Collapse of Black Sea Grain Initiative will affect food prices but African countries had already ditched the deal

The implications of Russia not renewing the Black Sea Grain Initiative will not mean immediate hunger on the continent, but it will push up prices for poor countries already dealing with other challenges, such as drought, deteriorating exchange rates and dollar shortages.

The Black Sea grain deal was agreed in 2022 to allow exports of food and fertiliser from three of Ukraine’s ports. The majority of the exports – mainly wheat – went to low- or middle-income countries.

Russia pulled out of the initiative just hours before it expired. The deal was crucial to contain global food prices after the outbreak of the Russia-Ukraine war hit global food supplies. However, it seems that Russia now wants to export its own produce to Africa. Russian president, Vladimir Putin, had said in June that he wants to end the initiative as it did not ensure that Russia’s food exports reach the world’s markets.

UN data also shows that Russian exports to Africa already increased last year when Ukraine could not export any produce due to the war. There were also renewed attacks on Ukraine’s harbours, especially in Odessa, which will now make it difficult to export from there.

Africa had already looked elsewhere

An analysis by economic research group, Oxford Economics Africa, shows that the bulk of the wheat and food shipments facilitated by the deal did not make it to Africa, says Callee Davis, economist at the group.

“In fact, many African countries moved away from Black Sea wheat suppliers in search of new source markets. The importance of the deal for Africa rather lies in its implications for broader global soft commodity prices.”

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Bulk of exports in 2022 not to Africa

African countries, especially those relying on food imports from Russia and Ukraine, were hard-hit by disrupted global commodity supplies last year and although the initiative helped secure wheat exports from Ukraine passing through the Black Sea, data from the United Nations (UN) suggests that the bulk of these exports went to countries in Asia-Pacific and Western Europe.

Of the 32.9 million metric tonnes of grain and other foodstuff shipments facilitated by the deal, African countries received only 12.2%. There is also a growing body of evidence which suggests that significant reductions in wheat imports from Ukraine meant that African countries turned to new source markets for their food import needs, Davis says.

Data from TradeMap shows that the source markets for Egypt’s wheat imports moved significantly in 2022. While Ukrainian imports previously accounted for 25.3% of total Egyptian wheat imports in 2021, they accounted for only 5.7% of total imports in 2022.

“Meanwhile, Russian wheat imports jumped by 10 percentage points to 51.2% of total Egyptian wheat imports in 2022. Wheat imports from Romania, France and the US also increased as a share of total Egyptian wheat imports.”

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Davis says this narrative is further confirmed by the US department of agriculture’s April 2023 Grain and Feed Annual report, which notes that Egyptian wheat purchases from Ukraine declined by 73.6% over the 2021-2022 period, as Egypt sought to diversify its wheat import source markets.

Russian wheat imports also increased in Kenya as a share of total wheat imports over the 2021-2022 period. However, a slightly different narrative emerged in countries such as Nigeria, Tanzania and Morocco, which appeared to move away from Black Sea suppliers in favour of new markets.

On the other hand, Morocco’s wheat imports soared by almost 50% to six million tonnes in 2022, as a severe drought affected domestic production, but trade data shows that Morocco sourced most of these imports from France, Germany and Brazil.

“Similarly, wheat imports from Argentina, Lithuania and Latvia increased substantially as a share of total wheat imports in Tanzania, Kenya and Nigeria. This suggests that the Black Sea Grain Initiative played less of an important role in securing wheat supplies for these countries.”

Initiative benefitted poorest countries

However, Davis says, the deal played a crucial role to ensure a continued supply of food assistance to some of the world’s poorest countries under the UN’s World Food Programme. According to the UN, the deal allowed the programme to transport more than 725 000 tonnes of wheat to people in countries affected by wars and extreme weather events.

Most of these countries are in Africa, including Ethiopia, Sudan, Kenya and Somalia and therefore, the suspension of the deal could affect emergency food supplies to some of the world’s most vulnerable populations.

The importance of the deal for Africa lies in the broader implications for global commodity prices. After the signing of the deal on 22 July 2022, global soft commodity prices were lower as global food supplies stabilised somewhat.

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However, on an annual basis, average global food prices were still around 7.0% higher over the July to October 2022 period and this had massive implications for African countries, regardless of whether they imported the bulk of their food from Russia and Ukraine or elsewhere.

Davis says the result was soaring food price inflation across the continent, which had a significant impact on inflation as foodstuffs account for between 30% and 50% of inflation baskets in most cases.

Many countries resorted to subsidies and price control to limit the passthrough of soaring commodity prices to consumers, which weighed on national budgets and medium-term fiscal consolidation goals.

Proof that prices are sensitive to Russian moves

“Russia’s announcement of its intention to exit the deal on 29 October 2022 subsequently resulted in another spike in food prices, which spurred a negative response from other emerging and developing countries, particularly Türkiye, and caused Russia to return to the deal four days later.”

Since the announcement of the Black Sea Grain Initiative’s suspension on 17 July, wheat prices also jumped by 11.2%, although they were still down by 10.4% on an annual basis. Davis says this time could be different, as grain prices are much lower due to improved global supply and reduced sensitivity to Ukraine’s supply disruptions.

Russia has also consistently delayed inspecting Ukraine-bound ships in Turkish harbours over the past few months, which has stifled Ukrainian exports without a pronounced response from global food prices.

“Although we think it is unlikely that prices will rise as much as they did last year, even minor upward adjustments to global commodity prices would have negative implications for African countries. While price inflation is subsiding in most African countries, we have not really seen a drop in prices, which means that households remain under pressure from the cost-of-living crisis.”

Soaring public debt and borrowing costs also mean that African governments have less fiscal scope to increase social support this time around. Many African countries are already experiencing food security issues as severe droughts have resulted in domestic agricultural production losses.

“If Russia sticks to its guns, we think that Putin might make possible gestures of food aid to the Horn of Africa to calm African leaders’ nerves, while Russian food export assurances to countries such as Egypt and Algeria are also a possibility. We can expect food prices to be hot on the agenda at next week’s Russia-Africa Summit in St Petersburg.”