THERE is presently a global food crisis, which has been the result of several underlying factors.
Food inflation has been exceptionally high in most parts of the world, with the effects most felt by those living below the poverty-line.
Consequently, cost of living and food protests broke out in 148 countries, including the United Kingdom, Germany, France, Spain, Argentina, Indonesia and Iran in 2022.
Firstly, supply chain dislocations, during and after Covid-19, made it more expensive to produce, deliver and sell foodstuffs.
Secondly, an energy crisis ensued, making fuel and power for manufacturing and logistics pricier.
Thirdly, the worldwide inflation, as a result of Covid-19 stimulus packages, is still fuelling high food prices.
Additionally, droughts and extreme weather conditions in major food producing territories, such as North America, Europe, Latin America and India have led to scarcity and galloping costs for consumers.
Exacerbating the situation, is the war in Ukraine, which, together with Russia, account for a minimum of 25% of the world's wheat exports. Russia is the world's largest wheat exporter, accounting for 20% of the world's statistics in 2022/23 season. Both Russia and Ukraine provide 52% of the world's sunflower oil export market.
- Young entrepreneur dreams big
- Chibuku NeShamwari holds onto ethos of culture
- Health talk: Be wary of measles, its a deadly disease
- Macheso, Dhewa inspired me: Chinembiri
Keep Reading
Around 19% of barely supply and 15% of world corn trade, also originated from the region, before the war. As the conflict started, maritime exports of foodstuffs and fertilisers were put on hold and this drove uncertainty, which led to more global food price increases.
The Black Sea corridor, leading to Ukrainian ports, was filled with explosive mines and Russia was prepared to attack incoming vessels suspected of bringing in arms for the war.
In an effort to supply Europe, for the first time, commercial exports of grain were ferried by train, through the western Ukrainian border, in March 2022.
However, the maximum capacity of rail, road and river shipment, combined (2,7 million tonnes), remains far less than that of sea, which is at six million tonnes per month. To put it in perspective, more than 20 million tonnes of grain were stockpiled and stuck in Ukraine, until a resolution had to be brokered to ensure the safe passage of vessels required to transport the merchandise through the Black Sea.
To get to an agreement, there were several negotiations between the United Nations, Turkey, Russia and Ukraine diplomats, until the Black Sea Grain Initiative, was established on July 22 2022.
The pledge designed mechanisms for inspecting incoming ships to ensure there was no smuggling of armaments. In return, Ukrainian farmers and the agricultural sector would get the necessary income for sustainability.
Ultimately, there would be increased supplies of foodstuffs on global markets, leading to lower prices and the saving of lives from the imminent danger of famine. The initial deal was designed to last for 120 days.
Upon its expiration in November 2022, an extension was made for another 120 days to March 18 2023. Two further extensions of a combined total of 120 days were agreed upon, thereafter. The next renewal should be before July 18, if there are to be no further disruptions to international trade and global food prices, once again.
The initiative was successful in resolving grain shipments, as more than 30 million tonnes of grain and foodstuffs were exported from Ukraine to the rest of the world, by May 2023.
With the increased supply, there was a consequent reduction of wheat prices by more than 30%, from their peak in June 2022, after the invasion.
Other grains and foodstuffs followed the same trajectory, making livelihoods yet more bearable for consumers around the world. The terms on which the deal is based seem reasonable.
If all parties involved in the initiative act in good faith, there should be a prolonged validity of the agreement, even until the war ends.
Ukraine had requested that the maritime corridor of the Black Sea be demined. Additionally, ships were to reach Ukrainian ports without the danger of Russian attack.
Those terms have since been fulfilled by Moscow. However, Russia's terms, though straightforward, have not yet been fulfilled, which brings uncertainty to the future of the deal.
A point-by-point analysis of each of the Russian conditions should give clarity to this. Most of Moscow’s requests are based on allowing their agricultural sector to function without the hindrances of Western sanctions or inhibitions.
The conditions to be met, according to Russia, as stated in the initiative, are:
Re-admission of the Russian agricultural bank (Rosselkhozbank) to the international banking system, SWIFT;
Removal of restrictions on bank accounts of Russian fertilizer companies and people linked to them;
Resumption of operations on the pipeline, which pumps ammonia into the Ukrainian port of Odessa;
Restoring supplies of agricultural machinery and components (parts); and
Removal of restrictions on insurance and port access for Russian cargo.
The agricultural bank, Rosselkhozbank, has not been restored to the SWIFT (Society for Worldwide Interbank Financial Telecommunications) payments system.
Instead, the European Union (EU) has indicated that the restoration will only occur on condition that the war ends. Without inclusion to the SWIFT system, the state bank will not be able to participate in trades that require payments or receipts of the US dollar, which is the main currency for international trade.
Russian fertiliser companies are not under explicit sanctions. However, some key people connected to these firms have been hit by Western restrictions.
As a result, it has proven difficult for the companies, in practice, to transact on international platforms, thereby hampering their performance. For example, ships carrying more than 200 000 tonnes of Russian fertilisers ended up stranded at EU ports and had to be rerouted to Africa, as the impasse could not be resolved.
The pipeline, which pumps ammonia from Russia to Ukraine’s port of Odessa, has not been restored. Instead, it was bombed and damaged, in June, becoming the latest threat to the deal.
Agricultural machinery and parts have not been expressly placed under Western sanctions, although the suspension from SWIFT will make purchases from Europe and the US, extremely difficult.
Lastly, Western nations have stated that there are no sanctions on insurance of Russian cargo, and vessel access to ports. However, the stranded Russian fertiliser at European ports, paints a different picture. European intermediaries have been largely unwilling to handle Russian cargo, on fears that they may be found guilty of violating other existing restrictions against Russia.
Moscow diplomats have repeatedly insisted that, if their demands in the deal are not met, they will not be renewing it. It is reasonable to say that their threats to not participate in the renewal, upon expiration of the deal on July 18, should be taken seriously.
If the Russian agricultural sector continues to be hampered, there will be further consequences for global food security. The country is also a major participant in the global fertiliser market.
Since 50% of the world's food production requires fertilisers, the developments in this market must be watched closely. Russia is the world's largest exporter of ammonia, with 30% global market share.
Of the 4,4 million tonnes of ammonia that Russia used to export annually, 2,5 million were pumped into the pipeline to Ukraine, which was shut down, since the commencement of the armed conflict.
Russia is also the third-largest supplier of MOP fertilisers, to the world market. Additionally, 2022 figures show that, the country controls around 20% of global urea shipments and 15% of both DAP and MAP fertilisers. Nominally, the nation produces more than 50 million tonnes of fertilisers, which is 13% of global total. Although the EU currently has increased productive capacity and global demand has been weak, concerns of shortages and further price increases, especially in the medium-term, are valid.
Africa is more concerning, in terms of food insecurity, as the continent relies largely on imported food, in spite of the massive landmass, which can be utilised for commercial agriculture.
For instance, between 2018- 2020, the continent imported US$5,1 billion of wheat products from Russia and Ukraine. About 40% of South Africa's wheat requirements are imported from the warring region.
Although the nation is fairly food-secure, it also imports about 30% of its sunflower oil requirements. Tunisia and Libya depend on both Russia and Ukraine for about half of their wheat needs. Egypt, the continent's second largest economy, relies on the same region for 25-30% of its requirements.
Zimbabwe achieved wheat self-sufficiency in 2022, harvesting 375 131 tonnes, against a requirement of 360 000 tonnes. On the other hand, the 2022/2023 maize harvest was short of domestic requirements by around 700 000 tonnes.
Though progress had been steadily made in agriculture, the nation is still dependent on imports for soya bean oil.
Sunflower production is set to increase by a whopping 714%, according to the Crop Livestock and Fisheries Assessment (CLFA-2) report.
This should work towards reducing dependency, which still exists.
In conclusion, it is imperative for nations, which are not food-secure, to understand the Black Sea Grain deal and risks that may arise due to its suspension or the worsening of conflict in Ukraine.
If the suggestions by Russia, that they will exit the deal on July 18, become reality, food prices will surge, and most likely, fertilisers too.
A shortage of commodities on the global market will lead to a scramble for the available supplies, which will result in upward price pressures.
In Africa, the situation may be worse for countries on the northern-half of the continent, which have a larger dependency on Black Sea exports.
Nevertheless, it is paramount for all nations to have contingency methods or routes to take, in the case of another impasse in the Black Sea.
Tutani is a political economy analyst. — tutanikevin@gmail.com
