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Grain prices unlikely to return to pre-war levels despite Russia-Ukraine deal – Agbiz

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A range of factors were already driving agricultural prices up over the past two years, according to Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo.

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WHILE the Russia-Ukraine “grain deal” signed last week is a positive step in addressing global food insecurity, grain prices are, however, unlikely to return to pre-war levels.

A range of factors were already driving agricultural prices up over the past two years, according to Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo.

As an example, the drought in South America, East Africa and Indonesia as well as rising demand for grains in China had weighed on global grains supplies these past few seasons and pushed prices up even before the war.

“The possible price decline and increase in supply due to the Russia-Ukraine ‘grain deal’ would have likely benefited all importing countries and consumers in the medium term. This assumes that shipping lines will start taking orders and moving the grain,” Sihlobo said.

Russia had agreed not to attack grain vessels in the Black Sea region, which could restore the grain trade. However, this promise did not last long, as the world woke up the following day to the news of a series of Russian missile strikes that hit the critical Ukrainian port of Odesa.

Sihlobo said this attack would likely undermine the grain deal, which was a multinational effort to avert the global food crisis. “Also, the grain traders and merchants might be reluctant to be in this risky zone, which ultimately defeats the deal.”

Agbiz said the deal itself was significant as Ukraine had about 22 million tons of grain (wheat, maize, sunflower seed and other grains) in its silos, unable to reach the export markets.

This was mainly because of the disruptions of the war on infrastructure and the attacks on vessels transporting goods. The “grain deal” was aimed at changing this chaotic situation, with Russia promising not to attack grain vessels.

“Assuming that Russia had kept their word, the immediate benefit of the deal was going to be through grain prices, which could have softened following the agreement, although possibly marginal, as it implies that there will be an increase in supplies available to the world market.

“The possible softening of prices would have added to an already positive picture of global grain prices, which have come off from the record levels we saw in the weeks following Russia’s invasion of Ukraine. For example, the Food and Agriculture Organization of the UN’s (FAO) Global Food Price Index was down 2 percent in June, 2022 from the previous month, a third monthly decline. Still, this is up 23 percent year on year, which means that the recent deal and possible resumption of trade would bring much-needed relief to the grains market,” Sihlobo said.

In Africa, the continent imports about $80 billion (R1.3 trillion) worth of agricultural products a year, mainly wheat, palm oil and sunflower seed. The sub-Saharan Africa region’s food import bill is costing more than $30bn per year.

However marginal, a potential decline in the prices of these commodities would be positive for the importing countries on the continent and African consumers, he said.

Of note, Africa imported $4bn in agricultural products from Russia, 90 percent of which was wheat and 6 percent sunflower seed.

“Therefore, a resumption of the trade activity would have released about 22 million tonnes of grains out of Ukraine, and indeed, one can assume that Russian orders would have also increased… The softening in prices after this decision would benefit the global consumer.

“Also, the World Food Programme will be able to source food for donations in some struggling African regions such as East Africa, where there is a bad drought and parts of Asia. So, this is overall a good development for consumers, specifically in the poor developing nations,” Sihlobo said.

Agbiz said, overall, there remained significant uncertainty about this matter following the Russian missile attacks on Ukraine’s grain-exporting ports this past weekend. The next few days and multinational discussions that would likely follow would be a crucial determinant of whether grain trade resumes in this area.

“They will also need to put measures in place to assure the merchants of the safety of their cargo, if they indeed agree to facilitate exports in this risky zone. The grain price dynamics and possible benefits for importing countries will all depend on these uncertain developments. Still, any success in the exports of grains from Ukraine will benefit the African countries directly through the delivery of physical supplies or indirectly through possible global price softening,” Sihlobo said.

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