Russia: Food Ban Hurts Both Ways

Russia

Russia’s ban on food products hurts both ways. It is difficult for the EU and it hurts Russian consumers at home. Although perhaps necessary to challenge Russia’s behavior regarding Ukraine, the food ban strikes at the heart of the weakest EU members. Many of the newer entries to the EU are former Soviet republics, and much of their economies are still driven by agriculture. A prime example is Poland, one of the first and hardest hit due to proximity of the border, and by the sheer volume of goods supplied to Russia.

Already the EU is questioning the wisdom of the sanctions, and whether they have done much to stop Russia from interfering with Ukraine. This view is shared by several EU countries, and last week Viktor Orban, prime minister of Hungary, said that with sanctions the EU is “shooting itself in the foot.”

Finland feels the same way, and last Friday the Finnish president, Sauli Niinisto, met with Russian president Vladimir Putin in Sochi, site of the recent winter Olympic games. The two men spoke of how their economies are intertwined. Finnish business interests have made large investments in Russia. They want to remain business partners with Russia, but the current EU sanctions are clouding those relationships.

Niinisto expressed his desire to see an end to the conflict in Ukraine, and therein is the heart of the issue: the sanctions are hurting the Europeans as much as the Russians. Finland and Ukraine have enjoyed healthy trade partnerships, but the war in the east of Ukraine has severely strained the Ukrainian economy to the breaking point.

Russia
A significant percentage of сметана (sour cream) in Russia is imported from Finland.

The Moscow Times reported that almost a third of Finland’s and Lithuania’s food exports are bound for Russia. Latvia exported some 25 percent of its farm output to Russia in 2013. The current ban on export to Russia includes fruit, vegetables, meat, fish, cheese and other dairy products. Finland is a major supper of milk, yogurt and eggs to Russia. According to the report, Finnish company Valio ships half of its dairy products to Russia.

At first, most Russians shrugged off the idea of missing products from market shelves. Except for the sales of natural energy resources, Russia is still not a producing country. Many families have dachas, small summer homes in the country, and traditionally grow produce in dacha plots. But in the modern world, a dacha plot is not designed to fully feed a family.

Putin ordered foreign products to be removed from shelves, and that hurt business owners who were counting on income from those products, many which simply cannot be returned. With laws on the books banning the sale of such products, the Russian business owner is hurt by both the loss of income, and the new challenge of finding replacement food products for hungry shoppers.

Greek media has reported that several thousand trucks loaded with fresh fruit bound for Russia has been turned away and forced to return to home instead. Across Europe stores are slashing the prices of fruits and vegetables, a temporary boon to local consumers, but at losses to markets and the farmers that grow the produce.

Ironically, it was just last month that the EU passed the most strict sanctions yet on exports to Russia. Less than a month later it seems as if some are ready to quit. It is further proof that when it comes to Russia, the food ban hurts both ways.

By Jim Hanemaayer

Sources:

The Moscow Times
Reuters
Bloomberg

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