Russia Sanctions Itself with Food Import Ban
Posted by butalidnl on 21 August 2014
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.