London (CNN) — Wheat and corn prices on global commodities markets jumped Monday after Russia pulled out of a crucial deal allowing the export of grain from Ukraine.
The collapse of the pact threatens to push up food prices for consumers worldwide and tip millions into hunger.
The White House said the deal had been “critical” to bringing down food prices around the globe, which spiked after Russia invaded Ukraine in February last year.
“Russia’s decision to suspend participation in the Black Sea Grain Initiative will worsen food insecurity and harm millions of vulnerable people around the world,” Adam Hodge, a spokesperson for the US National Security Council, said in a statement.
Wheat futures on the Chicago Board of Trade jumped 2.7% to $6.80 a bushel and corn futures rose 0.94% to $5.11 a bushel as traders feared an impending supply crunch of the staple foods.
The contracts gave up those gains later in the day. Wheat prices are still down 54% from the all-time high hit in March 2022 following Russia’s full-scale invasion of Ukraine, while corn prices are 37% lower than they were in April 2022, when they reached a 10-year high.
The Black Sea deal — originally brokered by Turkey and the United Nations in a year ago — has ensured the safe passage of ships carrying grain from Ukrainian ports. The agreement was set to expire at 5 pm ET Monday (midnight local time in Istanbul, Kyiv and Moscow).
So far the deal has allowed for the export of almost 33 million metric tons of food through Ukrainian ports, according to UN data.
The deal had been renewed three times, but Russia has repeatedly threatened to pull out, arguing that it has been hampered in exporting its own products.
Over the weekend, Russian President Vladimir Putin indicated that he would not renew the pact, saying that its main purpose — to supply grain to countries in need — had “not been realized.”
The collapse of the deal is likely to have repercussions far beyond the region.
Before the war, Ukraine was the fifth-largest wheat exporter globally, accounting for 10% of exports, according to the Organisation for Economic Co-operation and Development.
Ukraine is among the world’s top three exporters of barley, maize and rapeseed oil, says Gro Intelligence, an agricultural data firm. It is also by far the biggest exporter of sunflower oil, accounting for 46% of the world’s exports, according to the United Nations.
Last year, economic shocks that included the impacts of the Ukraine war and the pandemic were the main reasons for “acute food insecurity” in 27 countries, affecting nearly 84 million people, according to a report by the Food Security Information Network, a data-sharing platform funded by the European Union and the United States. The FSIN defines acute food insecurity as lacking enough food to the extent that it puts the person’s life or livelihood at risk.
The International Rescue Committee (IRC) said in November that the deal’s collapse would “hit those on the brink of starvation the most.” The warning came after Moscow suspended its participation in the pact for several days following drone attacks in Sevastopol, a port city in Russian-controlled Crimea.
UN Secretary General Antonio Guterres also said at the time that a breakdown of the deal would turn a “crisis of [food] affordability into a crisis of availability” if farmers around the world couldn’t source fertilizers needed ahead of planting season.
Russia is the biggest global supplier of fertilizers, according to Gro Intelligence. As part of the broader deal, a related agreement was brokered to facilitate shipments of Russian fertilizers and grain.
Last week, Shashwat Saraf, regional emergency director for East Africa at the IRC, called for a long-term extension to the deal to create “predictability and stability” for the region, which has lost vast amounts of crops because of drought and floods.
“With approximately 80% of East Africa’s grain being exported from Russia and Ukraine, over 50 million people across East Africa are facing hunger, and food prices have shot up by nearly 40% this year,” Saraf said in a statement.
The global food price index complied by the UN’s Food and Agriculture Organization hit an all-time high in March 2022, but has fallen steadily since then. A drop in food exports caused by Russia’s withdrawal from the deal could put that trend into reverse.
Richer nations are less exposed to the fallout than some countries in the Middle East and Africa, Caroline Bain, chief commodities economist at Capital Economics, told CNN.
“A renewed rise in agricultural commodity prices would obviously push up retail food prices but perhaps not by as much as you think, particularly in developed economies,” she said.
“There are so many costs along the way from wheat to a loaf of bread, including transportation, processing, packaging, labor,” she said, adding that energy prices were a big driver of food price inflation.
In recent months, food price inflation has overtaken energy as the main driver of stubborn overall inflation in the United Kingdom and the 20 countries the use the euro, although it has started to ease. In May, food prices rose by 18.4% in the UK and by 12.5% in the euro area compared with May 2022.
— Rob Picheta, Hanna Ziady, Mick Krever, Anna Chernova and Priscilla Alvarez contributed reporting.
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