Russia’s participation in the Black Sea Grain Initiative has been officially suspended after Moscow formally notified Ankara, Kyiv and the United Nations secretariat that it opposed extending the initiative just hours before it was due to expire on Monday, July 17.

First signed in July 2022, the humanitarian grain corridor has been repeatedly prolonged in short increments amid mounting discontent from Russia over perceived constraints that limit the export of its own grain and fertiliser. When the UN brokered the deal, it told Russia it would help it increase its exports of grain and fertilisers.

The Russian Ministry of Foreign Affairs stated that Russia would only consider resuming the deal if concrete results materialised rather than promises and assurances. It stressed the Kremlin’s belief, misguided as it may be, that the agreement was only “directed to serve the narrow self-interests” of Kyiv and its Western allies.

Although Western countries have not imposed sanctions on Russia’s agricultural produce, Russia says the broader restrictions which are in place have dissuaded ship owners, insurers and international banks from dealing with Russian trading companies and exporters.

Russian President Vladimir Putin blamed Western countries for completely distorting the expired Black Sea grain deal but said Russia would return to the table immediately if all its conditions were met. Putin stated last week that he wanted an end to sanctions on the Rosselkhozbank JSC, also known as the Russian Agricultural Bank, demanding SWIFT access be restored.

Other Russian demands include the resumption of supplies of agricultural machinery and parts, lifting restrictions on insurance and reinsurance, the resumption of the Togliatti-Odesa ammonia pipeline and the unblocking of assets and the accounts of Russian companies involved in food and fertiliser exports.

However, since its withdrawal from the deal, Moscow’s actions appear aimed at destroying Ukraine’s ability to resume Black Sea exports should the deal be revived. Russia has bombed Ukraine’s port cities of Odesa and Mykolayiv, hitting a grain terminal and vegetable oil terminal, destroying grain loading infrastructure and about 60,000 tonnes of stored grain. It was reported that the lost grain was supposed to have been loaded on a panamax size vessel and shipped through the grain corridor more than two months ago.

After exiting the grain initiative, Moscow initially warned that any ships sailing near or to Ukrainian ports would be considered potential carriers of military cargo. It also said flag countries of foreign vessels sailing to Ukraine would be regarded as parties to the conflict and legitimate military targets. The rhetoric has since been toned down somewhat, replaced with comments suggesting Russia may conduct inspections to determine what Ukraine bound ships are carrying via the Black Sea. How that translates to outbound shipping movements is a big unknown.

The United Nations and Turkey brokered the deal between Russia and Ukraine, has facilitated the export of 32.9 million metric tonnes of food to 45 countries on more than one thousand vessels from war-torn Ukraine since August last year. This includes 16.9MMT of corn, 8.9MMT of wheat and 1.27MMT of barley, much less than pre-war annual volumes of up to 30MMT of corn, 21MMT of wheat and 6MMT of barley, predominantly shipped via the Black Sea ports of Odesa, Chornomorsk and Pivdennyi.

A majority of the grain has gone to developing countries, including those getting relief from the World Food Programme (WFP), according to the Joint Coordination Centre (JCC) in Istanbul. The JCC stated that 57 per cent of grain and foodstuffs exported from Ukraine since the grain corridor opened in August last year had been shipped to developing countries, and 43 per cent had gone to developed countries.

The biggest recipients were China with 7.96MMT of grain, followed by Spain with 5.98MMT, Turkey with 3.24MMT, Italy with 2.06MMT, The Netherlands with 1.96MMT, Egypt with 1.55MMt, and Bangladesh with 1.07MMT. Collectively the top seven destinations accounted for 72.4 per cent of total grain corridor movements.

Russia cited Ukraine’s failure to export more grain to poorer countries as one of the reasons it pulled out of the deal. However, the UN says that Ukraine has supplied 725,167 tonnes of grain to the World Food Programme (WFP), which was shipped as humanitarian aid to some of the world’s most insecure countries, such as Afghanistan, Djibouti, Ethiopia, Kenya, Somalia, Sudan and Yemen. Over the past year, Ukraine has supplied the WFP with more than 80 per cent of its grain requirements, compared to around 50 per cent before the war.

Meanwhile, Ukraine’s President Zelenskyy has proposed operating the grain corridor without Russia’s participation. Mykola Horbachov, the head of the Ukrainian Grain Association, believes the independent operation of the grain corridor is a realistic option as long as the Ukrainian Armed Forces can mitigate security risks posed by potential Russian attacks on bulk vessels, port infrastructure, and the threat of mines. But that could be a tall order, given Ukraine’s forces have their hands full with the land-based spring counteroffensive.

China could hold the key as an important Russian ally and the leading recipient of grain from Ukraine. With potential wheat and corn production issues likely to increase China’s import requirements, it could potentially use its influence over Moscow, persuading it to reconsider its position and re-enter the Black Sea grain deal. However, the damage caused to China’s Odesa consulate in last week’s bombings could be a major stumbling block. Oops!

Grain prices have certainly spiked in response to the mounting Black Sea supply issue but major grain importers in the Middle East and North Africa have reacted calmly to the end of the safe shipping corridor. Ukraine grain exports appear limited to existing land routes, Danube River ports  and European Union Black Sea ports for the foreseeable future, all of which are slower and far more expensive. And Russian stocks may be plentiful, but its own Black Sea grain flows will likely be challenged in the coming months while an acceptable way forward is negotiated.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

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