Embargo, overview

Discussion in 'The Russian Economy' started by PCO VolgaTrader, Aug 13, 2014.

  1. PCO VolgaTrader

    PCO VolgaTrader Collegiate Registrar (14th class)

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    For the record, an excerpt from one of my press releases.

    KEEPING RUSSIAN FOOD IMPORTERS IN BUSINESS

    Small and middle sized Russian food importers are in danger of going out of business because they lack the capacity to find replacements for EU suppliers quickly. In response to US sanctions on Russian banks, including Rosselkhozbank, the main agricultural bank, Russia has banned the import of all foods from the USA, Canada and Australia as well as partially banning imports from the EU. The broad classes of banned items from the EU are dairy products, fruit, meat, fish & shell fish and vegetables. The share of the Russian market involved is quite substantial. The table shows the share of the Russian market supplied by some of the banned products, according to the Russian Ministry of Agriculture.

    Product

    Share %

    Cheese

    30.1

    Fruit and berries

    14.7

    Fish

    13.3

    Pork

    13.2

    Poultry

    7.9

    Vegetables

    5.8

    This is a huge amount of food. In the case of cheese, for example, EU exports to Russia in 2013 were valued at a Billion Euro and weighed quarter of a million tonnes (EU figures). Replacing it will require prompt action and good international networks. Particularly at risk are middle sized Russian food importers who do not have an international network of buying agents. Perhaps they have only one or two trusted suppliers in the EU. Without new suppliers they will go out of business.
    Carlo likes this.
  2. Carlo

    Carlo Ship Secretary (11th class)

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    Thanks for the information. It seems that Russia is acting fast, already trying to find replacements, specially in Latin America. Argentina, for example, is a big producer of many products typical of temperate/mediterranean climates, has a very developed food industry and is in dire need of strong currency, so it can be a good option to replace EU imports. It seems that the EU is already trying to "convince" Latin American countries not to sign new export contracts with Russia, but I doubt they will succeed.
  3. PCO VolgaTrader

    PCO VolgaTrader Collegiate Registrar (14th class)

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    Carlo,

    It's not quite so easy. My firm offers business development services to companies that want to export to Russia or invest in Russia. We have a food industry practice. I have agents in 9 countries now looking for companies that want to take advantage of this opportunity. In fact, there is not a lot of enthusiasm to export to Russia. Firstly, these are all products where Russia has applied very strong protectionist measures, such as overzealous inspection standards and very high rates of duty. (despite 12 years of such protection Russian production remains inadequate by many measures). Not only this, but the protectionist measures have been very unstable, sometimes directed against the EU, another time against Brazil or the US. Russia will still be protectionist after these sanctions have gone. Anti-Ukrainian protectionist measures by Russia were the trigger for the whole EuroMaidan mess in the first place.

    Another problem is payment. The Turks, in particular, object that Russian buyers don't pay. The risk of fraud is seen to be very high. With the financial sanctions against Russia, there is also a concern that the banking system won't work. This is a false concern, Iran continues to pay foreign suppliers. It costs the Iranian importer a little more, that's all (from the exporter's point of view, for the Iranian housewife it's another story). Anyway, this can be tested by payment in advance, at least of a deposit but all this now needs to be explained to each potential exporter.

    A huge problem is transportation and storage. European food arrived on containers in refridgerated trucks from Europe. They traveled a thousand miles at most. They served as storage for the food until they reached the distribution warehouse in Kazan or Saratov. Individual temperature controlled containers are not particularly economic from South Africa or Brazil even if the extra space is available on the liners. Shiploads are much cheaper. But to load a ship there must be storage and handling at both ends. Russia does not have well developed ports. NovoRossiya has only 10,000 square metres of cool area. Anyway, the first journey from the Mato Grosso in Brazil or Guateng Province in South Africa to the port is often longer than the entire journey in Europe. So costs rise dramatically. Let us take the case of cheese. Russia must replace 250 million tonnes of cheese bought from the EU by lorry, essentially with cheese from New Zealand coming by ship. This is 5 million tonnes a week. Let us say 1 million tonnes a working day. 1 tonne = 1 pallet. A pallet is about 1.5 square metres and NovoRossiya stacks them 4 pallets high. So, cheese alone needs an extra 375,00

    There is a general impression of instability. Sanctions will last a year. This is only one harvest.

    All of these objections are exaggerated. Exporters of food to Russia actually make a great deal of money, middle sized firms have trebled their worldwide sales by coming to Russia but there is some truth to them as well.
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  4. Carlo

    Carlo Ship Secretary (11th class)

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    I didn't know of all these issues. What is for sure is that the "sanctions war" will harm all parties involved alike. Russia tried to de-escalate, not responding to sanctions imposed by the US and EU over "interference" in Ukraine, but it was useless, so a response was needed. Of course, it doesn't hurt only foreign producers, but also Russian importers and traders. Anyway, let's hope that rationality will return soon to the West, though I wouldn't count much for that. In the long term, it is better replace foreign partners with more reliable ones, especially from Asia and Latin America.

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