Russian economy boosted by wartime grain shipments

Ship after ship loaded with grain has left Ukraine with much fanfare after being trapped in the country’s Black Sea ports for nearly six months. More calmly, a parallel wartime deal responded to Moscow’s demands to clear the way for its wheat to reach the world as well, turning an industry vital to the Russian economy that had become mired in broader sanctions.

As the US and its European allies work to crush Russian finances with a web of penalties for invading Ukraine, they have avoided directly imposing sanctions on grains and other commodities that feed people worldwide.

Russian and Ukrainian wheat, barley, maize and sunflower oil are important to countries in Asia, Africa and the Middle East, where millions depend on subsidized bread to survive. As the war pushed up food and energy prices, millions of people have been pushed into poverty or near the brink of starvation.

Two agreements signed by the UN and Turkey last month to unblock the food supply are interdependent: one protects ships exporting Ukrainian grain through the Black Sea, and the other assures Russia that its food and fertilizers will not be sanctioned, leaving a of the pillars is protected from its economy and helps address the concerns of insurers and banks.

The agreement enabled a western shipper to transport two ships of grain from Russia within weeks. It used to take months because western banks refused to transfer payments to Russia. While US and European Union sanctions do not directly target Russian agriculture, Western banks have been wary of getting into trouble and hindering buyers and shippers from accessing Russian grain.

“You have to invest time in the banks to make them understand this whole thing because the authority says, ‘Go ahead, there is no sanction,’ but the banks self-sanction,” said Gaurav Srivastava, whose company buys Harvest Commodities. and sells grains from the Black Sea region.

He called the process with banks a “labour-intensive exercise.”

What has changed in recent weeks, Srivastava said, is “the appearance … that this is some sort of truce between all parties.”

The deal was significant for Russia as it is the world’s largest exporter of wheat, accounting for nearly a fifth of global shipments, and the country is expected to have one of its best-ever harvest seasons this year. According to the World Bank, agriculture accounts for about 4% of Russia’s gross domestic product.

“More important is employment,” said Russian economist Sergey Aleksashenko, referring to jobs created by agriculture. “It’s about 7 to 8% of employment.”

Agriculture provides 5-6 million Russian jobs, with some regions relying almost entirely on it for their livelihoods, he said.

Srivastava, whose company operates out of Los Angeles and Geneva, hopes to ship 10-15 million tons of Russian grain in the coming year.

He also managed to remove two chartered ships that had been stuck in Ukrainian ports since the start of the war on February 24. long UN deal.

“We are a commercial company, but we are trying to help the plight of farmers in both Russia and Ukraine,” Srivastava said. “I’m very optimistic, especially the last few weeks.”

Russia’s demands for the deal include public statements by the US and EU that sanctions will not target Russian food and fertilizers. It also raised issues related to financial transactions with the Russian Agricultural Bank, access for Russian-flagged ships in ports and the export of ammonia needed for fertilizer production.

A week before Russia signed the agreement, the US Treasury Department issued such statements. It made it clear that Washington had not imposed sanctions on the sale or transportation of agricultural products or medicines from Russia.

Treasury has also issued a broad license to approve certain transactions related to agricultural commodities, saying that the US “firmly supports the United Nations’ efforts to bring both Ukrainian and Russian grain to the global market and reduce the impact of the Russia’s provoked war against Ukraine to reduce global food. deliveries and prices.”

The EU also reiterated that Russian agriculture had not been sanctioned, and blamed the war’s global rise in food prices and the Kremlin’s agricultural export ceilings designed to protect the domestic market. The bloc of 27 countries said its sanctions provide for exceptions, such as allowing EU countries to grant access to ports for Russian-flagged ships trading in agricultural or food products.

Russia says it still faces challenges.

The country’s Ministry of Agriculture says problems with the supply of imported farm equipment, which are not directly sanctioned, also threaten the grain crop. It said domestic needs would be met, but exports could be affected.

Even after the deal was signed, Russian Foreign Minister Sergey Lavrov rebuked Western assurances that agriculture was exempt from sanctions. During a diplomatic tour of Africa focused on food exports, he said a “half-truth is worse than a lie” while pointing out the chilling effect of sanctions.

UN Secretary-General António Guterres “undertook to pressure Western countries to lift those restrictions,” Lavrov said. “We’ll see if he can succeed.”

Meanwhile, Russian and Ukrainian grains are increasingly important to prevent hunger in developing countries. s&P Global Commodity Insights said in a June report that 41 million tons of Russian wheat could be available for export this year.

But overall, the world is expected to produce 12.2 million tons less wheat and 19 million tons less corn for the 2022-2023 harvest compared to the previous year, said Arnaud Petit, executive director of the International Grains Council. This is partly due to the war in Ukraine and the drought in Europe, he said.

While a strong US dollar and inflation may force some countries to ration food imports, Petit noted that some countries are imposing export controls that could affect the availability of grains in sub-Saharan Africa and the Middle East.

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Raf Casert contributed to this report from Brussels.

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