative, food and fertilizer can be exported from three Ukrainian ports - Chornomorsk, Odesa, and Pivdennyi (Yuzhny), and has been extended three times, the most recent extension being until July 17.

Ukraine has exported approximately 32 million tonnes of corn and Wheat under a new initiative that also permits the safe export of Ammonia, a primary component of Nitrate fertilizer. However, no Ammonia shipments have been made thus far. The initiative was agreed upon to persuade Russia to participate, and a three-year deal was signed last July in which the United Nations pledged to assist Moscow in overcoming any barriers to its own food and fertilizer exports. Despite not being subject to Western sanctions imposed following the February 2022 invasion of Ukraine, Moscow claims that payment, logistics, and insurance restrictions have served as obstacles to its exports. According to U.N. spokesperson Stephane Dujarric, there has been "tangible progress" in improving Russian exports over the past few months, but challenges remain. Nevertheless, the U.N. is committed to overcoming any remaining obstacles.

The escalating global food prices have hit the poorest communities the hardest. Last year, the U.N World Food Programme (WFP) cautioned that it could no longer guarantee feeding 125 million people as half of its grain supply came from Ukraine. Shockingly, between 2018 and 2020, Africa imported Wheat worth $3.7 billion (32% of total African Wheat imports) from Russia and another $1.4 billion (12% of total African Wheat imports) from Ukraine, according to the United Nations. More than half of the Wheat imports for 36 countries, including some of the world's most vulnerable nations like Lebanon, Syria, Yemen, Somalia, and Democratic Republic of Congo, come from Russia and Ukraine, as reported by the United Nations last year.

The World Food Programme (WFP) has shipped over 625,000 tonnes of grain under the Black Sea deal to aid operations in Afghanistan, Ethiopia, Kenya, Somalia, and Yemen. In 2022, more than half of WFP's global Wheat grain was procured from Ukraine. However, Russian President Putin has accused the West of cheating Russia as they still face problems with their own exports. The United States dismissed Putin's grievances, with U.S. Ambassador to the U.N. Linda Thomas-Greenfield stating that they are exporting grain and fertilizer at similar or higher levels than before the invasion.

According to the U.N. data, only 3% of grain exports from the Black Sea deal were allocated to low-income countries, while around 44% went to high-income nations and the rest went to middle-income states. Putin stated that the deal was meant to benefit countries in Africa and Latin America, however, only a small percentage of grain, roughly 3.2-3.4%, went to the world's poorest nations. While the U.N. has continually clarified that the deal is a commercial undertaking rather than purely humanitarian, it has been noted that it has helped lower food prices worldwide, benefiting poorer nations.

In March, Russia outlined specific demands to U.N. officials for its continued participation in the grain deal. Moscow wants to see the reconnection of the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payments system, which was cut off by the European Union in June 2020 following their invasion of Ukraine. Despite this, the EU has stated that it will not restore access for Russian banks. As a temporary solution, U.S. bank JPMorgan Chase & Co JPM.N has started processing some Russian grain export payments after receiving assurances from the U.S. government.

The African Export-Import Bank (Afreximbank) and the United Nations are partnering to create a platform that will facilitate the processing of transactions for Russian exports of fertilizer and grain to Africa. In the meantime, Russia is seeking the reopening of its Black Sea Ammonia exports through a pipeline that connects Russia's Togliatti to Ukraine's Pivdennyi port, which was closed due to the war. The U.N. suggested that following its arrival at the Russia-Ukraine border via the pipeline, Russian fertilizer producer Uralchem should sell its Ammonia to Trammo, a U.S.-based commodities trader.

Moscow has announced that it will restrict the number of vessels permitted to travel to Pivdennyi port, under the Black Sea grain deal, until the Ammonia pipeline is reinstated. According to U.N. data, no ships have visited Pivdennyi port for over a month. Last week, Russia claimed that Ukrainian forces had destroyed part of the world's longest Ammonia pipeline, located in Ukraine's Kharkiv region. However, the regional Ukrainian governor alleged that Russia had shelled the pipeline. Neither side provided any evidence to support their claims. Furthermore, the conflict resulted in over 400,000 tonnes of Russian fertilizer getting stranded in EU ports initially. Nevertheless, U.N. officials have facilitated its export to Africa after Russia confirmed that it would be donated.

Russia is seeking a resumption of agricultural machinery and spare parts supplies, access to ports for cargo and ships, and the lifting of insurance restrictions. Additionally, they are requesting the unblocking of accounts and financial activities for Russian fertilizer companies. While there has been an increase in exports of Russian Wheat and some fertilizers since the war, the exports of Ammonia and potassium-based fertilizers have decreased significantly. Putin announced that in the 2022-23 season, Russia is expected to export around 55-60 million tonnes of grain, which could be a record-breaking achievement, following the export of 38.1 million tonnes of grain, including 30.7 million tonnes of Wheat in the previous season.

As per the latest report by the U.S. Department of Agriculture, Russia has witnessed an increase in its Wheat exports to the Middle East and Africa during the period 2022-23. In addition to this, there has been a rise in the export of urea and potassium-based fertilizers such as Diammonium and Monammonium Phosphate from Russia. However, the export of Potassium-based fertilizer, muriate of potash (MOP), has declined by 37% in 2022.