Following a steady stream of sanctions by the U.S. and EU, Russia finally retaliated by imposing a ban on food imports. The one-year ban instituted on August 7, 2014, prohibits the importation into Russia of meat, fish, vegetables and dairy products from the U.S., EU, Canada, Australia and Norway.
The import ban is expected to have mixed consequences for U.S. and EU companies, depending on the industry. U.S. cattle producers are unlikely to feel any pain due to Russia's prior ban on U.S. beef imports issued in February 2013. Similarly, Russia banned pork imports from the EU in January this year due to concerns about swine flu, so the new ban has no effect on the status quo.
Lost Revenue Predicted to Include Poultry, Fish and Fruits
However, a number of other industries are not so well-positioned. Exports of poultry and nuts from the U.S. to Russia each exceeded $100 million in 2013, and exports of fish and prepared foods were each in the tens of millions of U.S. Dollars. U.S. exports of fruit to Russia also exceeded $230 million last year. With Russian markets off limits for at least the next 12 months, U.S. food and agriculture producers can expect to see their revenues slide.
In the EU, the situation is even more extreme due to closer economic ties with Russia. Russian-bound exports of fruits and vegetables exceeded $1 billion in 2013, as did exports of cheese. EU exports of milk products, butter, eggs and beef to Russia each exceeded $100 million. EU member states such as Latvia, Lithuania, Poland, Spain and Finland have had strong trade relationships with Russia and are likely to be the hardest hit.
EU officials are currently taking countermeasures to offset the ban's effects, including setting aside €125 million to compensate EU producers of perishable fruit and vegetable products. With fruit and vegetable exports to Russia exceeding $2.7 billion last year, EU producers are feeling the pinch. In some cases, prices for those products have already fallen by 50 percent or more in Europe, and many of those products will be destroyed or simply left to rot in order to stave off oversupply. The Russian sanctions hit Europe at a bad time — many crops were ready to harvest and economic growth had already been lagging.
Russian Citizens Likely to Suffer Most With Food Prices
In Russia, food prices have increased by 10 percent in cities like St. Petersburg and even more significantly in remote areas. Many Western analysts predict that Russian citizens will actually be the ones punished most by the import ban. Russia took steps to offset the domestic effects of the ban by signing a new agricultural trade deal with Egypt, but that agreement is unlikely to be a complete substitute for the loss of U.S. and EU agricultural goods. Domestic production in Russia is also not up to the task.
Russia's issuance of the import ban signals the start of a full-blown trade war. Without a clear strategy for de-escalating tensions in Ukraine, the situation only threatens to grow worse. U.S. and EU exporters should remain vigilant and consider alternative markets for their products as Russia continues to close off to the West.