Why is the resumption of Ukraine’s grain export so essential?

Talks to open the Black Sea route for Ukrainian shipments enter a crucial phase.

Ukraine is one of the world's largest grain exporters.
AP

Ukraine is one of the world's largest grain exporters.

An international effort to help Ukraine resume grain exports is underway, with officials likely to meet in Istanbul later this week to iron out bottlenecks. 

Ukraine has struggled to ship its farm output since the Russian attack in February. More than 22 million tons of wheat and other cereals are stuck in silos at Ukrainian ports along the Black Sea. 

“There is now a very real risk that global food and nutrition needs across the globe may soon outstrip the capacity of the United Nations World Food Programme (WFP) or any organisation’s ability to respond,” the UN body said last month. 

The global grain supply will remain low unless exports resume via the Black Sea, it said

Türkiye, along with the UN, is playing mediator’s role in convincing Russia to lift the blockade on shipments from Ukraine. 

Both Russia and Ukraine are major exporters of grains. Together, they account for 30 percent of the global wheat supply. With ports shut and Kiev holding on to its cereal stocks for domestic consumption, not enough wheat is available on the international market. 

Russian and Ukrainian officials have agreed to the broader terms on opening a grain export corridor when they met in Istanbul last week in the Türkiye-mediated talks.  

As per the plan, the ships coming and leaving Ukraine’s ports will be monitored at two control centres including one in Istanbul and the other in the Black Sea. 

"The approach of the Russian delegation in the last Istanbul meetings was very positive. The outcome of the talks will have a positive impact on the whole world," President Recep Tayyip Erdogan told his Russian counterpart Vladimir Putin in Iran's capital Tehran on Tuesday. 

Ukraine, the second-largest country in Europe (Russia is the largest), is a major exporter of grains and cereals, including corn. 

As Russian shelling and airstrikes damaged roads and cut off Black Sea ports, shipment of Ukrainian wheat was disrupted, leading to an immediate hike in the price of both wheat and flour. 

Flatbread, made from flour, is a staple for countries ranging from Egypt and Jordan to Pakistan. Ukraine alone accounts for nearly nine percent of the world’s wheat supply, and disruption in exports has jacked up prices.   

The country of 40 million is the world's largest exporter of sunflower oil and a major supplier of corn, barley and rye, among other grains. It consistently ranks as one of the largest grain exporters.

Delay in the export of Ukrainian grains can spoil its stocks, hurt local farmers, and add to global inflation, which has become a major concern for central banks around the world. 

According to the Food and Agriculture Organization (FAO) of the UN, food prices came down in June for the third consecutive month. But they are still close to the record levels seen in March and around 23 percent higher than the previous year. 

Global inflation threatens to cause instability in many economies, experts are warning. 

In an interview with the Financial Times, IMF’s first deputy managing director Gita Gopinath, said the high cost of living could cause social unrest, something that was seen during 2008 when street protests rocked the Arab countries. 

The global economy was already under stress from the supply chain disruptions caused by the pandemic in the last two years when Russia attacked Ukraine. 

The inflationary problem has spilled over into other areas.  

High inflation prompted the Fed, the US central bank, to increase interest rates, which has strengthened the US dollar against other currencies. 

Dollar’s gain makes life harder for people in developing economies as they have to spend more in their currencies to finance imports. This is especially challenging for the countries, which depend on imports for most or all of their energy needs. 

It has also become difficult for developing and emerging economies such as Sri Lanka, Argentina and Nigeria to borrow money in the international market as they have to pay more to lenders. 

Goldman Sachs CEO David Solomon gave a more worrying assessment of global inflation.  

“(In) my dialogue with CEOs operating big global businesses, they tell me that they continue to see persistent inflation in their supply chains,” Solomon said.

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