Progress to lower global food prices was at risk after Russia announced its exit from the Ukraine grain deal, experts said yesterday.
Russia yesterday failed to extend the Black Sea grains deal, brokered by the United Nations and Turkey in July 2022. The Kremlin said Russia was quitting the pact because its demands to improve its own grain and fertilizer exports had not been met.
National Agricultural Marketing Council (Namc) chief economist Thabile Nkunjana said the failure to extend the grain deal that allowed countries from the Black Sea to export grains was concerning considering how important the grain accord had been in maintaining global food prices.
He said the April and May food inflation figures issued by Statistics South Africa had indicated that food prices in South Africa were beginning to fall.
"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.
Nkunjana said the Food Agricultural Organisation (FAO) global food price index for June showed how significant the grain deal had been in keeping food prices low. He said the food price index averaged 122.3 points and was 23.4% lower than the peak observed in March last year following the outbreak of the Ukrainian crisis.
However, the direct impact would not be immediate given that there were plenty of grains from Australia and Brazil, which were supplying the world market at the moment. The period the grains would be stuck in the Black Sea should the deal not be extended would be mirrored in global prices as time went by.
"This was good news for the country's food inflation, which was spiralling out of control. For example, the International Grain Council (IGC) wheat, maize, and soybean indices on 14 July 2023 averaged 243, 230, and 280 points, respectively, down 18%, 24%, and 8% year on year," Nkunjana said.
Agricultural Business Chamber(Agbiz) chief economist Wandile Sihlobo said the implications of this decision would only be clear over the coming days and weeks.
"Still, one has to appreciate that one of the major contributors to the current slowing global agricultural commodities prices (food prices) is the Black Sea Grain Deal, which allowed for a safe grain movement from Ukraine and Russia since July 2022, " Sihlobo said.
Therefore, Russia's refusal to renew the Black Sea Grain Deal presented an upside risk to global grain prices, which could then undermine the gains all were starting to enjoy as a result of the slowing grain prices, specifically in the major importing regions.
"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 said.
Sihlobo said. "We think the price reaction to the news of Russia's refusal is worth monitoring and could impact South African consumers if no solution is found in the near term regarding the grain movement from this region.
“But the extent of that will depend on how global grain markets react to this current glitch caused by Russia. Importantly, Russia has large wheat supplies that must be exported in the 2023/24 season, so monitoring if those shipments won't face any issues will be important."
John Hudson, Nedbank Commercial Banking's Head of Agriculture, said that global commodity prices have been easing and there could now be a reversal of this trend.
"Fortunately, SA has a good maize harvest coming off the land so to some degree we are shielded from the full impact. We do, however, import wheat and so we could see wheat/flour prices rise but the impact may not be immediate."
Jee-A van der Linde, a senior economist at Oxford Economics Africa, said the termination of the deal would likely have an impact on global food prices, but it was unlikely to significantly affect the South African economy, which was a net exporter of food.
Van der Linde said they did not expect global food prices to return to pre-pandemic levels, as policy interventions on cross-border food trade remain numerous, thus preventing markets from exerting the necessary downward pressure for global prices to correct lower.
BUSINESS REPORT