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  • Writer's pictureCrest Economics

The collapse of the Black Sea grain deal- July 2023

As the war on Ukraine rages on, the global economy continues to both prosper and suffer. Most recently, this has involved the Black Sea grain deal, whereupon it’s collapse is expected to generate agricultural supply chain constraints, exacerbating the current global cost of living crisis, but allowing major agricultural exporters such as Australia to experience major profits.

Primarily, the Black Sea grain deal was negotiated in July 2022, between Turkey, the UN and Russia, facilitating grain exports (i.e commercial food and fertiliser) via the Southern ports of Ukraine. Thus, this allowed 3m tonnes of grain to leave Ukraine in the year to July, stabilising the price of grain from record highs (US$12 per bushel of wheat) in early 2022. However, this deal has since collapsed, stemming from Russia’s claims that the proportion of grain going to the least developing countries was less than 4%, coupled with a belief that the second part of the deal, allowing for greater Russian agricultural exports, was not being honoured by the West.

As such, Russian inspections of ships began slowing down, leading to progressively less tonnes of grain being exported (66% decrease in food exports in May 2023), until the deal collapse this week. Therefore, any ships leaving Ukrainian ports are now considered a legitimate military target.

In spite of the fact that this will contribute to the cost of living crisis for many countries (especially in the Horn of Africa), Australian farmers are expected to prosper. Alongside Ukraine, Australia is also a major wheat producer and exporter. Thus, Australian farmers are locking in surging grain prices in light of the decreased supply from the collapse of the Deal. In doing so, this will contribute to a fourth consecutive year of healthy harvests and strong prices enjoyed for wheat exports.

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