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Effects of Russia's food sanctions on European supply and Moscow demand

By Daniel Gurevich
web posted October 13, 2014

In March 2014, the predominantly Russian population of Crimea voted overwhelmingly in favor of seceding from Ukraine and joining Russia. In response, the United States and European Union imposed economic sanctions on Russia. But minor sanctions were not enough to make Russia back off from Crimea, now a symbol of Russian pride. Soon tension between the West and Russia escalated as Russian military forces invaded Ukraine and NATO levied increasingly severe sanctions. In August, Russia declared that it would fight back with a sanction of its own: an embargo on imports of almost all food from the U.S., E.U., Norway, Australia, and Canada. By crippling the West´s agricultural industries, the Russian government intended to force NATO to lift their sanctions.

Just how effective have Russia´s food sanctions been? Europe, which exported about $16 billion worth of food to Russia in 2013, has suffered the most. Norway´s fishermen are out of work now that Russia has stopped buying their seafood. Finland´s dairy producers are idling their factories after demand contracted sharply. Tomatoes from Spain and Italian sausages now languish without a buyer. As a result, Europe´s already slow recovery from recession has cooled even more yet. On the other hand, U.S. food producers have suffered less. Imports of food from the U.S. totalled just $1.3 billion last year, a deficit easily made up for by focusing on the domestic market. Finally, for countries not affected by the ban, the extra business has been a mixed blessing. For instance, cheese producers in Switzerland are completely unequipped to handle the sharp spike in demand for their product.

But as much as the food sanctions have hurt the West, Russian consumers are taking the brunt of the blow. Stores have not yet run out of some imported foods, but prices for these foods have shot up because of the very limited supply. For example, I have seen the price of my favorite cheese, Finnish dairy producer Valio´s Oltermanni, increase by about 50% in Moscow stores over the course of just a few months. So it is no surprise that many Russians are searching for substitutes. Demand is growing for Russian cheese and sausages, tomatoes and grapes from Uzbekistan, and other foods from Russia and its former republics, as are prices.

Sometimes there is no suitable substitute for imported food. Even then, consumers have found a way to satisfy their needs. Chefs in Moscow´s top restaurants whose recipes call for Italian Parmesan cheese now use "Belarusian" Parmesan. In fact, it is still the same cheese, imported from Italy to Belarus and then illegally re-exported to Russia with a "Made in Belarus" label slapped onto the original manufacturers´ packaging. In the process, the Belarusian cheese smugglers profit by raising the price of the Parmesan by about 20 percent.

There is a moral to this story. Whenever free trade is disrupted by quotas and embargos, nobody is a winner except for the criminals that skirt these restrictions. Clearly, Russia has not learned that lesson. ESR

This is Daniel Gurevich's first contribution to Enter Stage Right. © 2014

 

 

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