What Is Russia’s Problem With the Black Sea Grain Deal?

President Vladimir Putin said this month that Russia was considering withdrawing from the Black Sea grain deal as he accused the West of cheating Moscow because it still faced obstacles getting its own agricultural goods to world markets.

Putin said he would discuss the future of the grain deal with visiting African leaders on Saturday.

THE PACKAGE DEAL

The United Nations and Turkey brokered the Black Sea Grain Initiative last July to help tackle a global food crisis worsened by Moscow’s invasion of Ukraine and blockade of its Black Sea ports.

It allows food and fertilizer to be exported from three Ukrainian ports – Chornomorsk, Odesa and Pivdennyi (Yuzhny). The deal has been extended three times, most recently until July 17.

Nearly 32 million tonnes of mostly corn and wheat have so far been exported by Ukraine under the deal. The initiative also allows for the safe export of ammonia – a key ingredient in nitrate fertilizer – but none has been shipped.

To convince Russia to agree to the initiative, a three-year pact was also struck last July in which the United Nations agreed to help Moscow overcome any obstacles to its own food and fertilizer shipments.

While Russian exports of food and fertilizer are not subject to Western sanctions imposed after the February 2022 invasion of Ukraine, Moscow says restrictions on payments, logistics and insurance have amounted to a barrier to shipments.

U.N. spokesperson Stephane Dujarric said last week that “the past months have shown tangible progress” on improving Russian exports, but added: “Challenges remain but we will spare no effort to overcome all remaining obstacles.”

WHY WERE THE DEALS NEEDED?

The poorest in the world were hit worst by the rising global food prices. The U.N. World Food Programme (WFP) warned in March last year that its ability to feed some 125 million people was under threat because 50% of its grain came from Ukraine.

Between 2018–2020, Africa imported $3.7 billion in wheat (32% of total African wheat imports) from Russia and another $1.4 billion from Ukraine (12% of total African wheat imports), according to the United Nations.

The United Nations said last year that 36 countries count on Russia and Ukraine for more than half of their wheat imports, including some of the poorest and most vulnerable, including Lebanon, Syria, Yemen, Somalia and Democratic Republic of Congo.

Under the Black Sea grain deal, more than 625,000 tonnes of grain has so far been shipped by the WFP for aid operations in Afghanistan, Ethiopia, Kenya, Somalia and Yemen. In 2022, WFP procured more than half its global wheat grain from Ukraine.

RUSSIAN COMPLAINTS

Putin complained that Russia has been cheated by the West because its own exports still faced problems.

The United States has dismissed Russia’s grievances. U.S. Ambassador to the U.N. Linda Thomas-Greenfield said last month: “It is exporting grain and fertilizer at the same levels, if not higher, than before the full scale invasion.”

Putin said Russia only agreed to the deal for the sake of countries in Africa and Latin America but that only around 3.2-3.4% of the grain goes to the world’s poorest countries while 40% went to prosperous countries.

According to U.N. data, around 3% of exports under the Black Sea deal has gone to low-income countries, while high income countries get around 44% and the rest to middle-income states.

The United Nations has always said the deal was a commercial enterprise and not intended to be entirely humanitarian, but that it benefited poorer countries by helping lower food prices globally.

RUSSIA’S DEMANDS

In a letter to U.N. officials in March, Russia spelled out the demands it wants met in exchange for its continued cooperation in the grain deal:

– Moscow wants the Russian Agricultural Bank (Rosselkhozbank) reconnected to the SWIFT payments system. The bank was cut off from SWIFT by the European Union in June last year over Russia’s invasion. An EU spokesperson has said the bloc is not considering the reinstatement of Russian banks.

As a workaround, U.N. officials got U.S. bank JPMorgan Chase & Co JPM.N to start processing some Russian grain export payments with reassurances from the U.S. government.

The United Nations is also working with the African Export-Import Bank (Afreximbank) to create a platform to help process transactions for Russian exports of grain and fertilizer to Africa, the top U.N. trade official told Reuters last month.

Russia wants the resumption of its Black Sea ammonia exports via a pipeline from Russia’s Togliatti to Ukraine’s Pivdennyi port. The pipeline, which pumped up to 2.5 million tonnes of ammonia annually, was shut down by the war.

In September, Reuters reported that the U.N. proposed that Russian fertilizer producer Uralchem sell its ammonia to U.S.-headquartered commodities trader Trammo once it reaches the Russia-Ukraine border via the pipeline.

Until the ammonia pipeline is restarted, Moscow has said it will limit the number of vessels allowed to travel to Pivdennyi port under the Black Sea grain deal. U.N. data shows no ships have visited Pivdennyi port for more than a month.

Last week Russia accused Ukrainian forces of blowing up part of the pipeline, the world’s longest carrying ammonia, in Ukraine’s Kharkiv region. The regional Ukrainian governor said Russia had shelled the pipeline. Neither side provided evidence.

More than 400,000 tonnes of Russian fertilizer was also initially stranded in European Union ports after the war started, though U.N. officials have negotiated its release for export to Africa after Russia said it would be donated.

Russia also wants a resumption of supplies to Russia of agricultural machinery and spare parts; lifting restrictions on insurance and access to ports for Russian ships and cargo; and unblocking accounts and financial activities of Russian fertilizer companies.

RUSSIAN GRAIN, FERTILIZER EXPORTS

While exports of Russian wheat and some fertilizers have risen since the war, exports of Russian ammonia and potassium-based fertilizers have plummeted.

In the 2021-22 season, Russia exported 38.1 million tonnes of grain, including 30.7 million tonnes of wheat, while in the 2022-23 season, Putin said Russia is expected to export around 55-60 million tonnes of grain – likely to be a record.

According to the U.S. Department of Agriculture, Russia’s main wheat export markets are in the Middle East and Africa and exports to all regions have increased in the 2022-23 period.

While Russian exports of urea and potassium-based fertilizers diammonium and monammonium phosphate rose from Russia, exports of potassium-based fertilizer muriate of potash (MOP) fell 37% in 2022, according to trade data.

(Reporting by Reuters staff; editing by Daniel Wallis)