Exports of grain from Ukraine were disrupted when Russia invaded the country in February 2022. But the rising concerns about global food security resulted in the United Nations and Turkey brokering a deal in July 2022 between Russia and Ukraine to allow the safe movement of grain from Ukraine to the world market while the war continued.
However, this week, Russia halted the Black Sea grain deal. The reasons are not clear, but it appears that the attack on the Kerch Strait Bridge connecting the Crimea peninsula to the Russian mainland angered Russia. But there are other possible reasons. Before this week’s events, Russia wanted to increase its exports of ammonia and other fertiliser material to the world market and this required the EU to reconnect the Russian Agriculture Bank to the global electronic payment network, Swift. Russia demanded, with no success, that this be done for it to renew the grain deal.
Regardless of what Russia’s true reasons are, this is an important event in global agriculture, whose implications will be clear over the coming days and weeks. Still, we can appreciate that one of the major contributors to the current slowing of global agricultural commodities’ prices (food prices) is the Black Sea grain deal, which had allowed for the safe movement of grain from Ukraine and Russia since July 2022.
Russia’s refusal to renew the deal presents an upside risk to global grain prices, which may undermine the gains we were all starting to enjoy from the slowing grain prices, specifically in the major importing regions.
While the majority of grain from Ukraine was exported to Europe, the Middle East and North Africa, the availability of grain and the decline in prices indirectly benefitted the global community.
Impact on South Africa
South Africa is not directly at risk as we have large domestic grain supplies. South Africa’s 2022/23 maize harvest is 16.35 million tonnes. This is 6% more than the 2021/22 season and the country’s second-largest harvest on record. It means South Africa will have more than 3 million tonnes of maize for exports in the 2023/24 marketing year.
We also have a record soybean harvest of 2.8 million tonnes in the same season. This will allow South Africa to meet its domestic demand and have more than 300,000 tonnes of soybeans available for export. Our sunflower seed harvest is also decent, estimated at 758,610 tonnes.
However, South Africa is exposed to global shocks in its wheat value chain, which is a commodity that was primarily facilitated for exports through the Black Sea grain deal.
South Africa imports roughly half of its annual wheat usage, but most of this for the 2022/23 season is already on our shores. On 7 July, South Africa’s 2022/23 wheat imports were at 1.1 million tonnes out of the seasonal import forecast of 1.6 million tonnes.
South Africa’s major wheat suppliers in the 2021/22 season were Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US. If one looks at South Africa’s wheat import data for the past five years, Russia was one of the significant wheat suppliers, accounting for an average annual share of 26%.
Argentina and Brazil replaced Russia in the 2021/22 season. However, Russia is back on the suppliers’ list in the 2022/23 season and is again one of the significant wheat suppliers to South Africa.
Still, this doesn’t mean South Africa will be insulated from this disruption. The price reaction to the news of Russia’s refusal to renew the grain deal is worth monitoring and could adversely affect South African consumers if no solution is found in the near term.
Importantly, Russia has large wheat supplies that must be exported in the 2023/24 season.
For now, South Africa is not at risk in terms of physical supplies, but price shocks will be apparent in the coming days and weeks.