What End of Ukraine Grain Export Deal Means for the World

Jun 15, 2024

Russia’s efforts to obstruct Ukraine’s food exports are working. First, Moscow quit a pact that had allowed safe passage of crops from Black Sea ports. Then it sent drones to bombard grain terminals along the Danube river — the next most important shipping route. Ukrainian farmers worried their grain wouldn’t find its way to foreign buyers now plan to plant less for the next season, and that’s stoking worries about global supplies.

1. Why is Ukraine so influential in global food markets?

Ukraine is Europe’s second-largest country by area, and its vast plains of dark, rich soil are ideal for farming. Food from Ukraine has helped to shape the course of European history, feeding the populations of fast-growing industrial cities in the 19th century and sustaining the Soviet Union through decades of isolation. Before the war, Ukraine exported more grain than the entire European Union and supplied about half of the globally traded sunflower seeds and oil. Even in the 2022-23 season — the first full year under Russia’s invasion — Ukraine has held as the sixth-largest wheat shipper and third for corn. As the season came to a close at the end of June, Ukraine’s grain exports were more than 48 million tons, about steady with the 2021-22 season.

2. How did the export agreement work?

The grain deal signed in July 2022 reopened three of Ukraine’s Black Sea ports to crop shipments, easing global prices that had spiked after Russia troops invaded the country in February that year. All ships were required to pass inbound and outbound checks at a center set up in Istanbul, which was jointly staffed by Russia and Ukraine — as well as Turkey and the United Nations, the two parties that brokered the agreement. Nearly 33 million tons were shipped in the year it was in force, led by corn, wheat and sunflower products. Monthly shipments via the corridor peaked at 4.2 million tons in October, but held below 3 million tons from April onward as inspection times grew increasingly lengthy and Russia blocked ship registrations to one of the ports.

3. Was the deal the only way out for Ukraine’s grain?

No. Problems with the pact pushed more crops toward Ukraine’s smaller Danube river ports, plus rail and road transit via the EU border. The tonnage shipped that way actually surpassed the volumes moved through the Black Sea corridor, at least as of May. Still, those alternatives are more cumbersome and expensive than shipping via Ukraine’s deep-sea ports. Danube ports can only take smaller ships, which reduces volume, while grain exported by train is slowed by rails of different sizes at border crossings. Those shipments have also caused tensions with EU neighbors, who claim that the glut of grain coming in is hurting their farmers by depressing local prices. The EU allowed five eastern member states to impose restrictions on purchases of Ukrainian grain domestically (transit shipments may continue). The ban expires in September, but the five have called for an extension.

4. Why did Russia pull out of the deal?

Russia said it was because obstacles to exporting Russian fertilizers and food weren’t lifted. That’s despite the fact that Russia is shipping record volumes of wheat, and its fertilizer exports are recovering to pre-war levels. Food is not directly targeted by sanctions, but penalties on Russian banks and international companies like John Deere deciding to pull out of the Russian market caused problems for farmers because they couldn’t get some replacement parts or seeds. Russia’s foreign ministry made five main demands to stay in the deal, including for agricultural bank Rosselkhozbank to be reconnected to the SWIFT international payments system, resolving issues with securing spare agricultural machinery parts and reopening an ammonia pipeline. Russia said those demands had not been met, and that all ships headed to Ukrainian ports would now be considered military vessels.

5. What was the upshot?

Ukraine’s monthly export capacity fell from about 7-8 million tons to a maximum of about 4 million tons. Ukraine asked other nations to help facilitate shipments from three deep-sea ports that weren’t covered by the export pact. But the US government said military escorts weren’t an option and insurance broker Marsh suspended its program for grain exports from Ukraine. The next-best alternative route, via the Danube, was then thrown into doubt when Russia sent drones to attack ports along the river in August. Even if the Danube remains a viable route, the additional expense of shipping grain via river and rail makes it less appealing for farmers. Some major Ukrainian farm companies were planning to reduce the area they plant for winter crops as they didn’t expect prices to cover those costs.

6. Which buyer nations may suffer most from this?

China, Spain and Turkey were the biggest buyers of Ukrainian foodstuffs shipped through the safe corridor, but poorer countries like Egypt and Bangladesh also imported over a million tons each under the program. The UN has said shipments under the deal helped to boost global supplies and bring down prices, regardless of where the grain was shipped. Global grain prices initially spiked after Russia’s exit from the deal. Corn and wheat futures have since moderated.

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