SA not directly at risk as Russia ends grain deal, price reaction possible

South Africa is not directly at risk as Russia ends the grain deal to allow safe grain movement from Ukraine and Russia since July last year, but we could see a price reaction with prices of sunflower oil and grains increasing. Prices already spiked on world markets shortly after the announcement.

The Black Sea Grain Deal was negotiated by Türkiye and the United Nations (UN) last year to ensure the safe passage of ships carrying grain from Ukrainian ports. The deal was renewed three times, but Russia kept threatening to pull out and on the weekend, Russian president Vladimir Putin said he will not renew the agreement as its main purpose to supply grain to countries in need was “not been realised”.

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Until now, almost 33 million metric tons of food were exported through Ukrainian ports, UN data shows. The deal brought down the prices of sunflower oil and grains which are staples for poor people and low-income consumers and the fear is that these prices will increase again and cause even more hunger.

Ukraine was the fifth-largest wheat exporter in the world before the war, accounting for 10% of exports, according to the Organisation for Economic Co-operation and Development (OECD). According to the UN, Ukraine is also the biggest exporter of sunflower oil and exports 46% of the world’s sunflower oil. Ukraine is also one of the top three exporters of barley, maize and rapeseed oil.

Grain deal ends but SA has large domestic supplies

However, Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), says South Africa is not directly at risk as it has large domestic grain supplies, although the country still imports about 1.5 million tonnes of wheat annually. Fortunately, most of the imports for the 2022/23 season are already in the country.

“One has to appreciate that the major contributor to the slowing global agricultural commodities prices (food prices) was the Black Sea Grain Deal. Russia’s refusal to renew the Black Sea Grain Deal presents an upside risk to global grain prices, which may undermine the gains we were all starting to enjoy from the slowing grain prices, specifically in the major importing regions,” he says.

While the majority of grain from the Black Sea was primarily exported to Europe, the Middle East and North Africa, the availability of grain and the decline in prices indirectly benefited the global community, he says.

“Still, the price reaction to the news of Russia’s refusal is worth monitoring and could impact South African consumers. But the extent of that will depend on how global grain markets react to this current glitch caused by Russia.”

Thabile Nkunjana, chief economist at the National Agricultural Marketing Council (Namc), told IOL that the failure to extend the grain deal is concerning considering how important the grain accord has been in maintaining global food prices, as illustrated by Statistics SA showing that food prices were moderating in April and May.

“While the fall was minor, we anticipated a greater decrease in the coming months because the country (SA) is once again blessed with abundant maize and soybeans. Wheat, which the country imports in significant quantities, has already been largely imported. However, as was the case from 2022 to early 2023, this is likely to have an indirect impact on South Africa,” he said.