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By Geoffrey Smith
August 7, 2014

Russia retaliated against western sanctions with a sweeping ban on food imports, marking a new low point in relations between the two since the end of the Cold War.

Under instructions from President Vladimir Putin, the government said it would ban for a year all imports of meat and poultry, seafood, milk and dairy products including cheese, fruit, vegetables and vegetable oil-based products from the U.S., E.U., Australia and Norway–all of whom have imposed sanctions of their own on Russia for the annexation of Crimea and its perceived role in stoking the violent uprising in eastern Ukraine.

There was no action to restrict the crucial flow of oil and gas exports, which are vital for the E.U. economy and for the Russian budget. Nor did the government announce any ban on overflight of Siberian airspace, although it did consider it.

Even so, the step signals a radical departure from Russia’s previous policy of trying to avoid harm to its own economy, which has never recovered its pre-crisis rates of growth, and which stagnated in the first half of this year.

“We hoped until the last minute that our colleagues would understand that sanctions are a blind alley that do no-one any good. But they didn’t understand and…we were forced to take reciprocal measures,” Prime Minister Dmitry Medvedev told cabinet in a televised meeting.

The move is extraordinary, in as much as Russia has found it much easier, since the collapse of the Soviet Union, to buy food than to produce it. It currently imports some 40% of its food, and the E.U. is its biggest trading partner, buying €3.3 billion ($4.4 billion) of fruit and vegetables last year and another €3.3 billion in meat and dairy products.

The U.S. shipped $1.3 billion of food products to Russia last year, according to the USDA.

The ban will undoubtedly hit certain companies hard. Shares in Marine Harvest, a Norwegian seafood producer, fell 8.3% in Oslo Thursday, while salmon farmer SalMar ASA fell 9.1%. Shares in Tyson Foods Inc., the U.S.’s biggest chicken producer, fell 1.8%.

But the ban seems likely to rebound on Russian consumers too, despite comments Wednesday by Putin urging the need to avoid that. Russia’s domestic producers are hardly in a position to replace all the items that will be lost over the next year (documented with curious delight here by state news agency Itar-Tass).

Even if imports can be substituted, they will likelier be more expensive than what they have replaced, which is in itself a development that will hit ordinary Russians, who have grown used to Italian Mozzarella cheese and Norwegian shrimp. Inflation is already running above target at 7.5% and food accounts for 29% of the basket of goods and services tracked by statistics office Rosstat.

The government claimed that the measures would be an opportunity for domestic producers, but such claims met with scorn by critics.

“Those who think sanctions will help Russian producers – remember the car industry. They’ve been ‘helping’ it with duties for 20 years,” Alexei Navalny, an opposition blogger and politician, said via his Twitter account.

Whatever else happens, there is a large chance that the sanctions could be undermined by either an unwillingness or an inability to enforce them. For example, there is little to stop Belarus–which sits between Poland and Russia–from re-exporting Polish fruit and vegetables to Russia, possibly by passing them off as its own.

Neither Belarus nor Kazakhstan, which are both in a customs union with Russia, have announced any sanctions, and Belarus in particular is in such a parlous economic state that it can ill afford to pass up opportunities to make a fast buck with such tricks. The news agency RIA Novosti reported that Russian officials would meet with their counterparts in Belarus August 12 to discuss the matter.

 

 

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