Reduced grain supply will add to already-high food inflation

MNCs should expect further volatility and upward food cost pressures

Uncertainty around the Black Sea Grain Initiative and global food markets in general persists: Russia’s temporary withdrawal from the deal is a stark reminder of this. MNCs reliant on grain and vegetable oils for inputs should press on with contingency plans should the deal fall through, and prepare for higher input costs. MNCs exposed to countries with a history or likelihood of imposing export bans, such as Indonesia, India, or Argentina, should prepare contingency plans for alternative procurement in case such policies are adopted. Finally, firms operating in countries facing food insecurity and/or high inflation should keep a close eye on the risk of social unrest, and prepare for potential operational disruptions should it arise.


  • The Black Sea Grain Initiative, signed in July 2022, allowed for the resumption of grain exports out of Ukrainian ports, after they were halted by a Russian blockade following the invasion.
  • The deal, signed by Russia and Ukraine and brokered by the UN and Turkey, proved successful: over 9.5 million tonnes of grain were exported, and food prices fell from record highs as a result.
  • In recent weeks, Russian President Vladimir Putin threatened to withdraw from the initiative, citing a range of issues with the deal.
  • On October 29, following a Ukrainian drone attack on Russia’s naval fleet, Putin announced that Russia was suspending its participation (rather than withdrawing) from the Black Sea Grain Initiative. Wheat prices rose by 6.4% on the first day of trading following the withdrawal.
  • However, Russia announced three days later that it would rejoin the deal, after having received “sufficient” guarantees.

Our View

Russia’s return to the grain deal after a temporary withdrawal does not take away from the considerable uncertainty plaguing global food markets at the moment. For one, Russia’s announcement does not amount to a renewal of the deal, and negotiations are still ongoing ahead of the November 19 deadline. Despite having extracted some concessions and guarantees, Putin will likely put forward further demands and use the grain deal as leverage, notably at the upcoming G20 summit in Indonesia. Food prices will likely see upward pressure as a result.

Second, a more uncertain food outlook increases the risk of export bans; major food exporters, sensing instability in global food markets, are likely to impose export restrictions to ensure food security at home. This would further dislocate food markets and drive up global food prices. Meanwhile, the poor outlook for wheat harvests in Argentina and Australia will exacerbate the problem of tight global markets.

Finally, certain European countries could see disruption to grain supply. Unhappy with the share of grain exports under the grain deal going to high-income countries, Putin is looking to include destination clauses in the deal that would prioritize poorer countries from the global south, which tend to be friendlier toward Russia. With five of the top 10 export destinations being EU countries, including Spain, Italy, and Germany, such an outcome would bring supply pressure to Europe, and drive up prices accordingly.

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