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Ukraine: Russian economy grows on grain

With much fanfare, ship after ship laden with grain has departed Ukraine after being stuck in the country’s Black Sea ports for nearly six months. More quietly, a parallel wartime agreement also met Moscow’s demand to clear the way for its wheat to reach the world, boosting an industry vital to the already Russian economy. bound by broader sanctions.

While the United States and its European allies attempted to sabotage Russia’s finances with a web of sanctions for invading Ukraine, they avoided direct sanctions on grain and other commodities that feed the people of the world. all over the world.

Russian and Ukrainian wheat, barley, corn and sunflower oil are important to countries in Asia, Africa and the Middle East, where millions of people depend on subsidized bread to survive. As war raised food and energy prices, millions of people were pushed into poverty or on the brink of starvation.

Two agreements brokered by the United Nations and Turkey last month to prevent food supplies from becoming dependent on each other: one protects Ukrainian grain-exporting ships through the Black Sea and the other ensures assures Russia that its food and fertilizer will not face sanctions, protects one of the pillars of its economy and helps ease concerns from insurance companies and banks .

The deal allows a Western shipper to move two grain ships out of Russia in a matter of weeks. This used to take months because Western banks refused to transfer payments to Russia. Although the US and European Union sanctions do not directly target Russian agriculture, Western banks have been wary of violations, preventing buyers and shippers from accessing the Russian agricultural sector. Russian cup.

“You have to invest time with the banks to make them understand the whole thing because the authorities say: grain from the Sea,” said Gaurav Srivastava, whose company Harvest Commodities buys, ships and sells. Black.

He called the process with banks a “laborious exercise.”

What has changed in recent weeks, said Srivastava, is the “appearance … of this like an armistice between all parties.”

The deal is significant for Russia as it is the world’s largest wheat exporter, accounting for almost a fifth of global exports, and the country is expected to have one of the best crops. so far this year. According to the World Bank, agriculture accounts for about 4% of Russia’s gross domestic product.

“What’s more important is jobs,” Russian economist Sergey Aleksashenko refers to the jobs created by agriculture. “It’s like 7 to 8% of jobs.”

Agriculture provides Russia with 5-6 million jobs, he said, with some regions almost entirely dependent on it for their livelihood.

Srivastava, which has operations from Los Angeles and Geneva, hopes to ship 10-15 million tonnes of Russian grain next year.

He was also able to move two charter ships that have been stuck in Ukrainian ports since the start of the war on February 24. He said the company is aiming to collect 1 million tons of grain from Ukraine. within 4 months – permanent UN agreement.

“We are a commercial enterprise, but we are trying to help the plight of farmers in both Russia and Ukraine,” said Srivastava. “I’m very optimistic, especially over the past few weeks.”

Russia’s claim to the deal includes public statements from the US and EU that the sanctions do not target Russian food and fertilizers. It also raised issues around financial transactions with the Agricultural Bank of Russia, access to Russian-flagged vessels at ports and the export of ammonia needed for fertilizer production.

A week before Russia signed the agreement, the US Treasury issued statements with such assurances. It is clear that Washington has not imposed sanctions on the sale or shipment of agricultural or medicinal items from Russia.

The Treasury Department also granted broad permits for certain transactions involving agricultural commodities, saying the US “strongly supports the United Nations’ efforts to bring both Ukrainian and Russian grain to market.” world and reduce the impact of Russia’s gratuitous war with Ukraine on global food, supplies and prices.”

The EU also reiterated that Russian agriculture had not been sanctioned and blamed the war on soaring global food prices and the Kremlin’s restrictions on agricultural exports to protect its domestic market. The 27-nation bloc says its sanctions provide exceptions, such as allowing EU countries to grant access to ports for ships flying the Russian flag to trade in agricultural products or food. .

Russia says it is still facing challenges.

The country’s agriculture ministry said difficulties with the supply of imported farming equipment, which are not directly sanctioned, also threaten grain harvests. It said domestic demand would be met, but exports could suffer.

Even after the deal was signed, Russian Foreign Minister Sergey Lavrov assured the West that agriculture was exempt from sanctions. During a diplomatic tour of Africa focused on food exports, he said “half a truth is worse than a lie” while pointing to the chilling impact of sanctions.

Mr. Lavrov said that UN Secretary-General Antonio Guterres was “committed to pressing Western countries to lift those restrictions”. “We’ll see if he can succeed.”

Meanwhile, grain from Russia and Ukraine is increasingly important in preventing hunger in the developing world. S&P Global Commodity Insights said in a June report that 41 million tonnes of Russian wheat could be available for export this year.

But overall, the world is expected to produce 12.2 million tonnes less wheat and 19 million tonnes less corn for the 2022-2023 harvest than the previous year, said International Grain Council Executive Director Arnaud Petit said. This is partly due to war in Ukraine and drought in Europe, he said.

While a strong U.S. dollar and inflation may force some countries to restrict food imports, Petit noted that some countries are imposing export controls that could affect availability. of cereals in sub-Saharan Africa and the Middle East.

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Raf Casert contributed to this report from Brussels.

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