information

Hu Huiyin, reporter of the 21st Century Economic Report, reports from Guangzhou

The mediation of various parties was fruitless, and Russia decided to suspend the implementation of the Black Sea food export agreement first.

On November 2, the Black Sea Food Export Joint Coordination Center said that the delegations of Ukraine, Türkiye and the United Nations agreed not to arrange any ships to move under the Black Sea Food Initiative on the same day. This is the first time that the Joint Coordination Center has interrupted the movement of ships since the implementation of the outbound transport agreement.

Although the implementation of the export transport agreement is still suspended, the attitude of the Russian side seems to have eased earlier. On October 31, the Russian Ministry of Defense issued a statement saying that Russia, as a major participant in the export agreement of agricultural products, did not withdraw from these agreements, but just suspended the implementation of the agreement. On the same day, the Russian side also said that it would continue to contact Türkiye and the United Nations through the Ministry of Foreign Affairs and other departments.

As a result, international food prices soared rapidly. On October 31, the price of December wheat futures contract on the Paris Pan European Exchange rose 4.1% to 351.5 euros/ton. In addition, the futures prices of corn and soybean oil rose on the same day. The futures prices of corn on the Chicago Futures Exchange rose 2.4% to US $6.97 per bushel, and the prices of soybean oil rose about 1.65%.
 
The Black Sea port is an important food transport channel. It is reported that more than a quarter of the world's wheat and barley exports, about a fifth of the corn goods and most of the sunflower seed oil depend on the Black Sea region every year. On October 30, after Russia announced the suspension of the implementation of the export agreement, Ukraine's grain export by sea stalled.

Zhong Yu, a researcher of the Institute of Agricultural Economy and Development of the Chinese Academy of Agricultural Sciences, said in an interview with the 21st Century Economic Report that if the Black Sea grain export agreement is terminated early, it will hinder the grain exports of Russia and Ukraine. At present, the impact is mainly concentrated in Ukraine, "Because there are many other ways for Russia's grain to export from Black Sea ports, but Ukraine's grain can only be transported from Black Sea ports."

The Russian side does have its own plans to suspend the agreement in advance. An official of the Russian government said that Russia had a good harvest of grain this year and was ready to replace Ukraine in the international market. The extent to which Russia can seize the grain market share is still unknown, but the market generally believes that global grain prices may face fluctuations again.

Who is more affected by the suspension of the agreement?

The Black Sea Food Agreement, which was due to expire on November 19, ushered in a change ahead of schedule.

On October 29, Russia accused Ukraine of attacking Russian ships involved in ensuring the safety of the maritime food corridor, and announced that it would suspend its participation in the implementation of the agreement on the export of agricultural products from Black Sea ports. This means that the 120 day export agreement is terminated in advance. On the 30th, the Joint Coordination Center set up to implement the agreement on the export of grain from the Black Sea said that there was no arrangement for vessels to enter and leave the Black Sea grain corridor that day because the parties had not reached an agreement on the entry and exit of grain carriers.

In the eyes of the outside world, such a scene is quite "abnormal". After all, since the implementation of the Food Initiative, the export of food has been resumed in an orderly manner.

On October 20, the Ministry of Infrastructure of Ukraine announced that two cargo ships carrying 82000 tons of agricultural products left the port in southern Ukraine. Since the implementation of the Black Sea Food Export Initiative, a total of 362 cargo ships have left the port of southern Ukraine, and Ukraine has exported 8 million tons of agricultural products. Speaking of the results of grain export, senior trade officials of the United Nations also said that between July and September, Russian wheat exports tripled and Ukrainian wheat exports more than quadrupled.

However, Russia is still worried about the export of its grain. The Russian representative to the United Nations once said to the United Nations that the export of Russian grain and fertilizer involved in the agreement had not been implemented. At the same time, he believed that the export of Ukrainian grain did not solve the problem of poor countries. This also became the fuse for Russia to announce the suspension of the Black Sea food agreement.

Tian Yaxiong, the chief researcher of CSCI Futures, told the 21st Century Economic Herald that from the perspective of export countries, the main destinations are Mediterranean coastal countries, namely Spain, Italy and Türkiye. The export volume to Kenya, Ethiopia, Somalia and other countries in East Africa is very limited.

On the other hand, Tian Yaxiong pointed out that, specifically, the vast majority of grain is from the three ports of the Black Sea. The Russian Ukrainian conflict and sanctions have limited Russian exports, making the implementation of the contract more beneficial to Ukraine than Russia.

Wang Na, research director of agricultural products of Everbright Futures, also told reporters of the 21st Century Economic Report that at present, Russia still exports wheat and corn and other cereals, while the corn export in Ukraine accounts for a large proportion. Therefore, the suspension of the Black Sea grain export agreement will have a greater impact on Ukraine.

At present, Russia is not satisfied with the effect of its grain export, or hopes to improve its grain export status by taking the opportunity of the Black Sea Food Agreement negotiations.

On October 29, Russian Agriculture Minister Dmitry Patrushev said that Russia was ready to provide the poorest countries with up to 500000 tons of food free of charge in the next four months, and completely replace Ukrainian food, and supply it to all interested countries at an acceptable price.

"From the latest position of the Russian side, it will consider replacing part of Ukraine's export share. Since the regions Ukraine exports do not involve poor countries, and the Russian government exports 500000 tons of grain to these countries, it may cause some changes in the export pattern and direction of the entire market." Wang Na said.

Changes in the pattern of grain trade

While suspending the implementation of the Black Sea Food Agreement, the Russian side also made preparations for increasing grain exports.

On October 30, Konstantin Kosachov, Vice Chairman of the Russian Federation Commission, said that, in view of Russia's bumper harvest, Russia was ready to completely replace Ukraine's grain in the international market. According to the assessment of the Russian side, it is estimated that the Russian grain export will exceed 50 million tons in this harvest season. Although the Russian side expects the grain harvest and export situation to be optimistic this year, the grain export volume of Russia in the same period last year is in a year-on-year decline trend. It is reported that the grain export volume of Russia in the agricultural year from 2020 to 2021 is 49 million tons, and the data in the same period last year is only 38.1 million tons.
 
In addition, the export speed of grain and fertilizer in Russia is also slowing down. Statistics show that 54 countries will buy Russian wheat in 2021, compared with 24 countries this year.

Wang Na said that Russia's grain export not only depends on the supply and demand relationship of these countries themselves, but also considers whether some countries that used to accept exports from Ukraine can now accept Russian grains.

Zhong Yu also believes that Russia's grain export will face two risks: "First, Russia is subject to economic sanctions this year, and the use of foreign exchange is limited. Some agricultural exports need to be settled in rubles, which will inevitably affect the scope and volume of its grain transactions; second, some countries' sanctions against Russia will affect Russia's grain exports."

"As long as the external sanctions against the Russian economy are not ended and the difficulty in using foreign exchange is not alleviated, Russia's grain export will not be greatly improved." Zhong Yu told reporters that Russia's goal of replacing Ukraine's food supply in the international market would not be achieved.

Compared with Russia, the prospect of grain trade in Ukraine is more concerned by the outside world. In Wang Na's view, what the outside world is concerned about at present is how Ukraine's grains stranded in its own country are digested. "This problem first appeared at the beginning of the Russian Ukrainian conflict, that is, Ukraine's grains and oils are stranded at sea and cannot be unloaded. Now, this problem may emerge again."

Chris Trant, director of the U.S. Department of Agriculture at Hedge Point Global Markets, said that the early termination of the Black Sea Agreement means that farmers may face the problem of insufficient storage space for wheat and corn and nowhere to go.

Although the export problem is difficult, the change of grain procurement and trade pattern will have a more long-term impact.

The Ministry of Agriculture of Ukraine said that the planting area of Ukraine in the winter of 2023 may be reduced by 30% - 40% due to the conflict. The reduction of planting will affect future exports. On the other hand, affected by the conflict between Russia and Ukraine, many countries are reducing the amount of food they purchase from Ukraine. According to the UN Comtrade data, more than 30 countries stopped buying food from Ukraine from June to July this year.

Wang Na said, "Then this share of grain needs to be made up by other countries. For example, China also transfers the demand for import procurement to countries like Russia or Brazil." The transfer of procurement demand has led to changes in the pattern of international grain trade. Zhong Yu said that the main grain export regions include South America, North America and Australia. At present, the grain exports of South America and North America are experiencing unexpected growth.

In addition to the transfer of the grain purchase market, the suspension of the agreement on the export of grain from the Black Sea may also cause changes in the types of grain planted in the region. Michael Magdovitz, senior analyst at Rabobank in London, said that Ukrainian farmers might refuse to grow "unsold" crops.

Under various factors, the experts interviewed generally believe that international food prices will rise in the future.

Zhong Yu told reporters that the current grain trade pattern has changed. It is expected that the international grain price will be at a high level, with an increase of even 20%.

Wang Na also believes that international food prices will indeed be relatively high in the future, "On the one hand, because of the dry and hot weather this year, the output of many countries has declined, so the global food supply is still relatively tight; on the other hand, take the United States as an example, that is, a stronger dollar will lead to an increase in its export costs. At the same time, because countries have a demand to retain more food for their own country, these factors will drive the price of international food." At the same time, however, she said that it was still difficult for international food prices to adjust significantly.