Home NewsCommodities News UN’s grain-for-fertiliser plan holds little appeal for Moscow By Reuters

UN’s grain-for-fertiliser plan holds little appeal for Moscow By Reuters

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UN's grain-for-fertiliser plan holds little appeal for Moscow By Reuters

© Reuters. FILE PHOTO: Ears of wheat are seen in a field near the village of Zhovtneve in Ukraine on July 14, 2016.REUTERS/Valentyn Ogirenko/File photo

(Reuters) – Russia agrees with a U.N. proposal to lift Ukrainian grain exports through the Black Sea in exchange for immunity from Western sanctions on Russian and Belarusian fertilizer exports, industry experts said.

UN Secretary-General António Guterres said last week that he was in “close engagement” with Russia, Ukraine, Turkey, the United States and the European Union, urging “all parties in good faith” to resume Ukrainian food exports as the global food crisis worsens.

But Moscow lacked goodwill, blaming the food crisis directly on sanctions imposed by the West in response to Russia’s military operations in Ukraine.

Kremlin spokesman Dmitry Peskov said President Vladimir Putin was aware of the “great danger” that the coronavirus could lead to starvation, but Ukraine was blocking its own exports by exploiting the Black Sea.

Ukraine’s Foreign Minister Dmitry Kureba said on Wednesday that Russia was trying to “blackmail” the international community by offering the possibility of lifting a blockade of Black Sea ports in exchange for easing sanctions.

Russia is the world’s largest exporter of wheat and typically competes with Ukraine for supplies to the Middle East and Africa.

It expects a record harvest this year, with large exports in the July-June marketing season, mostly from still-open Black Sea ports that have been blocked since Moscow sent troops into Ukraine on February 24 .

In addition, Russian fertilizers still have access to some large export markets outside the West.

“Such swaps are not going to happen now,” said a Russian grain industry source, who asked not to be named because of the sensitivity of the issue. “If you’re going to exchange grain, it’s probably going to be a lot more in exchange.”

‘Ukraine can wait’

For now, Russia seems to have all the cards.

Global wheat prices have remained high not only because of disruptions in the Black Sea, but also because of dry weather elsewhere and restrictions such as India’s ban on exports.

Chicago wheat futures hit a record high in March and are still up about 30% since Feb. 23 on supply concerns. [WHT/]

Russia is well positioned to take advantage of this, as its record harvest combined with large carryover stocks will mean a high exportable surplus for the new season.

Putin has said Russia will increase wheat exports in the new July-June season as production could hit a record 87 million tonnes.

IKAR and Sovecon consultancies estimated July-June wheat exports at 39 million tonnes and 41 million tonnes, respectively, compared to about 33 million tonnes for the current season, most of which has already been shipped.

“Therefore, Russia can solve the problem of global food security – and at a high price,” the source added. “Ukraine can now wait.”

More than 20 million tons of grain are stranded in Ukraine.

Before the conflict, it exported almost all grain and oilseeds from Odessa, up to 6 million tons per month. The freight trains it uses now can only manage 1-1.5 million.

Russia’s Deputy Foreign Minister Andrei Rudenko told news agencies that Moscow was ready to provide humanitarian corridors for ships carrying food without Western escorts in return for some sanctions relief.

But even that means demining the waters off Odessa, Ukraine’s main deep-sea port, where Kyiv fears an amphibious invasion.

“If some of the countries that have contacts with Russia touch this whole issue in some way, I’m sure we’ll be ready to discuss it,” Peskov said.

Ukraine has said it needs “security guarantees” and Deputy Economy Minister Taras Kachka told Reuters last week that “having third-country ships in the region…would be an ideal situation”.

Sources say Moscow may see more traction in the exchange between August and September, when Ukraine finds itself with no space to store the new harvest alongside the old crop. Old crops may still take up 35% of storage capacity.

By then, Russia may need more than just easier-to-export fertilizers.

‘you get what you sow’

Russia produces 13% of the world’s crop nutrients containing potassium, phosphate and nitrogen and is typically exported to Latin America, Europe, Asia and Africa.

Russia’s ally Belarus is also a big potash producer and its exports are subject to the same sanctions as Russia.

Russia is still selling compound fertilizers to Latin America and India, while potash from Russia and Belarus is proving harder to sell abroad, a Russian fertilizer industry source said on condition of anonymity.

According to customs statistics, in 2021 Russia will export wheat and vegetable oil worth $9 billion and $4 billion, respectively, and fertilizers worth $12.5 billion. The release of trade data has been suspended since April.

The current problem is not only the refusal of Western banks to transfer payments due to sanctions, but also the difficulty in securing safety for large ships for the same reason, the sources said.

Russia and Ukraine together account for 29% of global wheat exports, mainly through the Black Sea, and 80% of global sunflower oil exports. Ukraine is also a major corn exporter.

Global prices for wheat, vegetable oil, fuel and fertilizer have all risen since Russia began its military campaign.

Another source in the Russian fertilizer industry believes that there is little chance that farmers will soon resolve the food crisis.

He said that even if Ukraine resumed grain exports from the Black Sea, it would not be enough to restore global supplies, while farmers around the world were not using enough fertilizer for spring planting and had difficulty buying enough fertilizer for autumn planting.

“So, the 2022/23 farming year will be hungry and cold,” the source added. “What you reap – and how – you sow. They will reap the whirlwind.”

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