The UN’s grain-for-fertilizer plan is not very attractive to Moscow

Russia has little to gain by agreeing to a UN proposal to unblock Ukraine’s grain exports across the Black Sea in exchange for exempting Russian and Belarusian fertilizer exports from Western sanctions, industry experts in Russia say.

.N. Secretary-General Antonio Guterres said last week he was in “intensive contacts” with Russia, Ukraine, Turkey, the United States and the European Union, urging “goodwill from all sides” to resume Ukraine’s grain exports as the global Food crisis worsened.

But there is a lack of goodwill in Moscow that has directly blamed the food crisis on Western sanctions imposed in response to Russia’s military campaign in Ukraine.

Kremlin spokesman Dmitry Peskov said President Vladimir Putin was aware of the “great danger” that the current situation could lead to starvation, but that Ukraine had thwarted its own exports by mining in the Black Sea.

Ukraine’s Foreign Minister Dmytro Kuleba said on Wednesday that Russia was trying to “blackmail” the international community by raising the possibility of an offer to open Black Sea ports in exchange for an easing of sanctions.

Russia, the world’s largest wheat exporter, usually competes with Ukraine to supply the Middle East and Africa.

It expects a bumper harvest this year and hefty exports to be sold in the July-June marketing season, much of it from Black Sea ports that remain open while Ukraine’s ports have been blocked since Moscow trooped on February 24 sent to Ukraine.

In addition, Russian fertilizers can still reach some large export markets outside the West.

“A swap like this will not happen now,” said a Russian grain industry source, who asked not to be named due to the sensitivity of the issue. “If the grain is traded, it’s probably a little more.”

“Ukraine can wait”

At the moment, Russia seems to have all the cards in hand.

Global wheat prices are high not only due to disturbances in the Black Sea, but also due to drought elsewhere and restrictions such as an export ban from India.

Chicago wheat futures hit a record price in March on supply concerns and are still up about 30% since Feb. 23.

Russia is well positioned to benefit as its bumper harvest combined with large carry over stocks will mean a high exportable surplus in the new season.

Putin said Russia will increase wheat exports in the new July-June season due to a potential bumper crop of 87 million tons.

Consultancies IKAR and Sovecon estimate July-June wheat exports at 39 million and 41 million tons, respectively, after around 33 million tons this season, most of which has already been shipped.

“This is how Russia can address the issue of global food security – and at high cost,” the source added. “And now Ukraine can wait.”

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

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

Russian Deputy Foreign Minister Andrei Rudenko told news outlets that Moscow is ready to provide a humanitarian corridor for food-carrying ships without western escorts in exchange for the lifting of some sanctions.

But even that would mean demining the seas around Odessa, Ukraine’s main deepwater port, where Kyiv fears an amphibious invasion.

“If this whole tangle of problems is somehow touched upon by some countries in contacts with Russia, I am sure that we will be ready to discuss it,” said Peskov.

Ukraine has said it needs “safety guarantees,” with Deputy Economy Minister Taras Kachka telling Reuters last week that “having third-country ships in the region would be an ideal situation.”

Moscow could see more appeal in an August-September swap – if Ukraine doesn’t have enough space to store its new crop alongside the old crop, the source said. This old crop can still take up 35% of the storage capacity.

And by then, Russia is likely to demand more than simpler fertilizer exports.

‘YOU REAP WHAT YOU SOW’

Russia produces 13% of the world’s plant nutrients, which contain potash, phosphate and nitrogen, and typically exports to Latin America, Europe, Asia and Africa.

Belarus, Russia’s ally, is also a major potash producer and its exports, like Russia’s, have been hit by sanctions.

A source from the Russian fertilizer industry, who also declined to be named, said Russia is still selling complex fertilizers to Latin America and India, while potash from Russia and Belarus is more difficult to sell abroad.

In 2021, Russia exported $9 and $4 billion worth of wheat and vegetable oil, respectively, and $12.5 billion worth of fertilizers, according to the Customs Service. Trading data has been suspended since April.

The source said the current problem is not only Western banks’ refusal to remit payments due to sanctions, but also the difficulty in securing large ships for the same reason.

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

World prices for wheat, vegetable oils, fuel and fertilizers have all skyrocketed since Russia began its military campaign.

Another source in Russia’s fertilizer industry saw little chance that farmers would solve the food crisis any time soon.

Even if Ukraine’s grain exports from the Black Sea resume, they will not be enough to restore global supplies, he said, while farmers around the world may not be using enough fertilizer for their spring plantings and may find it difficult to get enough for the spring Autumn to buy sowing.

“So the 2022/23 farming year will be hungry and cold,” the source added. “You reap what – and how – you sow. You will reap the hurricane.”

Reuters