Alexander Potavin: ‘Something went wrong with the full implementation of the grain deal’

An analyst of Finam FG about the threat of disruption of agreements on grain supplies from Ukraine to developing countries

The UN called the grain deal — agreements on grain exports from Ukraine through the Black Sea to supply to developing countries — vital for food security in the world. About 8 million tonnes of grain and foodstuffs have already been shipped from Ukrainian ports, and maize and wheat account for more than 70% of exports. It was noted in Geneva that the opening of Ukraine’s Black Sea ports allowed lowering record high market prices. However, the uncertainty about the extension of the grain deal whose four-month’s team will expire in November has already led to a situation where prices for wheat and maize are going up again. In an op-ed column for Realnoe Vremya, analyst of Finam FG Alexander Potavin writes more about the significance of the Black Sea initiative and its prospects.

“The deal in jeopardy”

Talks between Russia and the UN on the so-called grain deal ended in Moscow. The deal was signed with Turkey through the mediation of the UN. In exchange for grain export from three Ukrainian ports, Russia got guarantees that sanctions would not be imposed on its food exports and the export of its products would not be impeded. The UN’s data indicate that Turkey, which is not a part of the EU, has been the most frequent destination for supplies from Ukraine. It is an obvious fact that wheat prices started to go down with prices for other products and the threat of global hunger took a step back after the grain deal was sealed.

According to the UN as of 16 September, 25% of freight from Ukraine was destined to low-income and lower-middle-income countries: Egypt (8%), India and Iran (4% each), Bangladesh, Kenya and Sudan (2% each), Lebanon, Yemen, Somali, Djibouti (1% each) and Tunisia (less than 1%). About 25% of grains were sent to high-middle-income countries including Turkey, China and Bulgaria and 50% were to high-income states such as Spain, the Netherlands, Italy, the Republic of Korea, Romania, Germany, France, Greece, Ireland and Israel.

However, judging by the statement of Russian authorities, something went wrong with the full implementation of the deal. The authorities’ negative response means that the deal is in jeopardy because Russian grain exports continue facing the same difficulties as before the deal. It is sanctions on transporters and insurers who don’t risk transporting Russian foodstuffs.

Foreign companies don’t want to deal with this business fearing secondary sanctions

This year Russia has had a great grain harvest. It could earn good money if grain was sold abroad in a foreign currency. But at the same time we see the unwillingness of the West to work with Russian feedstock — the motives are mainly political. By the way, precisely due to the political motives Russia is persistently trying to supply its feedstock to developing countries, not to EU member states.

Moscow claims that it was promised to be lifted some logistic sanctions, which, according to it, disrupt its own export of agricultural produce and fertilisers in exchange for softening the military blockade of Ukraine’s southern ports. Consequently, the withdrawal of Russia from this deal will means new reinforcement of the marine blockade of Ukrainian ports by Russian militaries.

The deal expires on 19 November — and both the supplies of Ukrainian grain through the humanitarian corridor and the cancellation of restrictions on Russian food exports plan to be extended, said the Turkey president’s representative İbrahim Kalın on A-Haber TV channel. At the same time, the USA guarantees that Western countries won’t create obstacles to shipping Russian agricultural produce to world markets. Indeed, there aren’t any sanctions on Russian grain exports now. But as it was said above, foreign companies do not want to deal with this business because they fear secondary sanctions and reputational risks.

“The Kremlin isn’t fine with such a situation”

It is known at the moment that despite the high competitiveness of Russian products, local suppliers haven’t yet managed to solve existing problems with freight, insurance, settlement with clients and trade finance within the grain deal signed in July. There is no sanction package on Russian grain but there are sanctions again Russian banks, against the Russian financial system in general. Therefore over-compliance situations come about when trying to sign deals — excessive meeting requirements, to put it simply, they play it safe, interpret sanctions widely. And it turns out that banks don’t want to deal with Russia, they don’t want to issue loans for buyers of our grain, insurance companies don’t want to insure Russian ships or ships that transport grain from Russia. Of course, the Kremlin isn’t fine with such a situation, and the Russian side will demand meeting the agreements on food and fertiliser exports from Russia. At the moment Russia hasn’t yet replied to the extension of Istanbul agreements, that’s to say, the results of recent talks are unknown, and the further fate of the deal remains under question. The announcements about decisions on the grain deal will be made in case of specific results of talks, the Russian president’s spokesman Dmitry Peskov claimed this week. Turkish President Recep Tayyip Erdoğan expressed his hope during a talk with Putin in Astana on 13 October that the deal would be extended.

Alexander Potavin

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.