Will Ukraine’s Grain Deal Bring Down Global Food Prices?

Welcome to today’s Morning Brief, where we’re looking at Ukraine’s grain exports and global food prices, Indonesian President Joko Widodo in China, Tunisia’s constitutional referendum, and the world this week.

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Last Friday, Ukraine and Russia signed an agreement to free up Ukraine’s grain for export. In theory, the deal would allow for Ukraine to sell the grain it has kept in storage since its last harvest and help it bring in much-needed funds to keep fighting Russia.

The world might benefit, too: Friday’s news brought a 5 percent drop in wheat prices. So, if more of Ukraine’s grain can make it to market, are lower prices in sight?

What deal? That grain has to make it out of Ukraine and through the Black Sea first. Judging by Russia’s missile strike on Odesa, one of three ports involved in Friday’s deal—just hours after the deal was signed—the agreement has not functioned like a de facto cease-fire in the area. Ukrainian officials say the strike by two Kalibr cruise missiles hit port infrastructure, while Russian officials claimed to have hit military targets.

Darin Newsom, a veteran commodities analyst, shared the view of U.S. officials that the deal may not be worth the paper it’s written on. “How can you build any sort of reliability into any agreement or any type of deal with Russia? It’s just insane,” Newsom told Foreign Policy.

“I don’t think it’s going to solve the global tightness in a lot of these grain markets. I think the markets are going to stay very volatile, and we’re going to have to continue to deal with this until the bigger problem of Russia’s invasion of Ukraine is solved.”

Daejin Lee, the lead shipping analyst at S&P Global Market Intelligence, concurred. Lee predicts that exports will continue to favor Danube River ports over the Black Sea. “The food inflation risk with global grain shortage is expected to continue in the near term until the passage from the major grain seaports in Odesa region fully return to normal,” Lee said in a note.

Even if the deal is honored, Russia’s battlefield gains of the past few months mean that freeing up those Ukrainian ports still won’t give Ukraine complete control over its produce. Ukrainian officials accuse Moscow of stealing at least 500,000 tons of Ukrainian grain, worth about $100 million, and shipping it off via captured ports.

As Bloomberg reports, food exports from occupied Crimea have increased fiftyfold since the war began: Already this year, at least 462,000 tons of food have been shipped from the port of Sevastopol versus just 8,000 tons the year before.

The war’s wheat impact. The role played by Ukraine and Russia in wheat production can sometimes be overstated. Although both countries counted for around 27 percent of all wheat exported last year, that doesn’t mean it’s the only way for a country to get it: Countries often grow their own and can rely on reserves to weather price shocks.

As Sarah Taber explored in Foreign Policy in April, the export shortfall forecast from the war is projected at 0.9 percent of global wheat production—and slack is already being picked up by India and Australia.

Even so, not all countries have the climate, the land, or the wealth to ride out a supply crunch. Most of Ukraine’s customers tend to be less developed nations: Egypt and Indonesia were its two biggest customers in 2019, and 14 African nations have relied on Kyiv’s exports for half their wheat. “The noose was tightening, so the deal should help us breathe,” Célestin Tawamba, the CEO of La Pasta, Cameroon’s largest flour and pasta producer, told the New York Times following Friday’s news.

Tjada D’Oyen McKenna, the head of relief charity Mercy Corps, gave a cautious welcome to the deal, saying in a statement that it “will not significantly change the price or availability of fuel, fertilizer, and other staple goods that are now beyond the reach of many, particularly in lower-income countries; and it will certainly not help the majority of the 50 million people around the world inching closer to famine stave off starvation.”

The good news is that, even if the Ukraine-Russia deal leads to nothing, global food prices are still dropping. The price of wheat has returned to its prewar price, and last month the U.N. food agency recorded a 2.3 percent overall drop in its food price index, the third consecutive decrease in as many months.

“The thing we have to consider about wheat is there is a crop growing somewhere every day of the year. So, there is always some supply coming into the market to change the supply-demand situation, and that’s also helped bring prices back down,” Newsom said.

The bad news is there are still plenty of inflation factors remaining. The index is still 29 percent higher than this time last year as supply pressures that preceded the war have steadily pushed prices up from 2020 onward.

Monday, July 25: Philippine President Ferdinand Marcos Jr. delivers his first State of the Nation Address.

Tuesday, July 26: European Union energy ministers hold an extraordinary meeting to discuss preparations for winter.

Kenya’s presidential candidates participate in a televised debate.

Thursday, July 28: The United States releases its first GDP estimate for the second quarter of 2022.

Uzbekistan hosts Shanghai Cooperation Organisation foreign ministers (of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, India, and Pakistan) in Tashkent, Uzbekistan.

Friday, July 29: The EU releases flash estimates of GDP figures for the bloc and eurozone.

Sunday, July 31: Senegal holds parliamentary elections.

What We’re Following Today

Jokowi to China. Indonesian President Joko Widodo arrives in China today, kicking off a three-country tour that will include stops in Japan and South Korea. Widodo is scheduled to meet with Chinese President Xi Jinping on Tuesday, which will make him the first foreign leader to meet with Xi since the Beijing Winter Olympics in February.

Tunisia referendum. Tunisians have the chance today to vote on whether to change their country’s constitution to dramatically expand the powers of President Kais Saied, who suspended the country’s parliament and sacked the prime minister one year ago today. Voter turnout is expected to be low, and all major political parties have called for a “no” vote. Nonetheless, the measure is expected to pass.

Lavrov in Uganda. Russian Foreign Minister Sergey Lavrov continues his tour of African nations today in Uganda, where he is expected to meet with President Yoweri Museveni. Speaking in Egypt on Sunday, Lavrov appeared to backtrack on previous statements describing limited aims in Ukraine by saying that Russia aimed to “free” the Ukrainian people “from the regime that is absolutely anti-people and anti-history.”

Keep an Eye On

The monkeypox emergency. World Health Organization (WHO) Director-General Tedros Adhanom Ghebreyesus has elevated an outbreak of monkeypox to the status of a public health emergency of international concern after the disease spread to dozens of countries in recent weeks. The declaration encourages international cooperation and could lead to the agency recommending travel restrictions. Tedros’s call overrules the decision of a 15-member WHO expert committee, in which nine members voted against describing the outbreak in such strong terms.

Pelosi to Taiwan? Chinese officials have reportedly issued strong warnings to their U.S. counterparts ahead of a possible trip to Taiwan by U.S. House Speaker Nancy Pelosi. According to the Financial Times, the admonitions “were significantly stronger than the threats that Beijing has made in the past when it was unhappy with U.S. actions or policy on Taiwan.” U.S. President Joe Biden’s only comments on the potential trip came after Pelosi was given a Pentagon briefing. Biden said that “the military thinks it’s not a good idea right now” for Pelosi to go.

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