Russia Sanctions Itself with Food Import Ban

The Russian government’s decision to ban food imports of the EU and US (plus those of Canada, Australia and Norway) is supposed to be a counter-sanction against the West for imposing sanctions on Russia’s weapons, high-tech and banking sectors; but it is really a sanction that Russia has imposed on itself.

Russia’s sanctions are measures that the EU was reluctant to impose, because they would directly hit Russian citizens. But Russia obliged by imposing them itself. The import ban will certainly hurt the Russian consumer, through higher prices and shortages. Higher-end consumer products (e.g. chocolates, French cheese etc) are among the products that are banned; but the big bulk of banned products are cheaper products that ordinary people eat (e.g. milk, fruits, vegetables, chicken, beef).

Food prices are sure to rise. There will be a shortage of products, at least in the short term. Arranging for alternative food sources will take time – it will take at least half a year before beef from Brazil would arrive in Moscow stores. Increasing local production would take years for some products. Fruit and vegetable production require a lot of labor, and there are not enough workers in the Russian countryside; to increase production, workers would need to be enticed to transfer to rural areas. Increasing production of fruits that come from trees e.g. apples, pears, etc will take years. Many Russian businesses will not invest in expanding the production of vegetables and fruits because the ban is formally only valid for one year.
Western products that manage to enter Russia thru Belarus, Turkey or China will cost more because of the longer supply chain.

The shortage of products will cause an increase in prices. In order to stem this rise in prices, the Russian govenment would need to subsidize food production and sales – either by giving direct subsidies to producers, or by buying up the food and selling to the people at a loss. In order to distribute limited stocks properly, the Russian government would need to institute a ration system of some sort.

The food shortages will also be a morale blow on the Russian public. In the beginning, the Russian consumer will accept the explanation that shortages are temporary, and that alternative sources will be found. But in a few months, it will be obvious that certain categories of food will remain in short supply for an extended period. And that price increases, food shortages and rationing will be permanent features of life.
At the same time, the Russians would know that people in other countries can buy these foods at much lower prices. The food ration system will remind them of the bad old days of the Soviet Union.  This will not be good for Putin’s popularity.

An irony of the import ban on Western foods is that Russia may need to increase its food imports from Ukraine. Ukraine was the food basket of the old Soviet Union, and it still supplies large amounts of food to Russia.

While Russia imports some 35% of its food needs, the EU exports only 1% of its total food production to Russia. The effect of the import ban on Russia will be a lot more than the effect on EU farmers. As Russians line up for their food rations,  Western consumers may notice a temporary reduction of the prices of certain food items.

 

 

 

Let Russia Host FIFA World Cup 2018

FIFA has reiterated its decision to hold the 2018 World Cup in Russia, in the face of mounting calls to transfer it in the wake of Russia’s annexation of Crimea. This issue is complicated – Russia has indeed violated international law; but at the same time, sports events also have a tradition of not being swayed by political events.

The last time an international sports event suffered because of politics was in 1980, when many countries refused to go to Olympics scheduled to be held in Moscow because of the Soviet invasion of Afghanistan. The Soviets responded with a boycott of the 1984 Olympics held in Los Angeles, and held Friendship Games instead.

I believe that the FIFA is right – nations should stop wars for sports, rather than stop sports because of war. But there are also more practical considerations. First, Russia’s conflict in Ukraine (including its occupation of Crimea) may very well be over by 2018. The sanctions by the EU and other countries are bringing Russia into recession; and they will get even tougher if Russia does not change its behaviour. Russia may very well withdraw from occupied Ukraine before 2018.

Second, if Russia still holds Crimea by 2018, its economy would then be in tatters. The billions of dollars needed to build and renovate 12 stadiums and upgrade other supporting infrastructure will be a heavy burden for them to bear. These will have to be built with little foreign financial support. Hosting the World Cup will effectively be a punishment for them.

Hosting a World Cup will open Russia to large numbers of visitors from all over the world. These people will interact with Russians; giving them an insight into the outside world which cannot be controlled by the Russian media and state. Ideas that Russians get from such encounters could be truly subversive to Kremlin control.

The preparations for the World Cup are already quite advanced in Russia, and transferring the games will mean that FIFA will be slapped with a huge liability. But on the other hand, Russia is also committed to the plans for World Cup 2018 – it cannot deviate significantly from the plans. The list of 11 World Cup cities (12 stadiums; Moscow will have two) had been approved back in 2012. Russia has to make sure the stadiums are ready, even if it will have difficulty getting financing for them. It also cannot include other cities e.g. Sebastopol (in Crimea) into the list anymore.

So, let Russia host World Cup 2018. If it insists on remaining in Crimea by then, the World Cup will be a heavy burden amidst an economic crisis. If it withdraws from Crimea, it will get a lot of international support for its preparations, and its economy will boom. It is the choice that Russia needs to make.

 

Raising Farmer Incomes through Farm Machinery

It sounds simple: provide farmers with machines that will increase their yields, and their incomes will rise, lifting them out of poverty. Unfortunately,  it is a bit more complicated than that. There are several reasons why the Philippine government and most NGOs are reluctant to provide farmers with large-scale farm machinery.

One problem, it seems, is that it is difficult for farmers to properly manage high-capacity machines. High-capacity machines like tractors require a high level of organizational efficiency and discipline. Since a tractor could plow large swaths of land (up to 300 hectares), there would inevitably be a mad scramble for its services; and cooperatives could not service all requests.  Ensuring that qualified people operate the machine at all times is also difficult. Also, if the tractor is given (for free) to a cooperative, the cooperative will tend to charge too low prices for its use; leading to problems in financing repairs and eventual replacement.
In other countries, cooperatives mostly bungled the management of farm machinery.

Alternatively, the government could take direct charge of the machines (as was the case in the Soviet Union). This solution was often quite unsatisfactory; it led to enormous bureaucratic bottlenecks and massive corruption.

Then, there is the reluctance to displace farm workers who would otherwise do the work. On close examination, this is only partly true: machines (e.g. tractors) would mostly replace draft animals like the carabao. Moreover, the logic of ‘providing employment’ is illusory. If agricultural development is held back by the lack of machines, farmer incomes would stagnate and even decrease, resulting in many farms being left idle. And this results in less work for farm workers. On the other hand, farm machinery would need workers to operate and service them; and the increased production as a result of the machines will stimulate farmers to bring more land into production. Increased farmer incomes would lead to other agricultural activities e.g. vegetable growing, poultry raising,  which are quite labor intensive.

International NGOs have another problem with mechanization – machines are seen as polluters, producers of greenhouse gases. Carabaos are seen as more ‘green’. It is true that machines do use diesel or gasoline, and emit carbon dioxide; but the carabao also emits methane when it farts.

These considerations has led to an unsatisfactory compromise: the goverment and NGOs give farmers lower-capacity farm machinery, like hand-tractors and threshers. These machines increase productivity a bit, and result in some additional lands being tilled. This choice does not displace labor; and farmer associations and cooperatives can manage these machines. The main benefit will be that more lands could be tilled and more palay harvested (which is the Philippine government’s main aim); but the productivity per hectare (which more directly affect farmer income) does not improve significantly.
On the environmental angle, though, the policy is not good: a tractor can do the work of 5 hand-tractors; but 5 hand-tractors use more diesel than one tractor.

In contrast, some corporations are directly addressing the need for farm mechanization. Their strategy is is to contract land from farmers, and then use large scale machinery and modern production methods to reap abundant harvests. In terms of increasing productivity, this formula is a big success. In terms of raising farmers incomes, though, it is much less spectacular.
A big advantage is that farmers are assured a steady income independent of the uncertainties of the crop cycle. But on the other hand, the rent that the corporations pay to the farmers will most likely remain the same over the years – not raising in step with the increase in harvest, or with inflation. Also, the control over the land effectively passes on to the corporation.

PAIS (Pasali Agricultural Innovations and Services) is a social business active in Region 12, and in particular the town of Palimbang, in Sultan Kudarat province. It proposes yet another approach: provide the services of large-scale agricultural machines, while it teaches farmers improved techniques of planting rice, and organizes them into clusters/associations/cooperatives.  PAIS calls this its Farm Machinery Pool (FMP) project. As a social business, PAIS does not need to make a profit for private shareholders, and recycles all its profits into expansion and social services. The PAIS FMP will provide services of Tractors, Planters and Harvesters – which, in combination, will significantly increase harvests and lessen production costs. Its rates will be relatively low, and the services will be gradually expanded to service more and more farmers. And, the farmers will retain control over their land; which means that they will benefit directly from the increased harvests.
At present, PAIS installs water systems in highland areas all over Mindanao. It will launch with its Farm Machinery Pool in the last quarter of 2014. PAIS is the social business arm of Pasali; its NGO sister organization is the PPF (Pasali Philippines Foundation).
See also: Pasali: Bringing Peace and Lifting Families out of Poverty