Ukrainian Grain Export Deal Extended

The wartime agreement was due to expire Saturday.

Cargo ships anchored in the Marmara Sea, Istanbul, Nov. 1, 2022.
Cargo ships anchored in the Marmara Sea, Istanbul, Nov. 1, 2022.
AP Photo/Khalil Hamra

ANKARA, Turkey (AP) — A wartime agreement that allowed grain exports from Ukraine to resume and helped temper rising global food prices will be extended by 120 days, the United Nations and other parties to the deal said Thursday, a move welcomed by financial markets.

The initiative established a safe shipping corridor in the Black Sea and inspection procedures to address Russian and Ukrainian concerns that cargo vessels traveling off Ukraine's southern coast might carry weapons or launch attacks.

The deal that Ukraine and Russia signed in separate agreements with the U.N. and Turkey on July 22 was due to expire Saturday. Russia confirmed the extension but said it expected progress on removing obstacles to the export of Russian food and fertilizers.

The news that the deal would continue came amid a new barrage of Russian airstrikes that smashed into Ukraine's energy infrastructure, apartment buildings and an industrial site. At least four people were killed and 11 others wounded in drone and missile strikes around the country, authorities said Thursday.

Ukrainian President Volodymyr Zelenskyy called the extension a "key decision in the global fight against the food crisis." U.N. Secretary-General Antonio Guterres and Turkish President Recep Tayyip Erdogan welcomed the renewal of the four-month-old deal.

"I was deeply moved to know that in Istanbul, Turkey, Ukraine, Russia and the U.N. had come to an agreement for the rollover of the Black Sea Grain Initiative, allowing for the free exports of Ukrainian grains," Guterres said.

Ukraine and Russia are key global suppliers of wheat, barley, sunflower oil and other food to countries in Africa, the Middle East and parts of Asia where many people are struggling with hunger. A loss of those supplies following Russia's Feb. 24 invasion of Ukraine had pushed up global food prices and fueled concerns of a hunger crisis in poorer countries.

Russia had voiced dissatisfaction with the part of the agreement aimed at facilitating exports of Russian grain and fertilizer, hinting that it might not agree to an extension. Although Western sanctions against Russia for its invasion of Ukraine did not target food exports, many shipping and insurance companies were reluctant to deal with Moscow.

Guterres said the U.N. was "fully committed" to removing hurdles to shipping food and fertilizer from Russia.

The Russian Foreign Ministry said Moscow had allowed the extension to take effect "without any changes in terms and scope" of its agreement. The ministry said Russia noted the "intensification" of U.N. efforts to hasten Russian exports.

"All these issues must be resolved within 120 days for which the 'package deal' is extended," the ministry said.

Moscow briefly suspended its participation in the deal in late October, citing risks to its ships following what it alleged was a Ukrainian drone attack on Russia's Black Sea Fleet. Ukraine did not claim responsibility for the attack.

The Turkish Defense Ministry said the decision to extend the deal came after two days of talks in Istanbul between delegations from Turkey, Russia, Ukraine and the U.N. that were held in a "positive and constructive" atmosphere.

The sides also discussed possible additional measures to "deliver more grain to those in real need," the ministry added, to apparently address Russian complaints that most of the grain has ended up in richer nations. Erdogan suggested Thursday that wheat from Russia could be turned into flour in Turkey and shipped to African nations in need.

U.N. humanitarian chief Martin Griffiths said last month that 23% of the exports from Ukraine under the grain deal have gone to lower- or lower-middle-income countries and 49% of all wheat shipments have gone to such nations.

Markets were pleasantly surprised by the extension, though it's only for a few months instead of a year, said Ian Mitchell, co-director of the Europe program at the Center for Global Development who specializes in agriculture and food security.

"Ukraine and Russia are such important grain exporters that the rest of the market can't fully substitute for the complete absence of Ukrainian grain," he said. "So that deal is going to matter to food prices significantly, even if the volumes are not what they were before the invasion."

He said, however, that the uncertainty is "unhelpful in this deal." Toward the end of the four-month extension, markets will "price in the risk that it wasn't extended, and prices will rise a little bit again."

Following the announcement, wheat futures prices dropped 2.6% in Chicago.

Arnaud Petit, executive director of the International Grains Council, said the Black Sea region is producing some of the cheapest wheat in the world and continuing those supplies prevents a price shock.

There have been good harvests in the region, contributing to an expected 10 million more tons of wheat worldwide compared with last year, he said. The deal's extension means that Ukrainian farmers can plan to plant.

Petit said however, that when it comes to food prices, trade movement isn't as important as currencies around the world weakening against a strong U.S. dollar, which commodities like wheat and other grain are priced in.

The council calculated that for Ghana, which mainly imports its wheat from Canada, the price of wheat in dollars from Canada has been largely stable for two years. But changing into local currency translated to a 70% price hike.

Global food prices declined about 15% from their March peak after the grain initiative was adopted in July.

"With the delivery of more than 11 million tons of grains and foodstuffs to those in need via approximately 500 ships over the past four months, the significance and benefits of this agreement for the food supply and security of the world have become evident," Turkey's Erdogan said.

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