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.



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.