July
20, 2023
On
Monday, June 17, Dmitry Peskov, the spokesperson for Russia’s President Vladimir
Putin, announced, “The Black Sea agreements are no longer in effect.” This was
a blunt statement to suspend the Black Sea Grain Initiative that emerged out of
intense negotiations in the hours after Russian forces entered Ukraine in
February 2022. The Initiative went into effect on July 22, 2022, after Russian
and Ukrainian officials signed it in Istanbul in the presence of the United
Nations Secretary-General António Guterres and Turkey’s President Recep Tayyip
Erdoğan.
Guterres
called the Initiative a “beacon of hope” for two reasons. First, it is
remarkable to have an agreement of this kind between belligerents in an ongoing
war. Second, Russia and Ukraine are major producers of wheat, barley, maize,
rapeseed and rapeseed oil, sunflower seeds and sunflower oil, as well as
nitrogen, potassic, and phosphorus fertilizer, accounting for twelve percent of
calories traded. Disruption of supply from Russia and Ukraine, it was felt by a
range of international organizations, would have a catastrophic impact on world
food markets and on hunger. As Western—largely U.S., UK, and European—sanctions
increased against Russia, the feasibility of the deal began to diminish. It was
suspended several times during the past year. In March 2023, Russia’s Foreign
Ministry spokesperson Maria Zakharova responding to the sanctions against
Russian agriculture, said, “[The main] parameters provided for in the [grain]
deal do not work.”
Financialization
Leads to Hunger
U.S.
Secretary of State Antony Blinken said that his country regrets Russia’s
“continued weaponization of food” since this “harms millions of vulnerable
people around the world.” Indeed, the timing of the suspension could not be
worse. A United Nations report, “The State of Food Security and Nutrition in
the World 2023” (July 12, 2023), shows that one in ten people in the world
struggles with hunger and that 3.1 billion people cannot afford a healthy diet.
But the report itself makes an interesting point: that the war in Ukraine has
driven 23 million people into hunger, a number that pales in comparison to the
other drivers of hunger—such as the impact of commercialized food markets and
the COVID-19 pandemic. A 2011 report from World Development Movement called
“Broken Markets: How Financial Market Regulation Can Help Prevent Another
Global Food Crisis” showed that “financial speculators now dominate the [food]
market, holding over 60 percent of some markets compared to 12 percent 15 years
ago.”
The
situation has since worsened. Dr. Sophie van Huellen, who studies financial
speculation in food markets, pointed out in late 2022 that while there are
indeed food shortages, “the current food crisis is a price crisis, rather than
a supply crisis.” The end of the Black Sea Grain Initiative is indeed
regrettable, but it is not the leading cause of hunger in the world. The
leading cause—as even the European Economic and Social Committee agrees—is
financial speculation in food markets.
Why
Did Russia Suspend the Initiative?
To
monitor the Black Sea Grain Initiative, the United Nations set up a Joint
Coordination Centre (JCC) in Istanbul. It is staffed by representatives from
Russia, Turkey, Ukraine, and the United Nations. On several occasions, the JCC
had to deal with tensions between Russia and Ukraine over the shipments, such
as when Ukraine attacked Russia’s Black Sea Fleet—some of whose vessels carried
the grain—in Sevastopol, Crimea, in October 2022. Tensions remained over the
initiative as Western sanctions against Russia tightened, making it difficult
for Russia to export its own agricultural products into the world market.
Russia
put three requirements on the table to the United Nations regarding its own
agricultural system. First, the Russian government asked that the Russian
Agricultural Bank—the premier credit and trade bank for Russian agriculture—be
reconnected to the SWIFT system, from which it had been cut off by the European
Union’s sixth package of sanctions in June 2022. A Turkish banker told TASS
that there is the possibility that the European Union could “issue a general
license to the Russian Agricultural Bank” and that the Bank “has the
opportunity to use JP Morgan to conduct transactions in U.S. dollars” as long
as the exporters being paid for were part of the Black Sea Grain Initiative.
Second,
from the first discussions about the Grain Initiative, Moscow put on the table
its export of ammonia fertilizer from Russia both through the port of Odesa and
of supplies held in Latvia and the Netherlands. A central part of the debate
has been the reopening of the Togliatti-Odesa pipeline, the world’s longest
ammonia pipeline. In July 2022, the UN and Russia signed an agreement that
would facilitate the sale of Russian ammonia on the world market. The UN’s
Guterres went to the Security Council to announce, “We are doing everything
possible to… ease the serious fertilizer market crunch that is already
affecting farming in West Africa and elsewhere. If the fertilizer market is not
stabilized, next year could bring a food supply crisis. Simply put, the world
may run out of food.” On June 8, 2023, Ukrainian forces blew up a section of
the Togliatti-Odesa pipeline in Kharkiv, increasing the tension over this
dispute. Other than the Black Sea ports, Russia has no other safe way to export
its ammonia-based fertilizers.
Third,
Russia’s agricultural sector faces challenges from a lack of ability to import
machinery and spare parts, and Russian ships are not able to buy insurance or
enter many foreign ports. Despite the “carve-outs” in Western sanctions for
agriculture, sanctions on firms and individuals have debilitated Russia’s
agricultural sector.
To
counter Western sanctions, Russia placed restrictions on the export of
fertilizer and agricultural products. These restrictions included the ban on
the export of certain goods (such as temporary bans of wheat exports to the
Eurasian Economic Union), the increase of licensing requirements (including for
compound fertilizers, requirements set in place before the war), and the
increase of export taxes. These Russian moves come alongside strategic direct
sales to countries, such as India, which will re-export to other countries.
In
late July, St. Petersburg will host the Second Russia-Africa Economic and
Humanitarian Forum, where these topics will surely be front and center. Ahead
of the summit, President Putin called South Africa’s Cyril Ramaphosa to inform
him about the problems faced by Russia in exporting its food and fertilizers to
the African continent. “The deal’s main goal,” he said of the Black Sea Grain
Initiative, was “to supply grain to countries in need, including those on the
African continent, has not been implemented.”
It
is likely that the Black Sea Grain Initiative will restart within the month.
Earlier suspensions have not lasted longer than a few weeks. But this time, it
is not clear if the West will give Russia any relief on its ability to export
its own agricultural products. Certainly, the suspension will impact millions
of people around the world who struggle with endemic hunger. Billions of others
who are hungry because of financial speculation in food markets are not
impacted directly by these developments.
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