A few weeks ago, Russia announced it is suspending its participation in the Black Sea Grain Initiative—the crucial UN agreement enabling continued exports of Ukrainian grain via the Black Sea.
This announcement renewed concerns about the stability of global food supply chains, as many countries in Asia and Africa rely on Ukrainian grain. For Europe, it also raised fears of additional pressure on the solidarity lanes—alternative routes established to facilitate transit of Ukrainian grain through the EU—and the impact on member states’ agricultural markets. With EU member states bordering Ukraine proposing to prolong the measures limiting Ukrainian grain imports (adopted in May this year), how does Russia’s abrogation of the Black Sea Grain Initiative affect the EU’s unity to support Ukraine for “as long as it takes”?
Before the Russian invasion, 90 percent of Ukrainian grain went through its Black Sea ports. Since then, Russia has been actively targeting these key trade routes, severely constraining Ukraine’s export capabilities. To help Ukraine’s wartime economy the EU implemented trade benefits that eliminated all import tariffs on Ukrainian goods, including agricultural products. This was first and foremost a crucial economic lifeline for Ukraine, but secondly a radical step for the EU, taking into consideration the usually more protectionist approach for its agricultural sector. The EU also established ‘solidarity lanes’—alternative logistic routes by land and EU ports to help Ukraine continue exporting agricultural goods despite the war. Since May 2022 over 45 million tons of grain, oilseed, and other agricultural products have been exported via the EU solidarity lanes. In comparison, as of July 2023, around 33 million tons of grain has been exported under the Black Sea Grain Initiative—the agreement brokered by the UN and Türkiye that includes Russia’s participation.
However, this support from the EU has had an impact on the agricultural markets of member states bordering Ukraine. The sudden pressure on logistical capabilities to transport large amounts of grain created bottlenecks. This resulted in grain intended for external markets remaining in these border countries, lowering the prices and the demand for domestic products. In March, Bulgaria, Hungary, Poland, and Slovakia imposed unilateral bans on imports from Ukraine to curtail this influx of grain and protect their local farmers.
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Wheat consumption represents 67 and 38 percent of total cereal consumption in Djibouti and Sudan, respectively; in Ethiopia, Kenya, and Somalia wheat consumption accounts for less than 24 percent of total cereal consumption.
• Local wheat production remains below consumption needs across most countries in the Eastern Africa Region, with in-country production ranging between 0-25 percent of the total annual consumption requirements.
• Djibouti and Somalia rely exclusively on imports to meet their domestic wheat demand. A sizeable portion of wheat demand in Kenya and Sudan is met by imports (86 and 77 percent, respectively). Ethiopia is the only exception as domestic production in 2022 accounted for 82 percent of total wheat consumption needs.
• Considering the high reliance on imports from the Black Sea to meet the domestic wheat demand and weak domestic currencies, wheat availability and prices in Djibouti, Somalia and Sudan are more likely to be influenced by international trade dynamics.
• Somalia and Sudan are largely dependent on imports from Russia and Ukraine to meet their domestic wheat demand. In 2022, Somalia imported 63 percent of wheat required from Ukraine. Sudan imports around 85 percent of its annual wheat requirements from the Russian Federation and Ukraine (accounting for 50 and 20 percent of wheat imports, respectively).
• Since July 2022, almost 876,000 MT of food were shipped to Djibouti, Ethiopia, Kenya, Somalia, and Sudan thanks to the Black Sea Grain Initiative (BSGI), of which more than 343,000 MT of wheat were shipped by WFP.
• The suspension of the BSGI on 17th July 2022, pushed international wheat prices to a five-month high in the following days. Despite the initial spike, international wheat prices eased towards end of July through early August, reaching levels lower than those recorded before the halt of the initiative.
• The favourable production prospects for 2023 in major wheat-producing countries, along with existing carryover stocks from the previous year are likely to offset the suspension of the BSGI initiative.
• However, other factors including the El Niño event forecasted for the end of 2023 add uncertainties on production prospects and the stability of international wheat prices in the medium-to long-term.
