By JAMES ANYANZWA

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East Africa faces fresh fear of a possible surge in prices of imported wheat, setting a stage for a costly festive season compounded by high fuel prices.

These worries are informed by Russia’s wavering stand on the renewal of a crucial grain export agreement with Ukraine scheduled for November 19.

The United Nations-brokered agreement that was signed in July allows Ukraine to export its grain (wheat, barley, corn and sunflower) and vegetable oil through the Black Sea corridor.

But on October 29, Russia pulled out of the deal, citing attacks on its ships passing through the Black Sea corridor.

According to the United States Department of Agriculture Moscow’s abandonment of the deal would lead impact food prices in Africa as a whole.

“It (Russia’s decision) will significantly impact East Africa. We 100 percent denounced that decision because it would negatively impact the export of grain through Ukrainian ports coming into regions such as East Africa and other countries,” Jewel Bronaugh, the US Deputy Secretary in the Department of Agriculture told The EastAfrican last week.

Weaponising food

“We look at it as another way Russia is weaponising food and we are not in support of that decision. Russia is coming out of the deal, but we are doing all that we can do to ensure that we can have those food supplies flow throughout the world and especially to the critical regions here in Africa.”

Kenya’s inflation for the month of October jumped to 9.6 percent from 9.3 percent in September, the highest in five years on account of increases in the prices of food, transport and fuel, according to data from the Kenya National Bureau of Statistics.

Ravaging drought

The situation has been compounded by a ravaging drought that has pushed an estimated 4.5 million people in danger of starvation.

In Uganda, inflation for October increased to 10.7 percent from 10 percent in September driven by increases in the prices of essential commodities such as maize flour, rice and sugar.

Russia warned that vessels participating in the black sea grain initiative were not safe and that Moscow could not guarantee safe passage of commercial vessels carrying Ukrainian grain.

Interestingly, Russian officials have been criticising the deal since early September on the grounds that Ukraine has been exporting most of its grain to Europe rather than developing countries.

Grain export agreement

Economists at Oxford Economics Africa noted that the immediate market price action after Moscow abandoned the deal was limited, with wheat futures rising by 6.5 percent and corn by 2.3 percent since markets had already with priced in the likelihood of the deal not being renewed following Russia’s complaints since September.

Western powers led by the US and the UN criticised Russia’s decision to pull out of the grain export agreement.

And on November 2, Moscow made a U-turn and resumed its participation in the deal after receiving written confirmation from Kyiv that Ukraine would not use the Black Sea grain corridor for military operations against Russia.

In response to Russia’s return to the deal, wheat prices fell by six percent to $8.5 per bushel compared $8.7 per bushel on October 31.

“Markets reacted positively to the news. But uncertainty remains, as prices do not yet reflect Russia's unequivocal participation in the deal,” according to Oxford Economics Africa.

Russia is the World’s largest exporter of wheat, and it is argued that despite the Moscow’s change of tune on the grain export deal, the ongoing political turbulence regarding Ukraine and subsequent exportation difficulties mean that unforeseen food insecurity challenges are still possible.

Weather-related shortfalls

Under the deal Ukraine exported more than nine million tonnes grain in the past three months (August-October) helping to ease global food prices.

According to the economists should Russia re-impose the blockade, Ukraine’s exports are likely to fall back to two million tonnes to 2.5 million tonnes per month in November and December.

“Russia’s decision to halt its participation in the UN-brokered Black Sea grain deal risks a renewal of global food price pressures and could prove damaging to Ukraine’s agricultural output long term. The odds against the deal being renewed on November 19, when it expires, have risen and without Russia’s participation, insurers may pull out of underwriting Ukraine-bound vessels, disrupting trade flow.”

Prior to the war, Ukraine exported 15 percent of world’s maize, nine percent of wheat, and 10 percent of barley.

Exports plunged

Following the armed invasion, the volume of cereals exports plunged by two-thirds, reducing the size of world trade in cereals by about eight percent.

The Black Sea grain deal allowed Ukraine to increase its exports of cereals to 4.6 metric tonnes by September from 1.2 million tonnes in June with 80 percent going via seaports.

Globally, grain prices have increased by 20.6 percent since last year to date while that of fertiliser has increased by 66.1 percent in the same period.

Wheat prices are projected to increase by 36 percent in 2022, and then decline modestly next year; rice to average 5 percent lower in 2022 and remain unchanged in 2023 while maize prices are expected to increase by more than 20 percent this year due to the effects of the war and weather-related production shortfalls and decline by 8 percent in 2023.

“Moreover, failure to extend the UN-backed deal allowing exports of grains from the Black Sea could result in food import disruptions in low-income countries, especially in the Middle East and North Africa which depend heavily on grain imports from the Black Sea region,” according to the World Bank.

High input prices

Other risks to the food commodity outlook include high input prices, including fertilisers, coal, and natural gas, diversion of food commodities to biofuels, further dollar appreciation, restrictive trade policies and emerging La Niña (for the third year in a row).

An escalation of the Russia-Ukraine war could quickly reverse the expected easing of food commodity prices in 2023 and 2024. The invasion delivered a fresh blow to global commodity markets.

The fertiliser question

Initially, the war led to significant disruptions to the production and trade of commodities in which Russia (energy and grains), Ukraine (grains and oilseeds), and Belarus (fertiliser) are key exporters.

Although food prices have retreated from their peaks in the second quarter (April-June) of this year they are still high compared to the past five years

Skyrocketing energy prices have taken a toll on fertiliser markets since 2021, as fertilisers are the most energy intensive commodity group.

Several companies, especially in Europe, temporarily shut production facilities due to surging input prices and/or the unavailability of feed stocks.

The already tight market could be further destabilised by the continuation of restrictions on fertiliser exports from the Black Sea region, sanctions on exports from Belarus, and China’s fertiliser export ban.

If energy and fertiliser prices do not moderate in 2023 and 2024 as expected, food prices could be subject to significant upward pressure

Global consumption of wheat is expected to decline by 0.5 per cent due to weaker-than-expected demand for animal feed.

According to the World Bank global rice production is expected to decline by two per cent in 2022 to 2023, reflecting lower crops in China (down 1.3 percent) due to dry conditions and to lower planted area in India (down 5 per cent).