Russia's sanctions threaten both EU farmers and policymakers

  
Consumer shelves
Russia's ban on European food imports creates problems for Russian consumers and European farmers alike. [Shutterstock]

Russia's food import ban has become a big problem for Europe's farmers, and its central bank policymakers. From Polish apples to French pork and Greek peaches, exporters to Russia may either have to slash prices, or destroy their own produce.

As the European Union's second biggest apple producer, Poland has some 700,000 tonnes of the fruit it usually sells to Russia but can't, because Moscow has a food embargo on many EU and US goods as part of tit-for-tat sanctions related to the Ukraine crisis.

On 7 August, Russia banned all meat, fish, dairy, fruit and vegetable imports from the EU, the US Norway, Canada, and Australia for one year to retaliate against Western sanctions on Moscow over the Ukraine crisis.

Many of the Polish apples will inevitably head for western Europe, potentially displacing their more expensive European rivals. Others will go to markets in Asia and the Middle East, traditionally supplied by EU countries such as France. It is just about the last thing that the European Central Bank wants to see as it struggles with a flatlining economy and worries about deflation.

George Polychronakis of Greek fruit export association Incofruit-Hellas, for example, watched as some 250 truckloads of peaches and nectarines en route to Russia were halted when the embargo hit.

Greece exported 160,000 tonnes of fruit to Russia last year, worth €180 million to the crisis-hit EU member.

"They'll either have to sell it at any price to countries along the way or be forced to bring it back to Greece where it will be destroyed," he said.

"Oversupply will drag down prices for other goods and that will have a domino effect on the entire market. Even today, I went to the supermarket to buy peaches for myself and they were cheaper than three days ago."

It is also not just fruit.

"In total, a million tonnes of pork, poultry and beef from the EU will remain on the market (rather than go to Russia). It's a very big blow," said Paul Rouche, general manager in charge of pork for the French meat trade union SNIV.

Worry over deflation

At the macroeconomic level, this threat of lower prices might not matter in normal times.

Food accounts for about 14% of the basket of goods used to calculate eurozone harmonised inflation. Alone, fruit and vegetables account for just less than 3% the basket. But these are not normal times as far as inflation is concerned.

Despite record low interest rates and money pumping policies, eurozone inflation is running at only 0.4% year-on-year, a number that is way below the ECB's close-to, but below 2% level and also entrenched in what the central bank considers "the danger zone" under 1%.

This is before any major impact from the sanctions.

"I think it would have to start pervading core inflation before they (the ECB) really freak out. But it doesn't help," Deutsche Bank economist Gilles Moec said.

The deflationary potential can already be seen in some places. For example, total Dutch fruit and vegetable sales to Russia were about €600 million last year, according to Frugi Venta, a trade association that represents 420 Dutch companies.

"Prices in some fruit and vegetables have fallen by as much as 75 to 80%," said spokeswoman Inge Ribbens. "A lot of trucks have been turned back at the border."

Scrambling to limit damage on their agricultural sector, Poland and others have asked the EU to draw up plans to withdraw the surplus from the market and compensate farmers. On Monday (18 August), the European Commission said it was drawing on provisions in the reformed Common Agricultural Policy (CAP), which includes an emergency reserve of some €420 million in total to compensate for market disruption.

The money will be available between now and the end of November.

Warsaw has also asked the United States to open up its market to Polish apples, said Poland's ambassador to Washington, Ryszard Schnepf.

Russian struggles

Meanwhile, Russia has said it will allow imports from neighbouring Belarus and Kazakhstan of food processed from Western raw materials to damp down domestic food price rises triggered by its ban on food imports from the West.

However, the government has struggled to control price rises as some 50% of Russian consumption of fish, milk, beef and cheese had been previously met by imports.

"Our Customs Union colleagues can win in this situation because some products, which were previously coming to us directly, will be processed there," Russian news agencies quoted Deputy Prime Minister Arkady Dvorkovich as saying.

A duty-free Customs Union was set up this year by Russia, Kazakhstan and Belarus to boost economic ties and trade. Russian Prime Minister Dmitry Medvedev said on Monday he hoped Western food import bans would not last too long.

Belarus and Kazakhstan said they will continue to import food banned by Russia, but Minsk has said it will make sure sanctioned goods do not cross into Russia.

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Comments

Southron's picture

We can't ask for "toughness" against Russia and not be willing to pay the price - The Polish were the most hawkish about the whole affair, they should know better.

Anyway, if there is fears of deflation, get the act togheter and make a proper, European-wide fiscal and monetary policy.

So much complaining..

Eurochild's picture

As far as I'm aware, most Europeans - and definitely most Poles - are willing to pay the price for creating a stable European border. The price to be paid if we don't is much, much greater.

Jay's picture

Unless you do something stupid there won't be a threat to Europe's borders. Threats and demands coming from the Frau are unproductive, Putin will not accept defeat.

kamenchanov's picture

This Cold war look-alike conflict with Russia appals me. If the EU and the USA intervene in Ukrainian affairs, it is considered as support, assistance, cooperation, aid, integration. If Russia intervenes in Ukrainian affairs, it is viewed as a sort of disruptive tactics, severe violation of state authonomy, political influence or any other negatively strong words that would depict the contract between the Western Saints and the Soviet Devil.

Tell me, what does the USA have to do with Ukraine? What was their submarine doing in Black Sea during the Olympics? Moreover, why is the EU contrary opposed to Russian activities when it should be figuring out ways to stabilize and deepen the relationship? Yes, Russians use their gas abundance as political leverage. Who wouldn't? Who doesn't!? You play with the cards you're dealt with precisely because they're the cards you have.

If the problem is differing ideologies, I'm sorry but I cannot accept that as a compelling argument. Most of the EU's Member States have differences of opinion on different topics. Why not make it work with Russia? Does the future of the European expansion lie beyond the North Atlantic and downwards across the Mediterranean Sea? An alliance between the EU and Russia would be geopolitically more plausible in contrast to one with the USA. So what, they can turn off our gas supplies. But the EU is doomed either way - it is expected that, unless we find new sources and significantly develop renewables, we will be importing more than 80% of the gas by 2050 (EU-Rissa Energy Roadmap 2050).

And now let me come back to the core of this article. For the agricultural sector (EU or Russian) to suffer from sanctions resulting from external relations tensions, it would mean that the foreign policy has primacy over any other policy. Now, wouldn't that be one burdensome topic for legal research? I would humbly ask Prof. Dashwood and Prof. Cremona to clarify this issue for us.

To put it in a different way, can foreign policy decisions justify severe distortions in the internal market of the EU?
1) the decision results in restrictions on exports and imports from a third country;
2) the decision results in a distortion of competition;

I suppose it is possible to somehow justify the decision with Art. 207 in combination with some CFSP power. However, keep in mind that the grounds for the bans on part of the EU is the ALLEGED downing of the Malaysian plane. What nobody (even Euractiv!?) seems to register, however, is that there was clear evidence not only that the plane was shot with an air-to-air missile, but it was shot repeatedly in its fall!

Do you still want to talk about agriculture?

Jay's picture

(What was their submarine doing in Black Sea during the Olympics?) Guarding against potential terrorists attacks.

(If the problem is differing ideologies) Putin is looking backwards for a model to go forward --scratch democracy.

(An alliance between the EU and Russia would be geopolitically more plausible in contrast to one with the USA.) Technology and defense spending keep the US ahead --you don't see the US purchasing ships from France.

(there was clear evidence not only that the plane was shot with an air-to-air missile, but it was shot repeatedly in its fall!) BS!!! Air to air missiles seek heat and would have hit the aircraft engines, in which case the engine turbines blades would have been shattered and spread horizontally, at least partially into the fuselage. It's never a good idea to rush to judgement with no more "evidence" than what appeared on social media sites and reports of journalists.

kamenchanov's picture

1) Potential terrorist attacks against..? Doesn't answer the question why the US submarine was there.

2) Both the socialist and the democratic models are working. They just need to find common ground. The EU itself is a revolutionary type of a transnational organisation - it's not a federation, but something else. Personally, I believe in democracy as much as I am opposed to socialism. A combination of the two would benefit the European (not EU, but European) nations much more as it would reflect their diverging cultures.

3) Deeper alliance with Russia doesn't mean that trade with the US should cease :D

4) I admit, I saw this on my national television and I do not consider this as a completely trutful evidence that this happened. I find the explanation of a Ukrainian shooting it down much more realistic than anything else.

Jay's picture

(Do you still want to talk about agriculture?)

Q: What do you get when you cross a penis and a potato?

Jay's picture

Answer: A dick-tator.

Fos_Tonkin's picture

Did the moderator delete my comment about the cute girl on the pic? But she is cute, what's the problem about that?

Jay's picture

kamenchanov,

Remember the terrorist attacks in Volgograd? High ranking US government officials could have been evacuated in the event of an attack at the Olympics.

US Navy does not deploy submarines in the Black Sea. The two ships that entered were the USS Mount Whitney LCC-20, a command vessel for the Navy’s 6th Fleet in the Mediterranean and USS Taylor FFG-50, is a frigate based in Florida.

Seems to me the EU countries combine socialism with democracy the way I understand it.

#3 I commented about that last week in my "lie" vs "facts" Here it is in case you missed it:

Lie: Ever since the end of the Soviet Union in 1991, Washington has treated post-Communist Russia generously as a desired friend and partner, making every effort to help it become a democratic, prosperous member of the Western system of international security. Unwilling or unable, Russia rejected this western altruism, emphatically under Putin.

Fact: Beginning in the 1990s every American president, congress, and NATO ally leader has treated post-Soviet Russia as a defeated nation with inferior legitimate rights at home and abroad.

The Russian Georgia war didn't help matters any.

I tend to agree with you on who shot down MH17. London has had ample time to study the recordings from the black boxes yet they have not released a statement. Unofficial channels in my neighborhood are telling the media: "don't ask about the black boxes." Too many unanswered questions that have had ample time to be answered. BTW: I think the governments know, another inconvenient truth, and the public may never know the facts.

kamenchanov's picture

Having participated in more than one high level governmental meetings and conferences, I am certain that they know. They also know who used the chemical weapons in Syria last August. This is the point I was trying to make - they impose sanctions on Russia which result in retaliation significantly affecting the agricultural sector. Yet, the grounds on which the sanctions are based (the downing of the plane) have no factual standing and the public is deliberately kept misinformed. In that relation I ask: does the foreign policy has primacy over any other policy? If so, where do the Treaties indicate that either the Council or the European Council possess such overwhelming powers?

In any other policy area, the question about the legal base would be a fundamental one. It serves to delimit the competences, the decision-making procedure and the extent to which these competences stretch. This is what troubles me - politics that lead to premature action with no legal or factual standing that has far greater repercussions than anticipated. The money meant to support the agricultural sector comes from the pocket of the European taxpayer. The effect of the sanctions on politicians themselves, however, will be zero (unless they are also farmers). And even if it is possible to somehow justify the decision to restrict trade with Russia, even if the EU has exclusive competence to do so, that doesn't mean that it should.

If you're imposing sanctions, impose them in your own field of action. If the international community was so certain that Russia was behind the downing of the plane on Ukrainian border, they should have excluded them from diplomatic missions and participation in international organisations, they should have taken away their right to vote on international decisions, or to express their opinion in Work groups, conferences, seminars. This would have been the type of political isolation that would have been both appropriate and proportionate to the aim pursued.

Personally, I think that the stability of the internal market is more important than "sending a message" to Moscow. The EU shouldn't allow the agricultural sector to suffer however small the repercussions may be (since only €125 million are envisaged to be sufficient for the entire Union for the time being). It should enter into consultations with the Russian Federation under the auspices of the WTO (this is the procedure - first consultations and if no agreement is reached, then dispute settlement would be activated) where both European blocs should agree to drop the trade bans.

Of course, I am not an expert, this is just my humble opinion..

kamenchanov's picture

Looks like someone else also thought of filing a complaint to the WTO against the Russian food ban. Well, this is certailny reassuring! But look at what euractiv's article says: "The EU argues its sanctions have been imposed in defence of Ukraine's sovereignty" (http://www.euractiv.com/sections/social-europe-jobs/poland-wants-eu-comp...). Again, on what grounds!?! Has Ukraine become a Member State of the EU without us knowing!?

Jay's picture

Coincidence? MH17 shot down 17/07/2014, 21 days later, the head of Ukraine’s National Security and Defense Council Andriy Parubiy ( neo-Nazi) tendered his resignation 7/08/2014.

Jay's picture

The west's unprecedented daily barrage of negative criticisim against Russia is a reflection of the United States Office of Strategic Services in describing Hitler's psychological profile:

"His primary rules were: never allow the public to cool off; never admit a fault or wrong; never concede that there may be some good in your enemy; never leave room for alternatives; never accept blame; concentrate on one enemy at a time and blame him for everything that goes wrong; people will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or later believe it."

Why are western governments doing this? Europe will never go to war over Ukraine and neither will the war weary Americans allow it's government to engage with Russia over Ukraine. Obama's light is fading fast and the US congress is a mere joke of representation, 9% approval rating in the lastest Gallup poll.

Jay's picture

Europe and the US were the perpetrators behind Ukraine's Right Sector to threaten Ukraine's sovereignty and lead a coup against a democratically elected government. Granted, Yanukovych was probably a crook but that is why democracy has rules. EU and US ignored the rules and set the stage for conditions prevailing over Ukraine today. And the lies just keep on coming!

EurActors