Three months on, we investigate what impact this ban might have on meat suppliers to Russia from these countries, and any other long-term changes this might cause.
First of all, how surprised should we be that Russia has put this ban in place? Over the past few years, Rosselkhoznadzor, Russia’s veterinary service, has put in place countless import restrictions on a wide range of food products. Prior to the current sanctions, Europe was already banned from exporting pork to Russia, due to African Swine Fever in Eastern Europe.
Russia had also imposed restrictions on the US, and neighbouring countries, due to porcine epidemic diarrhoea virus (PEDv). This follows on from Russia’s ban, albeit some time ago now, on the import of US poultry – the so called ‘Bush Legs’ incident. It’s what the Russians do. If this were an Olympic sport - Russia would win gold, silver and bronze.
While at first, US and EU suppliers might panic at the thought of the loss of the Russian market, for some categories it may not actually be as bad as first thought. As an example, direct beef exports from the US, only accounted for 7% of Russia’s total bovine imports, with the EU supply also quite marginal. Pork is an area where, in the past, the US, Canada and the EU have been major suppliers, but all of these countries were already under import restrictions since the start of 2014, so the impact of this was already felt earlier in the year.
The ban on the poultry category, however, will cause an impact on a number of suppliers, particularly the US, and also some of the EU countries. In 2012/13, the US supplied 50% of Russia’s poultry meat, and the EU 15%. The sheep meat category had also previously been dominated by Australia, at 44% of total imports, and they, too, are included in the ban. However, overall lamb imports into Russia are modest.
In total, the countries on which Russia has placed an embargo, supplied over 1 million tonnes of meat products in 2012. This means that this volume of meat, previously destined for Russia, is now looking for new markets, which, in most cases, already have established suppliers. The result of this is oversupply and downward pressure in the global market. This is evidenced in the FAO Food Price Index, which has dropped from 204 points in July to 192 points in October.
While a negative impact is starting to be felt by many international suppliers, there are still some opportunities to be had. For every loser, there is always a potential winner. This is especially the case for South American suppliers, and New Zealand. In the past, these countries have lagged behind the US, the EU and Australia in terms of market supply to Russia, but now have the opportunity to increase exports and build a greater market share. Ask them about the impact of a Russian ban and they are likely to see it – albeit not in a way they might have chosen or foreseen – as a positive. Turkey, already a key supplier to Russia for its own produce has also become a regional hub for others importing and exporting food to Russia.
The reality, though, is that the Russian ban is not really a benefit for anyone, including Russia itself. While the ban is possibly good news for Russia’s domestic producers, who are already struggling to keep pace with demand, this has come at a cost to the consumer. With initial plans to use South America and New Zealand as replacement suppliers, the truth is that this is taking longer to happen. In the short term, Russia is witnessing a shortage of some products and a rise in food prices, with St Petersburg reporting a 10% increase in the last few weeks alone, with some meat products up by 26% and fish by some 40%.
In the short and long term, Russia will have to strengthen its trade relationships with its existing suppliers in South America, while also looking to create new ones. This may have a lasting impact when these sanctions are removed. It will not be totally straightforward for previous EU, US and Australian suppliers to recommence exports, as before.
It is not just those sanctioned countries that are feeling the negative impact. Russia’s economy per se is not in a good place, with a GDP growth forecast for 2014 of just 0.5% according to PwC, and the World Bank describing the country’s economic situation as "near stagnation".
The impact of Russia’s decision is further hindering the global economy, which is currently battling a number of major issues. China’s economy is going through a difficult time at the moment, growing at its slowest pace since the financial crisis. West Africa is struggling with Ebola. There is also still much macro economic concern in the EU. Then, to round this all off, the conflicts in the Middle East, are adding extra strain to the economies of those countries involved.
In conclusion, the direct impact of Russian sanctions on US, EU and Australian exports is 1 million tonnes of product looking for new markets. That’s a lot of meat. Poultry is the hardest-hit sector, but there are also many wider knock-on effects. The remaining (at least) nine months of these sanctions will make it hard for many meat export countries – not just those included in the ban, but also on Russia itself. In all probability, a Russian import ban is the last thing needed for the world’s agri food economy and, indeed, the wider macro economic situation.
• Elizabeth Bonsall is a consultant with Promar International, the value chain consulting arm of Genus plc. She has carried out a wide range of consulting assignments in the international meat sector and can be contacted at the following email address: Ryvmnorgu.firstname.lastname@example.org