Russia weaponising wheat won’t hurt the world

Wheat is the world’s most important staple — and so, perhaps unsurprisingly, it’s also been wielded as a powerful weapon. Luckily for the world, this time around it’s mostly proving to be a dud.

The US weaponised the cereal against the Soviet Union in 1980, when President Jimmy Carter imposed a wheat embargo on its Cold War rival in response to the invasion of Afghanistan. Four decades and another Russian invasion later, it’s Vladimir Putin who’s dragging wheat into war, imposing an embargo on Ukrainian grain exports that could cost the nation as much as $800 million a month in badly needed hard currency.

The West has limited options to respond. Short of NATO nations providing escorts for Ukrainian grain shipments and risking direct confrontation with Moscow, Russia has the upper hand.

When Putin agreed last year to a deal re-starting Ukrainian grain and oilseeds shipments via the Black Sea, the Kremlin’s calculation was that it had much to lose from blocking the agreement, but something to win at only a small cost.

In mid-2022, the Russian President desperately needed to keep the Global South onboard, so diverting the blame for rising global food prices was essential. Back then, the cost of wheat had surged to a record of $13.40 a bushel, nearly three times above the 2000-2020 average of $4.95. That risked alienating Russia allies in Africa, Latin America and Asia. Putin also wanted to nudge the US and Europe into facilitating Russia’s own grain exports by easing banking sanctions.

For Moscow, the costs — Ukraine would make several hundred million dollars each month exporting foodstuff — were outweighed by the potential benefits. And, in any case, Kyiv was already exporting its agricultural commodities into Eastern Europe in great quantities, so the sense in Moscow probably was that the accord would simply re-route existing Ukrainian exports to sea from overland.

A year later, the calculation has changed. Wheat prices have fallen nearly 50 percent from their 2022 peak, easing pressure in the Global South. Despite a spike this week, wheat is changing hands at around $7.50 a bushel. On the propaganda front, Moscow can show that Ukrainian shipments have been largely flowing into wealthy European nations and China, rather than hungry countries in Africa. Meanwhile, Russia’s own wheat exports have surged to an all-time high, limiting any extra gains for the Kremlin in continuing with the deal, formally known as the Black Sea Grain Initiative, even if Western nations were to accept Moscow demands for more sanctions relief.

In another development in the past year, Kyiv is also struggling with the overland route as several Eastern European nations have imposed their own bans on Ukrainian foodstuff exports to protect domestic farmers. The de facto embargoes are in response to a flood of Ukrainian grain depressing local prices in Poland, Bulgaria, Hungary, Slovakia and Romania. Russia isn’t the only country handicapping Ukrainian farming.

So Putin canceled the agreement earlier this week and has since doubled down, first bombing the port of Odessa, its agricultural export hub, and then warning that any ship involved with Ukrainian foodstuffs would be deemed a legitimate military target. Ukraine retaliated on Thursday by making the same threat to vessels heading to Russian ports.

From French President Emmanuel Macron to the White House, the West has denounced the Russian move in apocalyptic terms. “The continued weaponisation of food harms millions of vulnerable people around the world,” US State Secretary Antony Blinken said in a statement.

They may be correct about the moral argument, but their commodity-market analysis is wrong. Thankfully for global food security, 2023 isn’t 2022, and bumper crops over the last year should put a lid on wheat, corn and soybean prices. Ironically, Russia is contributing to keep prices under control thanks to those record wheat exports. In the 2023-24 season year, Moscow is expected to ship 47.5 million metric tons of wheat, more than double the amount it exported a decade ago.

Global food prices are down more than a fifth from their 2022 peak, according to the United Nations’ Food and Agriculture Organization. Wheat prices have halved; the cost of corn has fallen 33 percent, and soybean prices are down 15 percent. The only worry is the cost of rice, which has surged to a two-year high, up 30 percent from a year ago. But Ukraine doesn’t export any rice, and the jump is being prompted by worries about bad weather hurting crops, rather than war.

In 1987 to 1988, President Ronald Reagan sent the Navy into the Persian Gulf to create an humanitarian corridor for oil tankers during the Iran-Iraq War. Could be the same done now in the Black Sea for grain shipments? The risk would be huge. If sending NATO warships is too risky, what else the West can do? Frustratingly, its best hope is that global food prices rally, and the Global South – particularly the likes of India, Saudi Arabia and Egypt – put pressure on the Kremlin.

If wheat prices don’t surge, Washington and Brussels will either have to accept the Russian blockade, offer concessions to Moscow, or pay Eastern European nations large subsidies to accept Ukrainian wheat. None of those is a good option, but Kyiv is going to need help. The collapse of the grain corridor, alongside the overland route to its Eastern European neighbors, will cost Ukraine dearly. More is at stake than just the cost of breakfast.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. Views are personal and do not represent the stand of this publication.

Credit: Bloomberg