Cornhusker Economics April 5, 2017Russian Food and Agricultural Import Ban

In 2014 the United States, European Union (EU), and several other countries imposed economic sanctions on Russia in response to its annexation of Crimea and support for separatist rebels in eastern Ukraine (Nelson, 2017; Europa, 2017). Prior to the 1990s, the use of economic sanctions to challenge the behavior of foreign governments was fairly rare as the target country could easily turn to the cold-war adversary of the sanctioning country to avoid their effects. With the end of the Cold War, sanctions, usually comprehensive in nature restricting economic relations across the board, became a major foreign policy tool. Because comprehensive sanctions had severe negative impacts on ordinary citizens, the international community has shifted its approach to “targeted” sanctions that penalize specific individuals and organizations as well as non-essential sectors, such as petroleum or financial services as opposed to essential goods such as food and medical supplies (Peterson and Haugen, 2016). The sanctions on Russia follow this pattern freezing assets and restricting transactions of particular individuals, banks, and firms allied with Russian President Vladimir Putin as well as trade in goods related to the petroleum industry and military arms (Nelson, 2017).

In response to these actions, the Russian government banned the importation of agricultural and food products, including fruits, vegetables, meat, fish, and dairy products, from the Western countries that had imposed the economic sanctions (The Guardian, 2014). Both the Russian ban on imported food and the U.S. and EU sanctions have been extended to at least the end of 2017. The Russian economy has been slowed by lower petroleum prices as well as the effects of the economic sanctions. The economic slowdown in Russia can be seen in the figures in Table 1, which show a decline of real Gross National Income (GNI) of 3.0 percent and a decrease in real per capita GNI of 3.3 percent between 2014 and 2015.

Russia has become an important player in global agricultural markets. In 2016, it was the third largest wheat exporter after the EU and United States (ERS, 2017).

Russian food and agricultural imports are much greater than its exports of these commodities, as shown in Table 1. According to the European Commission, 19 percent of Russia’s agricultural exports were destined for the EU, while 42 percent of its agricultural imports were from the EU in 2013 (Leifert and Leifert, 2015). The impact of the Russian ban on EU agricultural exports to Russia can be seen in Table 2, which shows that in 2015, the value of EU agricultural exports to Russia had fallen by 53 percent from the level reached in 2013.

The effects of the Russian ban on U.S. agricultural exports is illustrated in Table 3. Compared to 2013, U.S. agricultural exports to Russia had fallen by almost 80 percent by 2016. The Russian ban has eliminated its imports of some of the more important commodities exported to Russia by the United States, including poultry, beef, and pork, while reducing significantly other important U.S. exports, such as those of tree nuts and live animals. On the other hand, the Russian market has long been less important for U.S. food and agricultural producers than is the case in the EU. While 2013 Russian imports represented about 10 percent of total EU agricultural exports to countries outside the EU, Russian imports from the United States have historically accounted for less than one percent of total U.S. agricultural exports.

Given the relative insignificance of Russian purchases of U.S. agricultural products, the import ban has caused little harm to the U.S. agricultural sector. For the EU, on the other hand, Russia is the second most important market for agricultural products after the United States and the import embargo has been of greater consequence there. In 2015, European farmers protested low prices brought on, in part, by the Russian embargo (BBC, 2015). By one estimate, the Russian import ban is costing EU farmers about 5.5 billion euro (about $5.9 billion) in lost exports each year (Michalopolous, 2016).

In addition, given the importance of European food imports for Russian consumers, the import ban has had serious domestic consequences. Russian consumers are facing increased food prices and shortages of specialized food items. According to data from the World Bank (2017), consumer prices in Russia rose by almost 26 percent between 2013 and 2015 and much of this increase was due to higher food prices. Within just three months of the start of the import ban, Russian food prices had increased by 10 percent (Petrick, 2015). The Russian economy was also set back in 2014 by the drop in oil prices as petroleum is Russia’s leading export. Finally, these adverse economic developments caused the Russian ruble to depreciate by 58 percent between 2014 and the end of 2016 making all imported goods more expensive (IMF, 2017).

Following the global food price increases and other disruptions of world food trade in 2007-2010, the Russian government sought to increase food self-sufficiency by stimulating domestic production and reducing exports (Leifert and Leifert, 2015). The decision to ban agricultural imports from the West was a natural response given these objectives. Petrick (2015) describes various structural problems in the Russian agricultural sector that make it unlikely that the import ban coupled with policy interventions in the domestic market will be sufficient to bring about dramatic increases in the degree of food self-sufficiency. This hypothesis is reinforced by the fact that the negative impacts of the food import ban on domestic markets have forced the Russian government to seek out new trading partners. For example, Russian imports from Pakistan, Serbia, and Egypt, as well as countries in Latin American, such as Chile, Argentina, and Brazil have grown dramatically (World Food Moscow, 2017a). There is also evidence that some EU products are being smuggled into Russia from neighboring EU members such as Poland, Latvia and Lithuania and legal food exports from Belarus that are derived from raw materials from the EU may help to ease the food shortages (Liefert & Liefert 2015). Overall, as the tables demonstrate, the food import ban has caused more significant adverse effects in the EU and Russia, than it did in the United States. In January 2017, the Russian Deputy Prime Minister suggested that sanctions might be lifted in 2018 (World Food Moscow, 2017b). If the sanctions are indeed lifted, it might take some time until the products start flowing between the countries, especially since some changes in response to the current conflict have prompted the development of new strategies in the EU and Russia. As the United States was not affected as much as the EU and Russia, the impact on the United States of ending the food import ban is likely to be limited.

Table 1: Russian Economy

	2010	2011	2012	2013	2014	2015
GNI, billion constant 2010 $	1,478	1,541	1,592	1,606	1,622	1,573
Per capita GNI constant 2010 $	10,245	10,777	11,116	11,191	11,103	10,741
Merchandise imports, billion $	229.7	305.6	314.2	315	286.7	182.7
Merchandise exports, billion $	397.7	516.5	525.4	527.3	497.9	343.5
Agricultural imports, billion $	32.4	44.6	47.6	40.3	42.3	27.8
Agricultural exports, billion $	5.8	9.2	14.1	13.7	16.3	13.9

Source: World Bank (2017) and UN

Table 2: EU Agri-Food Exports (million €)

	2013	2014	2015	2016
EU Agri-food Exports to Russia	12,150	9,254	5,624	5,707
EU Food Exports to Russia	10,996	8,290	4,734	4,803
Total EU Agri-food Export	120,000	121,900	129,200	--
EU Agri-food Exports to Russia as % of total	10.13	7.59	4.35	--

Note: On March 21, 2017, one euro equaled about $1.08.

Table 3: U.S. Agricultural Exports to Russia (million current dollars)

	2012	2013	2014	2015	2016
Bulk commodities	99	230	245	235	95
soybeans	46	157	184	189	58
tobacco	40	41	30	41	35
other	13	32	31	5	2
Consumer-oriented	1,178	724	502	99	90
tree nuts	124	172	69	13	8
poultry	310	310	144	0	0
beef	299	1	1	0	0
pork	268	18	136	1	0
other	177	223	152	85	82
Intermediate goods	378	254	152	91	65
live animals	267	149	49	17	1
other	111	105	103	74	64
Total to Russia	1,655	1,208	900	426	250
Total U.S. agricultural exports	141,550	144,356	149,983	133,053	134,889
Exports to Russia as % of total	1.17	0.84	0.6	0.32	0.19

Source Foreign Agriculture Service, GATS.

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Marianna Khachaturyan, Ph.D.
Department of Agricultural Economics
University of Nebraska-Lincoln
marianna@huskers.unl.edu


E. Wesley F. Peterson, Professor
Department of Agricultural Economics
University of Nebraska-Lincoln
epeterson1@unl.edu
402-472-7871

References

BBC (2015). “EU Extends Farm Aid amid Russian Food Import Ban,” at http://www.bbc.com/news/world-europe-33717492

ERS (2017). “USDA Wheat Baseline, 2015-2024,” Economic Research Service, USDA at https://www.ers.usda.gov/topics/crops/wheat/usda-wheat-baseline-2015-24/#World

Europa (2017). “EU Sanctions Against Russia over Ukraine Crisis,” at http://europa.eu/newsroom/highlights/special-coverage/eu-sanctions-against-russia-over-ukraine-crisis_en

IMF (International Monetary Fund, 2017). “Exchange Rates,” International Financial Statistics, at http://data.imf.org/regular.aspx?key=60998108

Liefert, William M., and Olga Liefert. (2015) “Russia's economic crisis and its agricultural and food economy,” Choices 30, no. 1, pp. 1-6.

Michalopoulos, Sarantis (2016). “Russia Extends Embargo on EU Food Products,” Euractiv at https://www.euractiv.com/section/agriculture-food/news/russia-extends-embargo-on-eu-food-products/

Nelson, Rebecca M. (2017). “U.S. Sanctions and Russia’s Economy,” Congressional Research Service, Washington, DC.

Peterson, E. Wesley F., and Kiersten Haugen (2016). “Food and Agricultural Trade Sanctions,” Encyclopedia of Food and Agricultural Ethics, New York: Springer.

Petrick, Martin (2015). “One Year After Ban on Food Imports from the West: Effects and Implications,” Organized Symposium, XXIX International Conference of Agricultural Economists, Milan, Italy.

The Guardian (2014). “Russia Bans Agricultural Imports from the West in Tit-for-Tat Sanctions Move,” at https://www.theguardian.com/world/2014/aug/06/russia-bans-imports-eu-us-sanctions

World Bank (2017). “World Development Indicators,” Databank, at http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators

World Food Moscow (2017a). International Food Exposition, Moscow, September 11-17, 2017, “Five reasons to make Russia your next new food market”,15 April 2016, at http://www.world-food.ru/en-GB/press/news/277.aspx

World Food Moscow (2017b). International Food Exposition, Moscow, September 11-17, 2017, “Russian food embargo could end in 2017 – Deputy PM”, 19 January 2017, at http://www.world-food.ru/en-GB/press/news/2638.aspx