Russia on Thursday began rolling out a sweeping embargo on food imports from the United States, members of the European Union and allied nations in response to those countries’ economic sanctions for Moscow’s aggressiveness in Ukraine.
Prime Minister Dmitry Medvedev signed an order banning imports of food and agricultural crops from the U.S., the EU, Australia, Canada and Norway. He told a meeting of government officials that products covered by the ban would include meat and poultry, fish, dairy products, fruit and vegetables. Imports of infant food would not be prohibited, he said.
Medvedev’s order put flesh on the bones of a decree issued by President Vladimir Putin late Wednesday banning or restricting food imports from countries that have imposed sanctions against Russia in connection with the Ukraine crisis.
The U.S. and the European Union stepped up punitive measures against Russia last week in an attempt to force the Kremlin to withdraw support for pro-Moscow separatists in southeastern Ukraine.
Medvedev said the tightening of Western sanctions had left Russia no choice but to strike back with measures that would remain in place for one year unless relations improved.
“Right up to the last minute we hoped that our foreign partners would understand that sanctions were a dead end. But the situation turned out in such a way that we had to take retaliatory measures,” Medvedev said.
“If our partners demonstrate a constructive approach, the government is ready to review the time frame of the embargo,” he said.
The Obama administration considers the Russian ban a direct response to several rounds of economic sanctions against Russian individuals, banks, energy companies and weapons suppliers.
Administration officials dismissed the move Thursday as much more harmful to Russia than to the U.S. or Europe.
The move amounts to a “cruel irony” that will limit Russians’ access to a substantial part of their food supply, said a senior U.S. Treasury Department official.
About “40% of the food source on an annual basis comes from imports,” said David S. Cohen, Treasury undersecretary for terrorism and financial intelligence. “This goes directly after the Russian people’s access to food.”
“We don’t do that,” said Cohen, noting that U.S. policy has generally avoided targeting food, medicine or medical devices in imposing sanctions on foreign governments.
The criticism came in a morning conference call with reporters called by Cohen and Jason Furman, President Obama’s closest economic advisor.
The U.S. has a “large, strong, well-diversified economy,” said Furman, while the Russian economy “is a much smaller, weaker, more poorly diversified economy.”
It’s estimated that the Russian sanctions will affect about one-tenth of the country’s $43 billion in annual food imports, causing difficulties for foreign suppliers and domestic consumers alike.
EU fruit and vegetable growers, who supply about $2.7 billion worth of produce to Russia each year, are expected to be particularly hard hit, but the pain will be spread unevenly across the 28-nation trading bloc, analysts said.
“For the larger EU economies — Germany included — the costs are bearable. For some of the smaller EU economies the pain will be more acute,” RBS Capital said in a research note.
For the U.S., the Russian embargo is expected to shut the door on a market worth about $1.3 billion a year. A White House spokesman on Wednesday denounced the Russian sanctions, saying the move would “deepen Russia’s international isolation, causing further damage to its own economy.”
Russian officials said the embargo would drive the revival of domestic agriculture and promote the Kremlin’s goal for the country to become self-sufficient in food production.
BAN OFFERS OPPORTUNITY TO BRAZIL
Russia’s ban on many western food products presents a massive opportunity for meat and grain exports from agricultural powerhouse Brazil and a smaller one for its Latin American neighbors.
Around 90 new meat plants in Brazil were immediately approved to export beef, chicken and pork to Russia and the South American nation is already working to increase its exports of corn and soybeans sales to Russian buyers, Brazil’s secretary of agricultural policy, Seneri Paludo, said on Thursday.
Brazil’s enthusiasm for Russia comes as Moscow’s relations with the rest of the West are at Cold War-era lows. Russia banned all imports of U.S. food products and certain goods from the European Union, Australia, Canada and Norway after President Vladimir Putin ordered retaliation for sanctions against Moscow over the Ukraine crisis.
In a further snub to Washington, U.S. intelligence contractor Edward Snowden was granted a three-year residence permit in Russia, his lawyer said on Thursday. Brazil’s relations with Washington also cooled after revelations last year that the United States spied on President Dilma Rousseff’s personal e-mails.
Russia’s government met with various Latin American embassies on Wednesday to discuss the possibility of looking for more food providers in the wake of the its ban on many western products, the head of Chile’s Direcon trade body said on Thursday.
As the world’s top exporter of beef, chicken and soybeans, and one of the only countries in the world with land available to ramp up agricultural production, Brazil is a clear winner from the embargo. But smaller countries like Argentina and Chile could benefit, too.
“Russia has huge potential as a consumer of agricultural commodities,” Paludo told journalists in Brasilia, comparing the “window” opened by the embargo to the “revolution” that Brazil’s exports experienced when China’s commodities market opened a decade ago.
Brazil’s beef association Abiec said 58 of the 90 plants were for beef – 27 for fresh meat, and 31 for processed. Brazilian food companies, like chicken exporter BRF SA and meat packer JBS SA, stand to benefit. The companies did not immediately respond to requests for comment.
JBS has businesses in the United States and Mexico as well as Brazil but it does not sell U.S. beef to Russia.
Beef products topped Brazil’s exports to Russia in the first six months of the year, Brazilian trade data showed. Brazil ships the vast majority of its soybeans to China and sent just 352,849 tonnes of soy to Russia between January and June.
The president of Brazil’s animal protein association ABPA said on Wednesday Brazil could cover U.S. chicken exports to Russia and would increase exports by 150,000 tonnes per year, though increasing pork exports would be harder.
Hong Kong replaced Russia as the top buyer of Brazilian beef in 2013 but beef association Abiec said exports to Russia “were certain to rise” in the second half of the year.
Brazil’s other agricultural exports to Russia include sugar, coffee, orange juice and bananas. In 2013, agricultural exports to Russia were worth $2.72 billion.
MOSCOW STOCKING UP
In Moscow on Thursday, the middle and upper classes browsed through aisles neatly stacked with French cheeses, Australian wines and Spanish cured meats, in what may mark a last chance to stock up on all luxury goods except caviar for at least a year while the import ban lasts.
Chile, a possible alternative for European fruit, exported $643 million of goods to Russia in 2013, mainly processed foods, salmon and fruit, according to Direcon data. However, seasonal variations – the southern hemisphere is in mid-winter – may make full replacement tricky, fruit exporters said.
Chilean salmon producers are “prepared to satisfy the increase in demand in this market, or any other, in particular Russia,” said Felipe Manterola, head of leading industry group SalmonChile.
Sergio Mendes, director for Brazil’s cereal exporter’s association Anec, said Brazil would need “a good bilateral agreement” with Russia before grain exporting companies would ship significant quantities of soy and corn there.
“The main barriers are relating to crop pests and bureaucracy,” he told Reuters. Only a few specialized companies were currently exporting soy to Russia, Mendes said, though he acknowledged that Brazil is perhaps the only country that could substantially increase production if Russia’s demand peaks.
Grain traders in Argentina said Brazil would benefit most from the food bans, though there may be a residual impact for Argentine commodities if Brazilian supplies aren’t enough to satisfy Russia’s need for grains, which they said was unlikely.
“The biggest opportunities will likely be for oils and meals rather than grains, but we think that Russia will turn to Brazil as a supplier first, given that Brazil is part of BRICS,” said one trader, referring to the economic bloc that also includes Russia, India, China and South Africa.
Russia has only bought small amounts of Argentine soymeal and soybeans in recent years, according to data from the agriculture ministry.
Los Angeles Times and Reuters contributed.
