Source – Silk Road Reporters
By John C.K. Daly
Date – 22 Dec 2014
Website – www.silkroadreporters.com
Since Russia’s annexation of Crimea in March, Western nations have imposed sanctions on Russia, including on its financial and energy sectors, as well as on a number of Russian nationals in President Vladimir Putin’s inner circle. In response, on Aug. 6 Putin imposed year-long food bans on the United States, European Union member states, Australia, Canada and Norway. Russia has also banned the transit of agricultural goods from Belarus and Kazakhstan following its embargo on EU food imports.
From the $43 billion of agricultural products Russia purchased abroad in 2013, $25 billion are now banned. According to Russian statistics, imports accounted for about 40 percent of household spending on food.
For the older Russian consumers this echoes memories of empty Soviet supermarkets, while the ban will likely spur inflation, currently hovering at about 7 percent this year.
Russia imports 13 percent of its chicken, more than 60 percent of its beef, more than 30 percent of its pork, and about 50 percent of other meats. As for Russian imports of milk products, the rate is about 60 percent. The ban will have a substantial impact on European businesses trading with Russian companies, as Russia is Europe’s second-largest market for food and drink.
Russia has been scrambled to source replacement food –one of the most foreign to Russian culinary traditions is that in Oct. Russia’s food safety Rospotrebnadzor (Federal Service for Veterinary and Phytosanitary Surveillance) agency improved the import of Philippines crocodile meat. In early Dec., after months of discussion and inspections of plants, Russia also decided to import buffalo meat from India.
Closer to home in the post-Soviet space, Russia is seeking increased imports from the Caucasus and Central Asia (CCA) former Soviet republics of Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. On Aug. 9 during a TV interview Russian Agriculture Minister Nikolai Fedorov said, “Prospective countries for us as concerns supplies of fruits and vegetables include Azerbaijan, Uzbekistan, Armenia, Tajikistan, and to some extent Kyrgyzstan.”
Seeking to downplay the effects of the ban Fedorov added, “Last year we exported 2 million tons of fish products, while imports were just under 1 million. Our domestic fish products have huge potential; we just need to agree with trading networks to redirect export flows for domestic consumption.”
In the Caucasus, Armenia already sends a fifth of its exports to Russia, providing crucial revenue for its balance of payments deficit, a massive 10 percent of GDP.
Armenia’s other fiscal mainstay is remittances, of which 80 percent flow from Russia. In 2007 Russia banned import of some food products from Armenia after reported cases of African swine fever. Two years later Moscow lifted its ban on Armenian fish and fish products and in 2010 lifted restrictions on milk and dairy products. The sanctions have worked to Armenia’s favor, as on Nov. 12 Armenian meat producing companies have been allowed to resume export of their products to Russia. Armenia’s State Food Safety Service chief veterinary inspector Hovhannes Mkrtchyan told a press conference, “Armenian producers will be able to export meat products made of lamb, pork, beef and chicken, with no restrictions on raw materials – local or imported – except for raw materials from countries that are in the list of Russian sanctions.”
While Georgian-Russian relations have been strained ever since their five-day war in August 2008 and even though Georgia currently has no diplomatic relations with Russia, Georgian authorities did not join the sanctions against Russia and expressed a desire to significantly increase their food supplies to the Russian market. As a result, beginning on Oct. 14, Georgia expanded its fish, meat, honey, fruits, vegetables, nuts and wine exports to Russia, according to Georgian National Agency for Food head Zurab Chekurashvili.
Azerbaijan also sees opportunities to increase its agricultural exports to Russia. According to the Export and Investment Promotion Fund in Azerbaijan (AZPROMO) President Rufat Mammadov, Azeri agricultural exports have great potential for growth, commenting, “Last year Azerbaijan produced about 250,000 tons of apples, of which only 37,000 tons were delivered to the Russian market. The same can be said about pears: 40,000 tons was produced — and only 168 tons has been sold to Russia, and peaches (27,000 tons produced, 8,000 tons exported to Russia), and tangerines (30, 000 tons produced, 1,000 tons exported to Russia).” Mammadov further noted that Azerbaijan produces about one million tons of potatoes annually, but in 2013 exported only 54,000 tons to Russia while last year Azerbaijan grew 467,000 tons of tomatoes, of which only 46,000 tons were exported to Russia.
Farther east, the issue is more complex. Kazakhstan’s current agricultural base is unable to rise to the occasion of supplying Russia with significant food exports. Yerlen Badykhan, chief analyst of Kazakhstan’s Agency for Studying Profitability of Investments (ASPI) noted bluntly, “Kazakhstan for now can’t even provide itself with food. I am sure that the mutual economic sanctions imposed by the West and Russia will have an impact on Kazakhstan. … First of all, our capability to conquer or at least increase our presence on the Russian market is very dubious, even compared with Belarus, which already has serious manufacturing and export capacities in the fruit, vegetable and dairy sectors. Frankly speaking, so far, for many objective and subjective reasons Kazakhstan has not been able to meet even its own need for food.”
The Kazakh Agriculture Ministry is more cautiously optimistic, noting, “As is known, Russia has introduced an embargo on imports of meat, fish, dairy products, vegetables, fruit, sausages and some other kinds of food from the USA and EU. We produce all these products, but mainly for internal consumption. Until now Kazakh food exports have been limited in connection with the Russian market being saturated with food stuffs, including from the USA and EU countries. However, this factor is being removed now and our producers can increase production and increase exports to Russia.”
Russia already takes 15 percent of Kyrgyz exports, but Kyrgyz Prime Minister Joomart Otorbayev sees Russian sanctions as an opportunity to increase agricultural exports, noting shortly after sanctions were announced, “A huge market is about to open. It is necessary to prepare as many high-quality products as possible in order to be ready to start to exporting them to the Russian Federation,” with the Kyrgyz Agriculture Ministry estimating that the country could send Russia up to 200,000 tons of agricultural produce annually.
Tajikistan also sees possibilities in increasing food exports to Russia. Less than a week after Putin announced sanctions, Tajikistan’s Agriculture Ministry announced that it could quintuple its fruit and vegetable exports to Russia and was preparing a proposal for the Russian government. On Aug. 13 Tajik Agriculture Minister Narzullo Dadabayev told journalists, “Tajikistan is prepared to increase fruit and vegetable exports to Russia fivefold.” According to Tajik Agriculture Ministry data, in Jan.-June 2014, the country harvested 350,000 tons of vegetables, 55,000 tons of fruit and 130,000 tons of melons and gourds. For the same period, Tajik exports to Russia totaled $50 million, a 13.4 rise more than in the same period in 2013, while total bilateral trade between the two countries rose 73.4 percent to $756.6 million, with Russia accounting for 26.2 percent of Tajikistan’s foreign trade.
As for Turkmenistan, Russia can expect little assistance there. According to a European Bank for Reconstruction and Development (EBRD) study, Turkmenistan produces few vegetables, in part because of its arid climate but mainly due to the competition with staple crops for cultivatable land, recently growing about 620 thousand tons of vegetables, compared to more than 6 million tons in Uzbekistan and small quantities of fruits – 150 thousand tons as compared to 2.2 million tons in Uzbekistan. Turkmenistan has limited agricultural trade with the rest of the world, as it does not belong to any existing international or regional multilateral trade system and is also the only country of the Former Soviet Union that has not applied for membership in the World Trade Organization (WTO).
Furthermore, while Turkmenistan had a positive agrifood trade balance in 2004-2007, owing to the surge in global food prices in 2007-2008, the country became a net importer in 2008 and has remained so ever since. Far from being able to supply the Russian market, Kazakhstan, Russian and Ukraine are the main exporters of food and agricultural products to Turkmenistan, supplying everything from wheat, flour, beverages and confectionary products to tobacco and sugar.
Russia is also looking to Uzbekistan to diversify its food imports. According to the Asian Development Bank, 25 percent of Uzbek exports go to Russia. Russian President Vladimir Putin visited Tashkent on Dec.10, where his discussions with Uzbek President Islam Karimov included prospects for boosting Uzbek agricultural exports to Russia. Putin presidential aide Iuri Ushakov said, “The work in this sphere has been carried out for several months.” The previous month, Russia and Uzbekistan decided to implement a joint project for creating of small fruit and vegetable processing facilities in Uzbekistan for exports to Russia.
All these sectoral shifts will require time and increased investments. In the interim, the Russian government sees the food import bans as an opportunity to reform Russian agriculture and make it more efficient and able to fulfill market demands.
On Aug. 12 Russian Prime Minister Dmitry Medvedev ordered large-scale adjustments to Russia’s food program aimed at breaking reliance on imports across a range of agricultural sectors, with reforms through 2020 being adjusted to ensure that Russia can not only feed itself, but also supply food abroad, naming meat, dairy and horticulture as priority areas for development.
Russia’s shift to retaliatory sanctions shifts its battleground with the West over its Ukrainian policies from its strengths to its weak point – the economy. The fact remains that Russia’s GDP is just 6 percent of NATO’s and it was running into economic trouble even before the current crisis over Ukraine, compounded by record-low energy prices. Accordingly, the shift in Russian food imports from countries imposing sanctions to former Soviet states, while it may produce opportunities for CCA nations, will not occur immediately, with the end result that Russian consumers in the short term will pay higher prices for a blander diet as a consequence of their foreign policy, despite the eagerness of fellow CIS members to fill the dietary gap.