Russia restates its demands for grain deal extension after April 11 inspection stoppage

The Russian Ministry of Foreign Affairs has officially commented on the one-day stoppage of inspections for vessels using the grain corridor, and used the opportunity to lay out conditions for Russia's ongoing continuation of the agreement, according to an official letter released Thursday.

All inspections were suspended for 24-hours on April 11, with Russian authorities blaming their Ukrainian counterparts and representatives of the United Nations for allegedly failing to register vessels correctly.   

Mostly, the Russian government used the statement as an opportunity to restate the conditions it says must be met if it is to agree to extend the grain corridor deal beyond late May - after a 60-day deadline that it has imposed on the deal has lapsed.

The deal was extended in mid-March, after the main signatories to the deal agreed to an extension, but while Ukraine claimed a 120-day timeframe had been agreed, Russia claimed they would only accept 60 days - a timeline that would bring the deal up for renegotiation by May 18.

Representatives of co-signatories Turkey and the UN welcomed the extension, but notably failed to comment on the duration of the deal.

The ministry set out the five points it wants to see fulfilled, with the main demand being to reconnect the national agriculture bank, Rosselkhozbank, to the Swift electronic payment system.

That was followed by a request to restart the supply of machinery, details and services; the abolition of the insurance and re-insurance restrictions along with reopening of port access; restoration of work to allow ammonia to flow through the "Togliatti-Odessa" pipeline; and finally the unblocking of foreign assets and accounts of Russian companies related to the production and transportation of food and fertilizers.

While the trade of grains is not affected by international sanctions, many of the above restrictions were imposed in the immediate aftermath of Russia's invasion of Ukraine in February 2022, while the port of Odesa - at one end of the fertilizer pipeline - has been subjected to missile and drone strikes from Russian forces.  

The official note also blamed the UN and Ukraine for the stoppage of inspections, stating that vessels coming to the Bosporus had not been registered correctly, and blaming Ukrainian port authorities for earning money on prioritising vessel movements.

The statement also repeated accusations that the grain deal was not working in the way it should, stating that “the 'Black Sea Initiative' served and continues to serve exclusively commercial exports of Kyiv in the interests of Western countries”.

The note also said that the grain supply under the World Food Program initiative is “ridiculously” low compared to the total amount of agriculture products exported, and called the 'Grain from Ukraine' initiative, also arranged under the UN's approval “pseudo humanitarian”.

The statement also took aim at the UN's own food and agriculture indices, claiming that they overstated price falls and wheat prices remained ‘elevated’.

“In addition, the UN members like to refer to the FAO indices, declaring a decrease in world food prices (although not by 20.5%, but by 18.6% since March 2022). At the same time, they keep silent about the fact that prices, especially for wheat, remain elevated and unaffordable for many consumers,” the note showed.

“One of the reasons is that 70% of Ukrainian exports consist of fodder corn and fodder crops,” the statement claimed.

Ukraine is typically a bigger producer of corn than wheat, with a sizeable portion of the country's wheat crop typically classified as feed wheat.

The “normalisation” of russian agriculture products, along with fertilizer shipments would also help to solve the issue, it argued.

“But even the gratuitous transfer of our emissions is in the poorest way due to detection and delays - so far the only consignment remains a shipment to Malawi (20,000 tons out of 262,000 mt blocked in the ports of Latvia, Estonia, Estonia and the Netherlands),” the note also showed.

UN responds

Stéphane Dujarric, a spokesman for the UN, said that that the organisation is in talks with the people who are responsible for the Swift payment system, as the UN does not have the authority to make such changes.

“In some matters we have power – a little, but we have. This is not the right question. The Secretary General has no power over Swift, he has no power over member countries that have imposed unilateral sanctions, he has no power over insurance companies, companies for delivery. He can't tell them what to do,” Dujarric said in response.

The facts

While Russia has continued to insist that grain and fertilizer exports are restricted amid sanctions, the country's grain exports are moving towards record levels, with 42.6 million mt currently registered as exported.

That includes 34.9 million mt of wheat – 35% up year-on-year and already more than was exported in the entire 2019/20 marketing year, according to USDA data.

The USDA expects the country to export up to 45 million mt of wheat alone by the end of the marketing year.

Official data for Russian fertilizers are not released by the government for now, but mirror customs data for the main importers shows that India increased its 2022 fertilizer imports threefold compared to 2021.

Meanwhile, Brazil's imports had declined by 13% compared to 2021 - in part down to high prices - but remained higher than the figure for 2020.

Despite the onset of sanctions from the US government, US imports of Russian fertilizers dropped by 18% in 2022, but remained relatively high.

The biggest destinations for Ukrainian agriculture exports via the grain deal agreement are EU, China, Turkey and Egypt, while 2.5 million mt of grains has moved towards the poorest developing countries.

Meanwhile, the opening of the Ukrainian ports has pushed both world grain and oil prices down, the main aim of the deal along with helping Ukrainian farmers who have suffered from the impact of the ongoing war. 

The blockade of and Ukrainian ports led to a build up in stock - particularly after Ukraine had wrapped up its biggest ever corn crop in the previous season - forcing farmers to discount as they attempted to stay competitive while also factoring in increased freight costs.

With most of Ukraine's biggest ports closed, exporters had to rely on smaller ports close to the border with Romania, or use road and rail freight to move volume across the borders into the EU.

Those options carried increased costs and piled additional pressure on Ukraine's producers as they tried to compensate for the increased costs.