Bloomberg News

Putin Retaliates Against Sanctions With Ban on Imports

August 06, 2014

Putin Retaliates Against Sanctions With Agricultural Import Ban

A worker stands on a raised platform to harvest tomatoes from the top of the vines at a wholesale vegetable production plant in Siechnice, Poland. EU members the Netherlands, Germany and Poland are among Russia’s 15 biggest food suppliers, as is the U.S., the U.S. Department of Agriculture said in a July 31 guide for exporters, citing data from the Global Trade Atlas. Photographer: Bartek Sadowski/Bloomberg

Russia will ban billions of dollars of food imports from the U.S. and other nations in retaliation for sanctions imposed over the turmoil in Ukraine.

Russian President Vladimir Putin yesterday ordered restrictions on food and agricultural imports for one year from countries that have imposed or supported sanctions against Russia, according to the Kremlin website.

Russia is embroiled in the worst standoff with the U.S. and its allies since the Cold War over Ukraine, where government troops are cracking down on pro-Russian separatist strongholds in the east. The U.S. and the European Union targeted the Russian economy, expanding penalties last week, joined by Canada, Japan, and Switzerland, after the downing of a Malaysian Airline System Bhd. (MLYAF:US) passenger jet in Ukraine’s rebel-controlled area.

Putin has refused to bow to sanctions, aiming with food restrictions “to protect national interests,” according to the decree. He called on the government to boost domestic supplies with the help of producers and retailers and to avoid spurring food-price growth.

“Retaliating against Western companies or countries will deepen Russia’s international isolation, causing further damage to its own economy,” Laura Lucas, a spokeswoman for U.S. President Barack Obama’s national security council, said in an e-mail. “We continue to call on Russia to take immediate steps to deescalate the conflict and cease its efforts to destabilize Ukraine.”

Restricted Goods

The Russian government is drawing up a list of restricted goods. It plans to ban the import of all U.S. agricultural products, including poultry, as well as all fruit and vegetable imports from the European Union, according to a report in RIA Novosti citing Alexey Alekseenko, spokesman for Russian food safety watchdog Rosselkhoznadzor.

“The decision is not as critical as it looks at first glance,” Elena Tyurina, director of the Institute of Agrarian Marketing, said by phone in Moscow. “Many foodstuffs are imported from Latin America, Arab countries and Asia. We’ll be eating fewer apples and more bananas, oranges and kiwis.’

Russia imported $43.1 billion of food and raw agricultural materials last year. Of that, $36.9 billion came from countries outside of the former Soviet republics in the Commonwealth of Independent States, according to Federal Customs Service data.

EU Imports

EU members the Netherlands, Germany and Poland are among Russia’s 15 biggest food suppliers, as is the U.S., the U.S. Department of Agriculture said in a July 31 guide for exporters, citing data from the Global Trade Atlas.

About three-fifths of all U.S. farm exports to Russia this year have been soybeans, poultry and pork, according to USDA data. Even before the decree, Russia’s public health regulators banned some imports from EU member countries, the U.S. and Ukraine, in what those nations have called a veiled form of trade protectionism.

‘‘America’s farmers and ranchers would have been more surprised if they hadn’t announced a ban,” said Dale Moore, public policy director for the American Farm Bureau Federation, the biggest U.S. farmer group. “Russia does so regularly for seemingly small reasons, and now they have to deal with sanctions. This is a typical reaction by Russia.”

Bunge, Cargill

The U.S., the world’s biggest exporter of farm products, shipped $1.6 billion of food to Russia in 2013, or 4 percent of that country’s total imports, according to the USDA. Total farm-product exports from the U.S. will be a record $149.5 billion for the fiscal year that ends Sept. 30, the USDA said in May. The department projected sales to Russia of $1.3 billion, slightly more than the Dominican Republic in that period.

Bunge Ltd. (BG:US), the world’s biggest soybean processor, said in an e-mail that the White Plains, New-York-based company exports a small amount of soy meal to Russia and won’t be materially affected by the ban. Archer-Daniels-Midland Co. (AMD:US), Cargill Inc. and Tyson Foods Inc. (TSN:US), the top U.S. grain and meat companies, declined to comment.

While Russia is the second-biggest market for U.S. chicken, its share of export volume has fallen to 7 percent from 40 percent in the mid-1990s, according to a joint statement from the U.S.-based National Chicken Council and USDA Poultry & Egg Export Council.

“As a result, we do not expect that a Russian ban on U.S. poultry imports will have a great impact on our industry,” the groups said. “Free and fair trade –- particularly with food -– should never be used as a political bargaining chip.”

Arms Shipments

Russia’s list of banned goods will be published no later than today, said Natalya Timakova, spokeswoman for Prime Minister Dmitry Medvedev yesterday in a telephone interview, declining to elaborate. The list will be flexible, allowing for revisions in goods and timing, according to the decree.

The limitations will include vegetables, fruits, meat products, and exclude wine and baby food, the Russian newspaper Vedomosti reported, citing an unidentified government official. Some dairy products will also be restricted, the newspaper said, citing another unidentified official.

The ruble, which has weakened 9.1 percent against the dollar this year, is among the 10 worst-performing currencies, according to data compiled by Bloomberg. It depreciated 0.3 percent to 36.1775 against the greenback at 6 p.m. in Moscow.

Food Prices

Import restrictions have a “direct effect” on food prices, keeping them high despite a deceleration in the cost of fruits and vegetables, Maxim Oreshkin, head of the Finance Ministry’s strategic planning department, said Aug. 4 on its Facebook page.

Imported goods account for as much as 25 percent of retail sales in Russia, Andrey Karpov, executive director of the Retail Companies Association, said by phone. The country already provides about 90 percent of its own poultry, he said.

Inflation is the biggest challenge facing Russia, a poll published by the state-run VTsIOM research center July 10 showed. While consumer-price growth decelerated for the first time this year in July, the rate remained above the central bank’s target for the 23rd month. The central bank declined to comment on the decree.

“I can’t yet tell whether it’s a benefit or a threat,” said Dmitry Vostrikov, head of development at Russia’s food producers lobby, Rosprodsoyuz. “We’ll need to wait for a detailed list from the government.”

Tyurina said domestic producers will provide the nation with its basic food needs and Putin’s decision may act as stimulus.

To contact the reporter on this story: Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Jon Morgan, Justin Blum


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