The agreement brokered by Turkey and the UN to ensure grain exports from Ukraine has been credited with helping avoid food supply catastrophes feared in the immediate aftermath of Russia’s February 2022 invasion. The deal’s impact on grain prices in surrounding nations prompted several EU states to impose import restrictions that have complicated negotiations aimed at an extension, which ended Monday without agreement amid Russian threats to withdraw on May 18.
The latest swirl of developments confirms that a high degree of uncertainty will loom over global ag for at least as long as active conflict continues in Ukraine. They also demonstrate Russia’s willingness to weaponize its position in a global agriculture market increasingly subject to direct government intervention that will remain a key long-term risk for investors throughout supply chains.
Gert Bosscher, a Geneva-based grain trader with experience at Bunge, Copenhagen Merchants and elsewhere – told Agri Investor he estimates the combination of shipping delays, lost contracts and insurance premiums related to implementing the UN deal will ultimately cost Ukrainian producers up to $1.4 billion.
Bosscher said opposition to the deal among farmers in EU states surrounding Ukraine was well understood before its introduction, and among the reasons he was against creation of the grain corridor. He said government intervention has only added to uncertainty around costs that threatens to reverse decades of progress within the EU’s internal market.
“This war has made it so that every country creates their own border again, stopping the free trade in grains,” he added. “In the end, it will all get priced in, but governments are fooling themselves with these restrictions.”
Days before the initial agreement was formalized in July, Bosscher labelled it a “Trojan Horse” allowing Russia to affirm its strengthened position in global grain markets. Last week, he explained that although the UN deal calls for Russian, Ukrainian and Turkish personnel to carry out cargo inspections, some ships carrying Ukrainian cargoes have waited up to 40 days for such inspections and subsequently lost business to competitors operating from ports inside Russia.
Bosscher highlighted that although multinational ABCD commodity processors initially planned to retain assets within Russia, those companies have since left, suggesting judgement that conditions are unlikely to fundamentally change in the near-term. He added that the fact that all the grain prices offered from Russian suppliers in the latest cost tender were identical suggests a degree of coordination.
“You already get a sort of grain board in Russia, so we go back to the Soviet times,” said Bosscher, who has been active in regional grain markets since 1985, according to his LinkedIn profile. “Ideally, the Russians would like to create a grain board like we had in Argentina in the past and like we had in Russia in the past. We’re really going back in time.”
Russian policymakers have long suggested creation of a “Grain OPEC” to coordinate actions related to global ag markets similarly to how oil producers’ supply and demand management attempts are carried out through the Organization of the Petroleum Exporting Countries. Before the introduction of the grain corridor in July, Ukraine’s Ministry of Agriculture suggested that a Grain OPEC including the US, Canada, Brazil, Argentina and others could help coordinate action as a counterweight to Russian threats to food security.
Ag investors should watch carefully how negotiations aimed at managing the near-term impact of extraordinary conditions in Ukraine interacts with these dueling efforts to forge new venues for long-term influence over a global grain market whose future seems set to become even more politically complicated in the years ahead.