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Statement of the AMIS Chair, Seth Meyer of the United States

Recent global events threaten to renew volatility in global commodity markets, upend those markets and push at-risk communities around the world into greater hunger.  

Volatility had settled over the last several months. The decline in volatility has come with some moderation in prices, but they remain elevated. Economic conditions in the most food-vulnerable importing countries remains a concern and recent events threaten to renew or deepen concerns about food security in those countries.

As AMIS Chair, it is important to remind member countries of their responsibilities. Countries should not take actions which limit the flow of agricultural and food goods, conflate military targets and civilian food distribution supply chains, nor take trade action which exacerbates or transmits greater uncertainty onto the rest of the world as it is the globe’s most vulnerable consumers that bear the brunt of such actions.

The Black Sea remains a vital corridor for the distribution of key food and agricultural goods and AMIS calls on all its members to renew and reaffirm actions which ensure the flow of grains, oilseeds, other food and agricultural inputs from the region.

Further, I call on AMIS member countries to refrain from or retract export restrictions on key food grains, such as rice, which only serve to harm other consumers and have long term negative impacts on the countries’ own producers, destabilizing long run food security in the country imposing the export restrictions. Such restrictions have recently pushed rice prices to five-year highs when rice had largely been insulated to the volatility in other grains and oilseeds for the last two years.

Finally, I call on all AMIS member countries to enhance transparency and fulfill their responsibilities as AMIS members to report on their internal market conditions to allow the market to be fully informed and respond in the most rapid and efficient way possible.

Through these actions we, as member countries of AMIS, can contribute to greater global food security both immediately and over future growing seasons around the world.

Escalating tensions and disruptions in the Black Sea grain trade following the suspension of the Black Sea Grain Initiative (BSGI) on 17 July have triggered a significant rally in wheat and maize markets. The suspension of the agreement, coupled with subsequent attacks on Ukrainian agricultural infrastructure and reciprocal threats between the Russian Federation and Ukraine to use military force against grain vessels, has increased uncertainty in the Black Sea, a crucial center of the world grain trade, leading to revived volatility in agricultural markets. In addition, the recent attacks on grain warehouses in Reni on 24 July have further heightened concerns over grain supply disruptions, considering that barge shipments via the Danube constitute one of the few remaining exit channels for Ukrainian products.

Danube and overland exports emerge as the only viable alternatives
The Black Sea Grain Initiative allowed Ukraine to export close to 33 million tonnes of grains and other agricultural products, helping to sustain the country's farming sector and lower international food prices. In the absence of the Black Sea corridor, barge shipments and overland exports via truck and rail are the only viable alternatives for Ukraine's grain exports. Indeed, thanks to significant investment and support especially of the European Union these so-called “Solidarity Lanes” were able to sustain monthly shipments of up to 2.5 million tonnes.

However, the Solidarity Lanes also caused political backlash, especially in Ukraine's neighboring countries where farmers complained about price pressures due to the influx of Ukrainian grain. To address these concerns, the European Union reached an agreement with Ukraine to not sell its grain in those markets, which is currently scheduled to expire on 15 September. However, even with this agreement in place, Ukrainian exports are competing for trucks, railcars, barges, and port facilities, leading to higher transportation costs for all EU grain producers in the region.

The ongoing EU negotiations on grain transit through member states therefore need to be closely monitored as any obstruction to the Solidarity Lanes would further weaken Ukraine's export capacity. The European Commission is currently discussing with Poland, Hungary, Slovakia, Romania, and Bulgaria the transit of Ukrainian grain through their territories, as these countries have indicated that they won't open their borders to Ukraine unless the current ban on grain imports is extended beyond September. To facilitate grain transit, the European Commission is now considering to subsidize transit costs and streamline customs and health procedures for food cargoes from the EU border to its ports.

Implications for world markets and Ukraine
The end of the BSGI and the ensuing trade disruptions have profound implications for both Ukraine and the global grain market. As for Ukraine, the termination of the BSGI has fractured logistics and led to even higher shipping costs, which will mainly have to be absorbed by Ukrainian producers in the form of lower prices. This, combined with the challenges of the ongoing war, has already created strong disincentives for the agricultural sector, resulting in Ukraine’s maize and wheat production expected to be down this year by as much as 40 percent compared to 2021 levels. Evidently, having one of the world's top wheat and maize exporters operate at lower capacity risks having longer-term impacts on global supplies. Despite relatively good global production projected for 2023, inventories are expected to further decrease and continue to remain below the 5-year average level, leaving less cushion in the event of any major production shortfall.

The suspension of the Black Sea Grain Initiative (BSGI) on 17 July and the recent attacks on grain handling facilities in Ukraine put new strain on global agricultural markets. Beyond the widely commented impacts for grain markets, it is equally important to assess potential repercussions for fertilizers. Could we see a repeat of the situation in spring 2022 when fertilizer prices climbed to record highs and threatened global food security?

The BSGI was established in July 2022 to allow for commercial food and fertilizers exports from three key Ukrainian ports. While the Initiative helped restore agricultural flows, official data show that fertilizer exports through those ports did not materialize. Vessel owners and traders evidently avoided the area because of added constraints and higher risks. In this sense, the suspension of the BSGI is not expected to have any immediate impact for fertilizer markets.

Linked to the BSGI, an agreement was set to also facilitate the export of Russian food and fertilizers. The Russian Federation was the world’s largest exporter of ammonia in 2021 but its exports have taken a severe hit since the war broke out in Ukraine. The major Toyatti-Odessa ammonia pipeline, which connected Russian manufacturers to the Black Sea, was first idled and then damaged. Although other exporters managed to close the supply gap and global demand dropped, the ammonia market will arguably remain particularly sensitive to shocks as the suspension of the BSGI delays any prospect of restoring Russian exports.

The situation is different for other fertilizers. Russian exports of urea and phosphates actually accelerated in 2022/2023 as exporters shifted logistics through domestic ports on the Baltic Sea, with historically high international prices covering for the additional transportation costs. Potash exports also continued, although at a slower pace due to challenges for rail shipments and lower global potash demand. However, the Russian Federation will likely maintain its high share of the global potash trade.

The end of the BSGI confirms that fertilizer exports out of the Black Sea will not return to their past “normal” anytime soon. But global trade has had time to adjust since the outbreak of the war and can be expected to continue ensuring sufficient supplies, in the absence of other shocks. Indeed, fertilizer prices showed little reaction to recent developments and continued an upward trend that had already started in June after several months of price declines. The next big round of purchases is still months away, and over the last year market players have developed new logistical and political options to pick from. Yet, fertilizer markets will continue keeping a close eye on Black Sea developments.

The collapse of the Kakhovka dam in southeastern Ukraine raises alarm for the region's agriculture. While initial concerns focused mostly on the impact of the flooding, the main risk is lack of irrigation water.

Four main canals snake from the Kakhovka reservoir to provide irrigation water for more than 500,000 hectares of farmland—a necessity for the semi-arid croplands on both sides of the Dnipro river. According to official government statistics, the croplands surrounding the reservoir produced about two million tonnes of grains and oilseeds in 2021, mostly wheat, soybean, sunflower and rapeseed along with a variety of vegetables and fruits, including major production of melons.

After the dam’s collapse, settlements and cropland downstream experienced significant flooding across more than 40,000 hectares of land, according to satellite data analysis, with over 46 towns and villages affected. Despite initial fears, the agricultural area flooded was minimal with approximately 1,000 hectares of cropland flooded. However, upstream of the dam, all major irrigation canal inlets were disconnected from the dam within a few days after its collapse as the reservoir’s water levels dropped rapidly. While the canals still retained water at the end of June 2023, they will likely dry out as the summer season progresses.

The irrigation canals primarily serve summer crops such as maize, soybeans, and sunflowers as well as fruits and vegetables, but they also provide water to winter crops like wheat. Precipitation cannot always meet crop requirements in this semi-arid area, so the canals played a critical role in ensuring water supplies for irrigation. Immediate attention will have to be paid to the growing conditions of summer crops currently in the ground. However, as planting of next year’s winter wheat approaches in late summer/early fall, farmers will also have to decide on the feasibility of a successful harvest given limited water supply compared to previous years.

With Ukraine being a major grain and oilseed exporter, variations in the country’s production can have big impacts not only on its own population but also on global supplies and associated prices, particularly for countries that heavily depend on imports from Ukraine. 2022 already saw significant concern over the availability of Ukrainian agricultural exports after the outbreak of war in the country. The destruction of the Kakhovka dam and the drying up of the irrigation canals will no doubt cast additional concern over agricultural production and export shortages.

Issues from the destruction of the Kakhovka dam will continue well beyond the 2023 planting and harvest seasons. It will take time for the dam to be rebuilt, the reservoir to refill, and the canals to flow again. AMIS will continue monitoring croplands in Ukraine and provide monthly transparent updates through the GEOGLAM Crop Monitor reports.

Despite the now yearlong decline in international food commodity prices, most people have not seen the cost of the food they buy come down. Instead, consumer food price inflation remains stubbornly high in much of the world.

As illustrated in the maps below, food prices edged up further during 2022 and early 2023 in much of Europe, reaching rates of well over 10 percent on average. Food inflation still stood at near 20 percent in the United Kingdom and 15 percent or more in Germany and France by April 2023. In the United States, inflation decelerated slightly from over 10 percent a year ago to near 8 percent owing in part to monetary tightening, but overall inflationary pressures (including rising wage costs) remain important drivers.

Food inflation moderated somewhat in the Russian Federation, China, India, Indonesia, and a few other Asian countries, mainly linked to government support policies. With few exceptions, food inflation remains high and accelerated further in other low- and middle-income countries. For instance, in Pakistan (following floods), Sudan (increased political tensions and droughts), Egypt (rising import costs), and Turkey (macroeconomic woes) food inflation edged up to around 50 percent or more, while Argentina, Venezuela and Zimbabwe recorded consumer price increases of well over 100 percent by April 2023.

Nearly all of the affected populations live in low-income, net food-importing countries. These countries did not benefit from falling international food prices because their currencies lost value at an abnormally fast rate relative to the US dollar, which pushed up the domestic cost of food. As these vulnerable countries sunk deeper into the high price cycle, the ability of governments to cope with the compounding effect of the war in Ukraine was limited by import reliance and high debt obligations after the COVID-19 pandemic.

While governments took measures to lessen the burden of high prices such as targeted cash transfers to vulnerable households, they have been unable to sustain these. The coping capacity of vulnerable households equally has eroded, as many had previously taken on debt, sold assets and/or depleted food stocks to maintain their livelihoods during the COVID-19 pandemic and have had to continue these practices with persistent high food price inflation.

In view of the further reduction in purchasing power, populations with low incomes in both developed and developing countries may be forced to make tradeoffs, such as reducing portions and skipping meals, that negatively affect current and future food and nutrition security. Despite falling international food prices, food affordability thus remains a challenge at both the macroeconomic and household levels, threatening the food security of vulnerable households around the world.