Grain corridor deal extended as spring sowing begins in Ukraine

On March 18, the UN and Turkey announced that the Safe Grain Corridor deal – which has been facilitating exports of Ukrainian grain through three of Ukraine’s Black Sea ports since early August 2022 – would be extended for another 60 days. However, the future of the deal beyond this is uncertain, as Russia is threatening to refuse additional extensions unless western countries ease sanctions that have been affecting Russian exports. The expiration of the deal would likely result in some slight global food price increases as market actors respond in the immediate aftermath, similar to what occurred when Russia temporarily withdrew from the deal. The risk of another meaningful global food price shock would also be higher should traders anticipate that a new agreement will not be reached. Another global food price shock is dependent on many factors that influence the market’s expectations for the overall balance of global supply and demand, and the degree of risk and uncertainty that market actors feel with respect to that balance. Though expectations for Ukrainian exports are a meaningful factor in global supply, other key risks to the supply-demand balance include concerns for reduced global production due to weather shocks and/or increased demand (such as from China given eased COVID restrictions).

With the sowing of spring crops (including maize and oilseeds) currently commencing in Ukraine, farmers continue to face financial and logistical challenges across the country and particularly in the conflict-affected east and south. Ukrainian farmers have been facing reductions in income-earning due to lower farmgate prices (driven by high domestic supply linked to reduced exports), high transportation costs, and high prices of agricultural inputs. This year, access to fertilizer is expected to be even more difficult given that Russia and Belarus were previously important sources of fertilizer for Ukraine. However, the Ukrainian government and partners continue to provide support to Ukrainian farmers. For example, the Ukrainian government recently approved an extension to a program offering preferential loans to farmers. The FAO and other organizations have also sought to provide seeds to farmers living in front-line areas. Despite this, access to frontline and Russian-controlled areas remains constrained, and likely continues to result in disrupted and/or reduced provision of government support and humanitarian services. Given disruptions to typical income sources such as pension payments, high prices, and reduced access to other assistance, concern for acute food insecurity in Ukraine remains highest in the conflict-affected areas in the east and south.

According to the Ministry of Agrarian Policy and Food of Ukraine as reported by Agricensus, farmers are projected to plant around 3.6 million hectares of maize in this year’s spring sowing campaign, 14 percent less than last year (when planting also declined due to the conflict). On the other hand, farmers are projected to plant around 5.6 million hectares of sunflower and 1.8 million hectares of soybean in 2023, up 13 percent and 22 percent from last year, respectively. The shift away from maize in favor of oilseed crops is likely attributable to oilseeds’ higher selling prices balanced against lower transportation costs, but also due to difficulties in accessing and affording the nitrogen fertilizer needed for maize production. Meanwhile, area planted with sunflower seed is likely to remain notably lower than the pre-invasion five-year average (marketing years 2017/18 to 2021/22), by around 17 percent using USDA historical data for comparison) despite the increase this year, while area planted with soybean (which was less affected by the conflict) is expected to be similar to the pre-invasion levels. Area planted with maize is expected to be even farther below pre-invasion levels than what was the case last year, by 28 percent using USDA historical data for comparison.

From February to March 2023, FAO’s global cereal price index declined by 5.6 percent, to reach levels a full 18.6 percent lower than the near peak levels recorded in March 2022 in the aftermath of the Russian invasion. Though grain prices began declining again after May and before the enactment of the Safe Grain Corridor deal – driven by seasonal supply increases, expectations for record grain production in Russia, and reduced demand due to high global prices, among other factors – the deal has been a consistent factor contributing to price declines since its enactment, according to monthly FAO analysis. In general, however, declining global food prices are not translating into declining domestic food prices in countries where acute food insecurity is of highest concern. Rather, declining global energy prices and seasonal food supply increases from local harvests have led to some price declines or reduced rate of price increases in many geographies. However, in most cases, domestic food prices remain higher than the same time last year due to global inflation and, in the case of net food importers, weakening local currencies, among other factors.