Should Western food companies exit Russia over Ukraine war?
Russia’s invasion of Ukraine is frequently characterised as ‘Putin’s war’ by Western politicians.
Addressing the Russian population directly, British Prime Minister Boris Johnson said: “I do not believe this war is in your name.” Meanwhile, in his State of the Union Address, US President Joe Biden framed Western sanctions as targeting a corrupt Russian elite that has lined its pockets at the expense of the Russian people. “Tonight, I say to the Russian oligarchs and corrupt leaders… we are coming for your ill-begotten gains,” he warned.
The sanction package put together by the US, EU and Western allies has gone deeper and further than many would have predicted at the outset of the crisis.
Over the last couple of weeks, we’ve seen an economic war unleashed against Russia. Wide-ranging sanctions have included flight bans on Russian planes, asset seizures and – most significantly – the exclusion of Russian banks from SWIFT, the communications system essential to allow the international transfer of funds. These measures would seem to be working, driving the value of the Rouble to record lows and prompting Fitch to predict Russia will default on its loans ‘imminently’.
Food – alongside medicine – has long been a bone of contention in sanctions policy. In the US Treasury’s 2021 Sanctions Review, the administration examined how to ‘modernise’ sanctions to mitigate unintended humanitarian impacts. But, when it comes to sanctions, it can be difficult to determine what harms are truly unintended. Economic sanctions have been described as an ‘indiscriminate weapon’ – and one demonstrated to impact the health and nutrition of those most vulnerable in society most, disproportionately affecting women and children.
So, what impact will the raft of sanctions have on access to nutrition for Russians? And, even if the country isn’t hit by systemic shortages, will food remain affordable for ordinary people?
The now well-understood control the Russian state exerts over the media – shutting down independent media outlets and criminalising journalism in the wake of the attack on Ukraine – means that it is difficult to answer these questions with any degree of certainty. Contacts at Russian food manufacturers and retailers did not immediately respond to requests for comment from FoodNavigator. But Russian language regional reports suggest local government administrations are taking action to control food prices.
Primorsky food producers have reportedly given assurances that they don’t plan to hike prices, according to Russian news agency REGNUM. Meanwhile, NGS42.RU claimed authorities in the Kemerovo region have placed 24 items, including rye bread and vegetable oils, on a list to keep availability and prices under ‘constant control’.
Whether this ‘control’ of pricing can be maintained remains to be seen.
Western food brands in Russia walk a fine line
As Western allies continue to impose economic sanctions on Russia, the withdrawal of iconic Western brands over the country’s invasion of Ukraine is also gathering momentum. From Adidas and Apple to Netflix, Lego and Disney, corporate America and Europe are shutting shop in a show of collective condemnation.
But food companies face a moral dilemma because of the critical role they play in access to nutrition -- a basic human right.
“For foreign food manufacturers and traders with operations in Russia, the situation is complex,” according to ING’s Thijs Geijer, a Senior Economist covering food and agri sectors.
From a business perspective, Geijer observed that these companies are bracing for various head- and tailwinds: “On the one hand, these companies are facing the impact of sanctions and a deteriorating economic situation. On the other, there is increased demand for products sourced from or produced in Russia because food imports have decreased.”
They are also having to contend with pressure from consumers in their domestic markets and the reputational risks associated with continuing to do business in the country. As a consequence, the number of F&B businesses that have, to greater or lesser extent, frozen their operations in Russia continues to rise.
The Coca Cola Co. announced this week that it is suspending its operations in the market.
In a press statement, the company said: "Our hearts are with the people who are enduring unconscionable effects from these tragic events in Ukraine. We will continue to monitor and assess the situation as circumstances evolve."
This expression of solidarity with Ukraine echoed the stand taken by other US corporates. McDonald’s decided to close its more than 800 outlets in the country and Starbucks confirmed it is shuttering its 130 stores.
But it is worth keeping in mind that you couldn’t describe a coke, a latte or even a Big Mac as essential nutrition. What of companies that supply everyday foods crucial to the physical wellbeing of Russia's civilian population?
PepsiCo’s response illustrates this dilemma. Reacting to the ‘horrific events’ unfolding in Ukraine, the company said it is suspending the sale of all its global beverage brands in Russia. However, it’s local dairy business, Wimm-Bill-Dann, will continue to operate.
“As a food and beverage company, now more than ever we must stay true to the humanitarian aspect of our business. That means we have a responsibility to continue to offer our other products in Russia, including daily essentials such as milk and other dairy offerings, baby formula and baby food. By continuing to operate, we will also continue to support the livelihoods of our 20,000 Russian associates and the 40,000 Russian agricultural workers in our supply chain as they face significant challenges and uncertainty ahead,” the company said.
French dairy giant Danone has taken a similar line. The company revealed it will suspend all investment and advertising in Russia but will continue to supply local products to the population. “We have decided to… currently maintain our production and distribution of fresh dairy products and infant nutrition to still meet the essential food needs of the local population," Danone General Secretary Laurent Sacchi said in a statement.
To some, these explanations look like a cynical smokescreen to protect sales in Russia. As UK daily newspaper The Telegraph opinioned, ‘corporate bosses’ sticking in Russia to supply ‘humanitarian yoghurt’ should ‘spare us their feeble excuses’.
Danone generates around 5% of its group sales in Russia, Stifel analysis suggest. For PepsiCo, Russia is its third largest source of revenue after the US and Mexico. As reports claim PepsiCo is considering options including a possible write-down of its Russian business, mounting scepticism about the motivations of big food to continue operating in Russia should not be unexpected.
But this attitude does underestimate the very serious responsibility that food companies have to the populations they serve around the world.
As a spokesperson for Nestlé told this publication: “Throughout our more than 150-year history, we have never deviated from our mission: To provide a reliable supply of essential food products to people wherever we operate.”
Like many of its peers, Nestlé has frozen advertising and capital investment in Russia but continues to supply food and drink products.
“As a food company and employer, we have a responsibility toward the people in Russia and our more than 7,000 employees - most of whom are locals. We will continue to ensure a reliable supply of safe and essential food products to the local people in the country. Our diverse range of essential food products includes baby food and breakfast cereals. We have consistently stayed the course —also during difficult times— to serve the local people who need it the most.”
Nestlé is nevertheless cognisant of the ‘unimaginable human suffering’ the ‘act of war in Ukraine’ is resulting in. In Ukraine and neighbouring countries, the company expects to reach CHF3m in food donations ‘in the coming days’ and it is supporting its 5,800 employees in the country with emergency food packages, advance salary payments, and administrative assistance and psychological support to help those who have already left or wish to leave Ukraine.
For clothes manufacturers, technology giants and toy makers, depriving Russian citizens of access to the products they have become accustomed to at the cost of their own bottom lines is a principled stand. For the food sector, keeping production running in the face of difficult market conditions and criticism at home is an equally ethical decision - and one that should not be read as tacit approval of the Russian regime.