Key facts
- Global grain prices are rising steeply due to intensified attacks on export infrastructure in the Black and Azov seas by Russia and Ukraine.
- Russia is the largest exporter of wheat, and the Black Sea route handles about a third of the world's grain supply.
- World food prices hit their highest level since November 2022 in early August, according to the UN's FAO price index.
- World wheat prices were 15% higher than a year ago, exacerbated by dry weather in Europe.
- Russian wheat exports tumbled 56% in August compared to the previous year, according to Sovecon.
- Ukraine could lose over $5 billion in export revenue if Black Sea grain exports remain obstructed.
Global grain prices are surging as Russia and Ukraine escalate attacks on each other's key export infrastructure in the Black and Azov seas, disrupting trade routes vital for global food security. Both countries are major grain producers, with a significant portion of their exports destined for the Middle East and Africa, typically passing through the Black Sea, which accounts for about a third of the world's supply.
The obstruction of these ports is a "huge issue" for the world, according to Masha Belikova, a grain reporter at Fastmarkets Agricensus. Russia is the largest exporter of wheat, while Ukraine is a major producer of corn, wheat, barley, and sunflower oil, which are crucial for its foreign currency earnings.
In recent seasons, Ukraine has been responsible for approximately 6% of global wheat exports and 11% of corn exports. Before the full-scale Russian invasion in 2022, these figures were higher, at 10% for wheat and 15% for corn, alongside half of the world's sunflower oil exports.
The EU delegation to Ukraine stated in early August that Russia is "systematically strangling Ukraine's ability to feed the world" and is "weaponizing hunger." World wheat prices have been on an upward trend since late February, partly due to geopolitical tensions and exacerbated by the ongoing conflict.
In August, global food prices reached their highest level since November 2022, averaging 133.3 points on the UN's Food and Agriculture Organization (FAO) price index. World wheat prices were also 15% higher year-on-year, with dry weather in parts of Europe contributing to the increase.
Meanwhile, domestic wheat prices in Russia have collapsed below breakeven due to the shutdown of major grain terminals, according to Andrey Sizov, head of grain consultancy Sovecon. Russia and Ukraine have continued long-range strikes against each other, impacting shipping. Over the summer, both nations have increased attacks on ports, terminals, and commercial vessels, forcing them to seek alternative export routes via land and river.
Russia is attempting to reroute some grain through its Baltic ports, but these facilities can only handle about 10% of the volumes typically shipped from its southern ports, and this redirection increases costs. Latvia plans to impose a 300% tariff on grain from Russia and Belarus, and Estonia has stated it will prevent Russian grain from passing through its ports.
According to preliminary estimates by Sovecon, Russian wheat exports fell by 56% in August to 2 million metric tons from 4.5 million metric tons a year earlier. Exports are expected to remain at a similar level in September. Since mid-July, Ukrainian strikes have led Russia to close the Sea of Azov and suspend operations at three major grain terminals in Novorossiysk.
Exports via land and river routes are facing challenges due to low water levels, infrastructure bottlenecks, and ongoing attacks. Buyers are postponing purchases, but Sizov noted that countries like Saudi Arabia, which have been buying cautiously, may soon have to import significantly as their stocks are likely at historically low levels.
In response to the accumulating backlog of unexported grain, the Kremlin is suspending export duties on wheat, barley, and corn until the end of the year. However, these measures are considered unlikely to significantly support revenue and prices given the closure of major grain terminals.
Farmers in both countries are facing financial difficulties, with Russian farmers reportedly in a worse position due to strict export taxes. Despite challenges, Russia's harvest is ahead of last year's volume. Ukraine could face substantial export revenue losses if Black Sea exports remain blocked.