Mideast countries that are already struggling fear price hikes after Russia exits grain deal

Russia pulled out of the deal brokered by the U.N. and Turkey to allow Ukraine’s grain to flow during a global food crisis.
A Pakistani worker carries sacks of wheat in a warehouse in Karachi, Pakistan, on Wednesday, July 26, 2023. (Photo | AP)
A Pakistani worker carries sacks of wheat in a warehouse in Karachi, Pakistan, on Wednesday, July 26, 2023. (Photo | AP)

CAIRO: Ahmed Salah grew anxious when he heard the news that Russia had suspended a crucial wartime grain deal. The bakery owner in Egypt's capital is concerned it could mean global food prices soar.

“There mightn’t be an immediate impact,” the 52-year-old said last week as he oversaw workers baking bread in his shop in Cairo, “but if they didn’t find a solution soonest, things would be very difficult.”

Russia pulled out of the deal brokered by the U.N. and Turkey to allow Ukraine’s grain to flow during a global food crisis. It helped stabilize food prices that soared last year after Russia invaded Ukraine — two countries that are major suppliers of wheat, barley, sunflower oil and other food to developing nations.

Egypt, the world's largest wheat importer, and other lower-income Middle Eastern countries like Lebanon and Pakistan worry about what comes next. Struggling with economic woes that have driven more people into poverty, they fear rising food prices could create even more pain for households, businesses and government bottom lines.

Many have diversified their sources of wheat, the main ingredient for flatbread that is a staple of diets in many Mideast countries, and don't expect shortages. Pakistan has even seen a bumper crop despite unprecedented flooding last year.

But the end of the grain deal is creating uncertainty about price hikes, a major driver of hunger.

It “is an unnecessary shock for the 345 million acutely food insecure people around the world,” said Abeer Etefa, a spokeswoman for the U.N.'s World Food Program.

Russia also has launched attacks on Ukrainian ports and agricultural infrastructure following the collapse of the accord, leading global wheat prices to zigzag. Despite the volatility, the costs are below what they were before Russia invaded Ukraine, and there is enough production to meet worldwide demand, said Joseph Glauber, senior research fellow at the International Food Policy Research Institute.

But for low-income countries like war-torn Yemen or Lebanon that are big wheat importers, finding suppliers that are farther away will add costs, he said. Plus, their currencies have weakened against the U.S. dollar, which is used to buy grain on world markets.

“It’s one reason why you see food price inflation lingering in a lot of countries — because even though world prices I mentioned are at prewar levels, that’s in dollars. And if you put it in, say, the Egyptian pound, you’ll see that Egypt wheat prices are actually up,” said Glauber, former chief economist at the U.S. Department of Agriculture.

“They’re certainly as high as they were during the high points of 2022,” he said.

That packs pressure on governments, which will have to pay more to keep subsidizing bread at the same level and avoid raising costs for households, he said. With many also seeing their foreign currency reserves dwindle, it could put countries in the Middle East and elsewhere in a more precarious financial situation.

Salah, the bakery owner, fears that if wheat prices spike, Egyptian President Abdel Fattah el-Sissi's government could respond by hiking the prices of bread.

“Such move would have heavy toll on ordinary people,” he said.

El-Sissi and other leaders raised concerns about higher food prices at a summit Russia hosted for African nations last week. He called for reviving the Black Sea deal through a “consensual solution” that takes into consideration “all parties’ demands and interests and put an end to the continued surge in grain prices.”

Homegrown grain doesn’t meet even half of Egypt's demand, particularly wheat and corn. It buys over 10 million tons of wheat — mostly from Russia and Ukraine — and that is expected to grow.

Local wheat production is expected to remain at 9.8 million tons, while consumption increases by 2% to 20.5 million tons in 2023-2024, according to a USDA report from April.

However, the government said the impact of the end of the grain deal is minimal so far. Supply Minister Ali Moselhi said last week that Egypt has diversified its sources of imported wheat and that its stockpile would cover the country’s needs for five months.

Its wheat purchases from Ukraine have declined by 73.6% over the 2021-2022 period as Egypt tapped other sources, the USDA said.

Any increase in wheat prices would further strain Egypt’s economy, which has struggled from decades of mismanagement and outside shocks like the COVID-19 pandemic and war in Ukraine. That could force the government to cut nonsubsidy spending and push up inflation, Capital Economics said.

Food costs already are fueling a cost-of-living crisis. Annual inflation hit a record 36.8% in June, with food prices skyrocketing by 64.9%.

In Lebanon, the grain deal's collapse could be an additional hurdle as the tiny Mediterranean country relies on Ukraine for at least 90% of its wheat, flour millers say.

The agreement helped resolve supply shortages that shocked the market during the onset of the war, causing large breadlines and rationing. Caretaker Economy Minister Amin Salam said any negative impact on wheat prices following the deal’s collapse will “certainly” affect prices at home.

The country of some 6 million is in the throes of an economic crisis that has impoverished three-quarters of its population. Its main wheat storage silos were destroyed in the Beirut port blast in 2020, so its grain reserves lie entirely in private mills’ storage.

“We currently have two months’ worth of wheat reserves, and we have one month’s worth on the way,” said Wael Shabarek, owner of Shahba Mills. “While I expect some price increase, it won't be the same as before — as the beginning of the war — when it was a total shock for us.”

However, Lebanon's economy keeps shrinking, its currency has lost 90% of its value since 2019 and the World Food Program says local food prices are among the highest in the world.

Pakistan, meanwhile, is a bright spot. It was a major importer of Ukrainian wheat but this year had the highest domestic production in a decade despite disastrous flooding in 2022. The bumper crop is attributed to providing seed and other aid to farmers.

The government still calls for restoration of the grain deal to ensure global food security and avoid surging prices. Pakistan, whose ailing economy is getting a $3 billion International Monetary Fund bailout, was hit hard when food prices surged after Russia's invasion.

“The Ukraine conflict has also brought difficulties for developing countries and the Global South, particularly in terms of fuel, food and fertilizer shortages. Pakistan is no exception,” Foreign Minister Bilawal Bhutto Zardari said.

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