Last March, as Russia annexed Crimea, the European Union, Canada and the United States imposed sanctions – travel bans and asset freezes against some of the Russian and Ukrainian officials.
Although the sanctions targeted the people from president Putin’s “inner circle”, he was given the green light to further conduct of the aggressive politics in Ukraine – the West condemned Russia but rather cautiously. The Russians sprang forward to protect their embezzlers cursing Merkel and Obama for Russophobia.
The tragedy of MH-17 became the next turning point of the Russia’s relations with the West. The Western powers introduced new sanctions – this time against more of the Russian politicians and businessmen, as well as major banks and energy companies. Many countries cancelled official visits, cut the ongoing and scheduled programs of military, economic and cultural cooperation, and stopped the supplies of arms and dual-use goods. Putin, in his style, reacted promptly and without too much thinking of the consequences – foodstuffs from the EU, Norway, the US, Canada and Australia were banned.
The food embargo was advertised so well that people actually believed that they can do well without products they used to have for years just because Russia had to “answer” to the sanctions. However, the joy of revenge did not last long. The food embargo became a problem not only for Western producers but for Russians as well. Putin used his “food power” – he hit the sector where any changes are immediately visible, especially if market is not ready for an adequate response to the new challenges. Despite the severe economic crisis and tense relations with the West, the President’s rating has strengthened. Does it mean that Putin’s food policy is justified?
In Europe
As the Russian government panned, European manufacturers are suffering huge losses because of the food embargo. Farmers from Germany, Poland, Lithuania, and the Netherlands – the Russia’s biggest food exporters – have lost hundreds of millions of euro in the last year. Many European producers had to find new ways to attract the attention of local customers. Poland, for example, launched a campaign «An apple a day keeps Putin away». Some of the farmers who used to export large amounts of their products to Russia focused on the new non-European markets. Also, the EU offered a partial compensation from the funds under the Common Agricultural Policy to those countries who have suffered the most due to the Russian embargo.
Europe stays divided over the sanctions. The Russian government undoubtedly knows how to use the situation. Those who oppose sanctions against Russia enjoy preferential treatment from the Kremlin. For example, it has recently announced the possibility of revision of the embargo conditions for Hungary, Cyprus and Greece.
For Greece Russia is the major agricultural importer– half of its stone fruit harvest was sold to Russians before the introduction of the food ban. Together with the pressures of economic crisis Greece felt quite a strong effect from the embargo. The ambitious Greek Prime Minister Alexis Tsipras has found a reliable and powerful partner – during their meeting Putin expressed support for Greece, as “the countries have spiritual relationship”. The Russian government claims that it may lift the food embargo for the Greeks.
At the same time, the food power has become a part of the Russian “hybrid war” against Ukraine. Last year Russia banned the imports of Ukrainian meat, dairy products, fruits and vegetables. Over the first quarter of 2015 the Ukrainian export to Russia has reduced by 60 percent. Russia used to be the largest buyer for the Ukrainians. They now have to redirect their production to the highly-competitive European markets.
In Russia
Russian economy barely copes with the high inflation rates and capital outflows. Putin has challenged it even more – neither Russian producers nor customers were ready for the food ban. Russia remains heavily dependent on foreign products – it is the world’s fifth largest agricultural importer. In 2013, it bought foodstuffs worth 33 billion euro. Immediately after the western food was embargoed, consumer prices considerably increased. This caused a big confusion on the market – prices on both domestic and imported products were artificially raised. Stores have changed price tags every few days. But most of all the embargo affects northern regions of Russia. They are completely dependent on the imports of essential products – severe climate makes it impossible to grow crops and farm. Prices in these regions have jumped up to 60 percent on some products.
In 2014, ruble has depreciated by 40 percent. The food embargo introduced as a response to Western sanctions, has made a significant contribution to increasing of inflation and worsening of the social situation in Russia. The inflation rate for last year came to 16 percent, food prices rose by an average of 30 percent. Now, even if the most critical moment has passed, both Western sanctions and Russian counter-measures resulted in heavy economic losses and put pressure on social spending. The so-called “poverty level” increased – according to the latest official data, today about 23 million Russians fall below the poverty line. The purchasing power of citizens in Russia has lowered as well. According to the recent social surveys – two thirds of Russians consume fewer products and food of a lower quality.
Both federal and regional authorities have decided to “save” their budgets reducing expenses on the important sectors of the economy. For example, the government carried out the scandalous health care reform, which resulted in thousands of medical personnel unemployed. Also, part of pensions funds was spent on subsidies for Crimea, while military expenditure increased.
Russian authorities claim that food embargo favors the country’s agriculture development. A number of projects for import substitution have been announced. Indeed, in theory, it should stimulate the local producers and lower the prices. However, today Russian market does not have the necessary capacity to fully replace imported products. Import substitution will take at least 3-4 years, experts say. It is often difficult even to start a production – Russia imports not only end products but also technologies and means of production, such as seeds and fry.
The lack of competitive environment is not the only problem – the quality of the domestic products aimed to replace the western foodstuffs lags far behind European standards. For instance, Russian “mozzarella” and “camembert” that appeared in stores leaves much to be desired. Plus, the mandatory product certification was abolished in 2010, thus allowing low-quality products to freely enter the market.
For the majority of Russians it was quite hard to give up European and American food. After the introduction of the embargo market was flooded with contraband products. French cheeses from Kazakhstan and Norwegian salmon from Belarus are sold in stores and restaurants. As a result, those countries, enjoying the privilege of the free economic zone, made some money on supplying Russians with European products. Residents of the western regions of Russia began to massively buy European products in Finland and the Baltic States.
The Russian paradox
Three weeks ago, the EU foreign ministers decided to extend economic sanctions against Russia. The next day after the announcement Putin signed a decree on the “full” food embargo for one more year. This time the wider range of products is banned, for example, lactose-free milk. The Russian authorities also claim to consider the possibility to introduce other restrictions – such as ban of transit flights of the European and American airlines.
Kremlin is winning the information war – first of all in the eyes of the Russians. The country’s authorities were able not only to convince people to eat less but also to believe that it is the West to blame. According to the recent opinion polls, 87% of the population support the extension of the western food ban. Another interesting fact – there are more people believing that the embargo has significantly affected the economy of Western countries than those who think it contributes in development of the domestic agriculture. Here is the Russian paradox. We are happy to create inconvenience to others, even if it causes us to suffer.
