© Reuters. FILE PHOTO: Ears of wheat are seen in a field near the village of Zhovtneve, Ukraine, July 14, 2016. REUTERS/Valentyn Ogirenko/File Photo
(Reuters) – Russia has little to gain from agreeing to a U.N. proposal that it unblock Ukraine’s grain exports via the Black Sea in exchange for the freeing of Russian and Belarusian fertiliser exports from Western sanctions, industry experts in Russia say.
U.N. Secretary-General Antonio Guterres said last week he was in “intense contact” with Russia, Ukraine, Turkey, the United States and the European Union, urging “goodwill on all sides” to restore Ukrainian grain exports as a global food crisis worsens.
But goodwill is lacking in Moscow, which has squarely blamed the Western sanctions imposed in response to Russia’s military campaign in Ukraine for the food crisis.
Kremlin spokesperson Dmitry Peskov said President Vladimir Putin was aware of the “great danger” that the current situation could lead to hunger, but that Ukraine had thwarted its own exports by mining the Black Sea.
Ukraine’s Foreign Minister Dmytro Kuleba said on Wednesday that Russia was trying to “blackmail” the international community by raising the possibility of an offer to unblock Black Sea ports in return for a relaxation of sanctions.
Russia, the world’s largest wheat exporter, usually competes with Ukraine to supply the Middle East and Africa.
It expects a record crop this year and hefty exports to sell in the July-June marketing season, much of it from Black Sea ports that remain open, while Ukraine’s ports have been blocked since Moscow sent troops into Ukraine on Feb. 24.
And Russian fertilisers, moreover, are still able to reach some big export markets outside the West.
“A swap like this won’t happen now,” said a Russian grain industry source, who asked not to be named due to the sensitivity of the issue. “If the grain is going to be exchanged, it’s likely to be for something more.”
‘UKRAINE CAN WAIT’
For now, Russia seems to hold all the cards.
Global wheat prices are high due not only to disruption in the Black Sea but also to dry weather elsewhere and restrictions such as a ban on exports from India.
Chicago wheat futures hit a record price in March on supply concerns, and are still up by some 30% since Feb. 23. [WHT/]
Russia is well placed to take advantage, as its record harvest combined with large carry-over stocks will mean a high exportable surplus in the new season.
Putin has said Russia will increase wheat exports in the new July-June season due to a potential record crop of 87 million tonnes.
The IKAR and Sovecon consultancies estimate July-June wheat exports at 39 million and 41 million tonnes respectively, after around 33 million tonnes this season, most of it already shipped.
“So Russia can address the global food security issue – and do it at high prices,” the source added. “And Ukraine can wait for now.”
More than 20 million tonnes of grain are stuck in Ukraine.
Before the conflict, it exported almost all its cereals and oilseed from Odesa, at up to 6 million tonnes a month. The freight trains it is using now can manage only 1-1.5 million.
Russian Deputy Foreign Minister Andrei Rudenko told news agencies that Moscow was ready to provide a humanitarian corridor for vessels carrying food, without a Western escort, in return for the lifting of some sanctions.
But even this would mean demining the seas around Odesa, Ukraine’s principal deep-sea port, where Kyiv fears an amphibious invasion.
“If this whole tangle of problems is somehow substantively touched upon by some countries in contacts with Russia, I am convinced that we will be ready to discuss it,” Peskov said.
Ukraine has said it needs “guarantees of security”, with deputy economy minister Taras Kachka telling Reuters last week that having “vessels of third countries in the area … would be an ideal situation.”
Moscow may see more attraction in a swap in August-September – when Ukraine finds itself short of space to store its new harvest alongside the old crop, the source said. That old crop may still be taking up 35% of storage capacity.
And by then, Russia is likely to demand more than just easier fertiliser exports.
‘YOU REAP WHAT YOU SOW’
Russia produces 13% of the world’s crop nutrients containing potash, phosphate and nitrogen and usually exports to Latin America, Europe, Asia and Africa.
Belarus, Russia’s ally, is also a big producer of potash, and its exports, like Russia’s, have been hit by sanctions.
A source in the Russian fertiliser industry, who also declined to be named, said Russia was still selling complex fertilisers to Latin America and India, while potash from Russia and Belarus was proving harder to sell abroad.
In 2021, Russia exported wheat and vegetable oil worth $9 billion and $4 billion respectively, according to the customs service, and fertilisers worth $12.5 billion. Since April, the publication of trade data has been suspended.
The source said the current problem was not only Western banks refusing to transfer payments because of sanctions, but also the difficulty of securing large vessels, for the same reason.
Russia and Ukraine together account for 29% of global wheat exports, mainly via the Black Sea, and for 80% of global exports of sunflower oil. Ukraine is also a major corn exporter.
Global prices for wheat, vegetable oils, fuel and fertilisers have all jumped since Russia began its military campaign.
Another source in the Russian fertiliser industry saw little chance that farmers would be able to solve the food crisis soon.
Even if Ukraine’s grain exports from the Black Sea resume, they will not be enough to restore global supplies, he said, while farmers around the world did not use enough fertiliser for their spring plantings, and could find it hard to buy enough for the autumn sowing.
“So the 2022/23 farming year will be hungry and cold,” the source added. “You reap what – and how – you sow. They will reap the whirlwind.”