Russian Retaliation to Sanctions


The Russian government’s response to sanctions imposed by western governments as a consequence of Russian actions in Ukraine was to impose agricultural product import restrictions on its people for one year. If the western governments really wanted to hurt the Russian people, they would have done exactly what President Putin has done. Industry experts estimate that Russia imports 40 percent of its food supply. This failure to understand who benefits from trade restrictions is why some policymakers opposed Russia joining the WTO in 2012.

Exports of U.S. agricultural products to Russia in calendar 2013 as measured by USDA totaled $1.2 billion, about 0.8 percent of all U.S. agricultural exports of $144.4 billion. Russia was the 23rd largest export market in dollar terms for U.S. agricultural products. The loss of any market for foreign policy reasons is unfortunate, but this is not a key overall market for U.S. agriculture.

The impact will be felt disproportionately by a few products. In the first six months of 2014, U.S. agricultural exports totaled $573 million, with soybeans at $134 million, 23 percent of the total. Soybean exports totaled $157 million last year after being $20-40 million per year for the four years before that. Poultry meat and products were the second largest export category to Russia in the first six months of 2014 at $129 million, also 23 percent of the total. Poultry meat exports were $310 in 2013, about the same as the previous three years, but less than half of the $761 million value exported in 2009. Pork and pork products was the third largest category at $62 million, 11 percent of total exports. Pork exports were only $18 million all of last year, as the U.S. was caught in a sanitary phytosanitary (SPS) dispute that was supposed to be resolved when Russia joined the WTO. That issue was resolved earlier this year and exports resumed. Prior to 2013, pork exports were $200-275 million per year in recent years.

Tree nuts exports, mostly from California, were the fourth largest U.S. export category to Russia in the first half of 2014 at $59 million, another 10 percent of exports. They were $172 million in 2013, up steadily from $47 million in 2009. Prepared foods exports were $22 million in the first half of 2014, 4 percent of total exports. Exports were $84 million in 2013, also steadily increasing in recent years. Live animal exports from the U.S., mostly breeding animals, was the sixth largest category at only $16 million, compared to $149 million for all of 2013.   The peak year was 2012 at $267 million. The only other category higher than $10 million for the first half of 2014 was tobacco at $14.3 million.

Two other categories far down the list are representative of the uncertainties of Russian markets in recent years. Dairy product exports were only $2 million in the first half of 2014. The U.S. government could not even import U.S. made Greek yogurt for the U.S. team at the winter Olympics. Exports were $81 million in 2010, the only recent year with real market access. Beef and beef products is the other category with exports of less than $1 million in the first six months. Beef is caught in the same SPS tangle as pork. Exports were only $1.0 million in 2013, compared to $300 million in 2012 and $250 million in 2011.

The U.S. is not the only economy facing bans; they were also placed on the EU, Australia, Canada and Norway. According to the EU Commission, the EU exported $15.8 billion of agricultural products to Russia in 2013. The ban on shipping food to Russia is much bigger issue for the EU than the U.S. Reuters reported that in 2011 Russia bought 21.5 percent of EU vegetable exports and 28 percent of their fruit exports. Unless the restrictions are reduced, the U.S. will likely face increased competition from EU products in Asian markets.

Russia claims import bans are allowed under the national security clause in Article XXI of the General Agreement on Tariffs and Trade (GATT). WTO members are allowed to unilaterally decide what actions to take, but some experts argue that retaliation in response to actions by WTO members against aggression is not covered by Article XXI. If someone like the EU does file suit at the WTO, the case would likely take longer than the one year ban. Russia would not likely comply with the ruling if it lost. The situation is further complicated by some of the trade flows being stopped due to supposed SPS compliance problems.

Russian President Putin and Prime Minister Medvedev have talked about increasing domestic production, but that is not likely given the time of year and the lead time needed to arrange for processing. Russia has been using subsidies to increase pork and poultry production and perhaps can accelerate that process. If the estimates are right that Russia imports 40 percent of its food, replacing most of the banned imports with domestic production or other imports is essential.

Russia is a leader of the BRIC group of countries (Brazil, Russia, India and China). Brazil is a major exporter of soybeans, sugar, meat and fruits. Additional meat processing plants have already been approved for exports to Russia. India has become a significant exporter of grains and beef in recent years. Other countries in South America, like Argentina and Chile, could help fill some gaps. They cannot fill the seasonal fresh fruit and vegetable markets served by the EU. China may fill some of that market.

Russia wants to do all of this product replacement without causing price level change. Government agencies will be watching for speculators that try to raise market prices. All prices increased by 7.9 percent in the first half of 2014. Many food wholesalers and retailers have already raised prices.

Russia can find replacements for the basic items like meats and soybeans as suppliers shift sourcing. The EU as a source of fruits and vegetables and other consumer-oriented items is the real key to what happens in the next year. The Russian government was smart to limit the bans to only one year. Once tensions lessen some, Russia will need to reduce the length of time for many of the EU bans.

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade &Technology ( Follow us: @TruthAboutTrade on Twitter |Truth About Trade & Technology on Facebook.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

Leave a Reply