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Russia: Putin flexes muscle at USA & The West

Russian President: Vladmir Putin

Russian President: Vladmir Putin

Reuters.

Russia has threatened to completely bar all US agricultural products from its market and slap an import ban on all fruit and vegetables from the EU, indicating that Moscow has chosen a hardline response to western sanctions over the Ukraine crisis.

“Everything [in the agricultural sector] that is produced and imported to Russia from the United States will be banned,” Aleksei Alekseenko, an aide to the regulator in charge of food inspections, told Ria Novosti, the state news agency, late on Wednesday night. “Fruit and vegetables from the European Union will also be under a full ban,” Ria quoted him as saying.

If implemented, the broad bans could hurt European and American agricultural and food exporters hard, but also have the potential to drive up already high inflation in Russia and even trigger shortages of some goods.

According to IHS, Russia is the largest export market for fruit and vegetables from the EU, at €2bn a year, and the second-largest export market for American poultry.

Moscow is due to announce on Friday a blacklist detailing which foreign agricultural goods and food products will be banned under an order issued by President Vladimir Putin earlier on Thursday.

Hitting back at western sanctions over the Ukraine crisis, Mr Putin issued a decree that said imports of “certain kinds of agricultural produce and raw materials and food products originating in countries which have decided to impose sanctions in relation to Russian persons or entities or joined such a decision” would be “banned or limited.”

In theory, that order already allowed Moscow to ban all agricultural and food products from the US, the EU, Canada, Japan and Australia – a scenario economists say could do significant damage to agricultural-exporting nations.

Russia imports more than 40 per cent of its food and the country’s retailers say a quick switch to domestic sources is impossible. The central bank and the parts of the government in charge of economic policy have also argued that broad food import bans could drive up inflation, which stood at 7.9 per cent in the first half of the year.

The Russian cabinet is expected to approve details of the ban on Thursday. The Kremlin said the government would prevent a spike in food prices and would start “real-time monitoring” of commodity markets.

The decree will allow Moscow to vastly expand its curbs on agricultural imports, a measure it has often used to show its displeasure with trading partners.

Over the past two weeks alone, the Russian government’s veterinary and phytosanitary regulator and its consumer rights watchdog have banned imports of Romanian beef, Polish fruit and vegetables, Latvian pork, Ukrainian dairy products, cereals and juice, and plant products from Moldova. On top of that, individual shipments of Latvian milk powder and fish, Ukrainian cheese and American frozen shrimp have been turned back.

Poles have responded with typical bravado to Russia’s import ban on its fruit. The Puls Biznesu newspaper kicked-off its campaign to support homegrown apples with an online editorial entitled: “Stand up to Putin: eat apples, drink cider”.

Despite the campaign to increase domestic apple consumption, Poles – who last year ate around 600,000 tonnes of apples – would have to more than double that number to swallow the 677,000 tonnes sold to Russia. The economy ministry has estimated that the Russian embargo could cost Poland 0.6 per cent of GDP. Agriculture currently accounts for 3.8 per cent of GDP.

Import curbs have been aggressively expanded since the EU and US blamed pro-Russian rebels for shooting down Malaysia Airlines Flight MH17 over eastern Ukraine. Under the new decree, Moscow will no longer need to justify food import bans with hygiene violations.

Pro-Moscow separatists in eastern Ukraine have escalated the political turmoil that threatens to tear the country apart

The fallout from restrictions on agricultural product imports to Russia could be widely felt. According to IHS, Russia is the largest export market for fruit and vegetables from the EU, at €2bn a year, and the second-largest export market for American poultry.

Russia accounts for 7 per cent of US poultry exports, worth $303m a year but down from 40 per cent two decades ago, trade groups said.

Economic experts in Moscow warned the Kremlin would have to use its favourite weapon sparingly if it did not want sudden price rises or shortages to shake the population out of a nationalist euphoria it has promoted during the crisis.

“Import bans on food hygiene grounds are very much the government’s preferred instrument because they want to occupy the economic moral high ground – they have criticised the western sanctions as a violation of free trade rules, and with this kind of non-tariff trade barrier you can easily argue that you’re conforming with WTO rules and not engaging in tit-for-tat retaliation,” says Chris Weafer, a partner at Macro-Advisory, a Moscow-based consultancy.

“But they have to pay attention not to cause another spike in food inflation – that could shatter people’s belief in the government’s line that sanctions are no big deal.”

Mr Weafer said a ban on pork imports from the EU earlier this year was one of the main reasons for a jump in food prices which drove up inflation to the 7.9 per cent level.

Price rises also illustrate Russian difficulties in substituting imports. With vast areas of arable land, it has the potential to be a net food exporter but the lack of policies fostering investment in agriculture ever since the collapse of the Soviet Union has left the sector fragmented, under-equipped and financially weak.

Magnit, Russia’s largest food retailer, said there was little scope for replacing Polish apples with Russian ones because domestic suppliers lacked the storage and logistics facilities for bringing theirs to market across the vast country. “Consumers are likely to opt for calorie substitution – that means they’ll eat more bananas and pears when the price of apples goes up,” said Timothy Post, director of investor relations at Magnit.

The retailer has already invested heavily in greenhouses for cucumbers and tomatoes and its own banana-ripening equipment. It is also planning to invest in domestic apple storage and logistics.

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