{"id":86696,"date":"2019-03-23T16:19:42","date_gmt":"2019-03-23T23:19:42","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=86696"},"modified":"2019-03-23T16:20:31","modified_gmt":"2019-03-23T23:20:31","slug":"russia-is-winning-the-sanctions-game","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2019\/03\/23\/russia-is-winning-the-sanctions-game\/","title":{"rendered":"Russia Is Winning the Sanctions Game"},"content":{"rendered":"

by Judy Twigg<\/a><\/span> Courtesy The\u00a0 National Interest<\/em><\/span><\/h2>\n\n\n

These sanctions were supposed to punish Moscow’s elite, but instead they’ve spurred economic development and patriotism. <\/strong><\/p>\n\n\n\n

The current conversation about Russia sanctions centers around targeting and scope. Are we punishing the people whose behavior we most want to change? Is there pain, well inflicted, on those individuals responsible for creating chaos in Ukraine and Crimea, for reckless attacks on Sergei Skripal and others, and for wanton interference in Western elections? Can we hurt Russian elites in a way that Putin will notice? Have we done enough? <\/p>\n\n\n\n

In at least one sector, though, the sanctions are a textbook case\n of unintended consequences: they\u2019ve put Russian farmers in the best \nshape they\u2019ve ever been. Countersanctions aimed at imported Western food\n products\u2014put into effect just days after the initial sanctions in the \nsummer of 2014\u2014initially sent Russian consumers into a tailspin, hungry \nfrom a lack of immediate alternatives to tasty European cheeses and \nprocessed foods. But palates adjusted quickly, and the import \nsubstitution effects boosted Russia, by 2016, to the position of top wheat exporter <\/a>\n in the world. As the United States hemorrhages global agro-market share\n courtesy of Trump-era tariffs and trade wars, Russia is actively and \naggressively filling the gap.\n<\/p>\n\n\n\n

The Sanctions <\/strong><\/p>\n\n\n\n

Do You Know What Happened Today In History?<\/h2>\n\n\n\n

In early 2014, following Russia\u2019s illegal annexation of Crimea \nand continued involvement in separatist uprisings in eastern Ukraine, \nthe United States, European Union, and several other Western countries \nimposed sanctions. Throughout 2014, these measures progressed from the \ndiplomatic (limits on previously scheduled meetings and talks), to curbs\n on specific individuals and organizations (targeted visa bans and asset\n freezes), and finally, in July and September, to restrictions <\/a>\n on Russia\u2019s financial, defense, and energy sectors. The latter limited \naccess to capital markets and low-interest loans, imposed an arms \nembargo and ban on exports of dual-use items to military clients, and \nprohibited export of innovative extractive technology (with special \napproval required for all other energy-related exports). Since 2014, the\n sanctions have been sustained and augmented, but they have remained \nwithin these categories.\n<\/p>\n\n\n\n

In August of 2014, Russia initiated countersanctions to ban \nspecific food commodities imported from the United States and EU. \nAffected foods included beef, poultry, fish\/seafood, fruits\/vegetables, \nnuts, milk and dairy, cheese, and a wide range of processed and prepared\n foods. The ban was broad<\/a>,\n covering both staples and luxury items. It hit many foods on which \nRussia was most import-dependent, and its wide geographic scope (the \nrange of countries it covers) has made it difficult to compensate fully \nfor shortages by increasing imports from non-sanctioned countries. <\/p>\n\n\n\n

The Impact <\/strong>\n<\/p>\n\n\n\n

Russia felt the whole spectrum of sanctions in three immediate ways <\/a>:\n increased volatility on foreign exchange markets, leading to \nsignificant depreciation of the ruble and resulting inflationary \npressures; restricted access to financial markets; and depressed \nconsumption and investment. Imports sank in the third quarter of 2014. \nThe steep drop in world oil prices in the fourth quarter of 2014 likely \nhad even more profound effects on the Russian economy than the sanctions\n and countersanctions. In late 2014 and early 2015, oil prices fell so \nfar (from $100 per barrel in Q2 2014, to under $60 by the end of 2014, \nand even further by the second half of 2015) that Russia\u2019s export \nrevenues were cut by a third <\/a>. And the financial sanctions meant that Russia could not mitigate the oil price plunge by borrowing money. <\/p>\n\n\n\n

Right off the bat, the countersanctions impacted $9.5 billion worth \nof food annually, covering almost a tenth of total food consumption in \nRussia and a quarter of food imports. Before the countersanctions, \ndomestic production covered less than 40 percent of Russia\u2019s intake of \nfruit, 80 percent of milk\/dairy, and 90 percent of vegetables; Russia \nwas already a net exporter of cereals, potatoes, and oil plants. The \ncountersanctions banned 60 percent of incoming meat and fish, and half \nof imported dairy, fruits, and vegetables. Overall, the share of imports <\/a> in total food consumption decreased from over a third in 2014 to just over 20 percent in the second quarter of 2017.\n<\/p>\n\n\n\n

Prices immediately increased. By February of 2015, food inflation\n (year-on-year) was over 23 percent. Households shifted food buying and \neating habits away from pricier, formerly imported foods (fruit, \nmilk\/dairy, beef) toward less expensive, domestically-sourced goods \n(potatoes, bread, chicken), and have adopted smart shopping\u201d strategies\n to value acceptable quality at lower prices (including a diminished \nappetite for prestige brands in favor of trusted store brands). Before \ntoo long, the consumer environment had largely adjusted and recovered. \nBy 2018, food price increases were much lower than overall inflation. <\/p>\n\n\n\n

Some banned food products from the EU have made their way to Russia \nas re-exports from other countries. In the final quarter of 2014, for \nexample, EU dairy exports to Belarus increased tenfold compared to the \nprevious year, and exports of fruit and fish doubled\u2014not likely a surge \nin the domestic Belarussian market. While not a large percentage of \nRussia\u2019s overall food trade, these secondary import substitutions have \nexacerbated trade tensions between Russia and Belarus, leading to a \nreinstatement of customs controls between the two countries in December \n2014, as well as the threat of restrictions on imports of milk products \nfrom Belarus as recently as spring 2018. Probably rightly, Russia \naccuses Belarus of being a willing conduit <\/a> for banned, counterfeit, and low-quality or mislabeled foods.\n<\/p>\n\n\n\n

The Industry <\/strong><\/p>\n\n\n\n

The countersanctions were a gift to the Russian agrifood industry. \nThey legitimized and catalyzed an import substitution strategy whose \nbroad objective had been in place since the late 2000s: to become \nself-sufficient in food. In other words, the sanctions paved the way for\n Putin to overcome a long-standing embarrassment dating back to the \ncollapse of the sector in the 1990s. The timing of the \ncountersanctions\u2014announced just a couple of days after the sanctions\u2014led\n many observers to wonder whether the lists of banned products had been \nplanned beforehand, specifically as a measure intended ultimately to \nboost domestic production.\n<\/p>\n\n\n\n

Russia\u2019s food industry has seized this opportunity. Many \ninvestors who had not previously bothered with agriculture suddenly \nbecame interested<\/a>\n in farming. High-end oligarchs also got the message, with the \nagriculture sector becoming a point of national pride and patriotism for\n some. Viktor Vekselberg <\/a>,\n for example, has started investing in the construction of urban \ngreenhouses. The government has earmarked 242 billion rubles (just under\n $4 billion USD) in agricultural support <\/a>\n for 2018\u20132020, focused on rail transportation, subsidized loans, block \ngrants to regions, partial compensation for capital investments, and \ntargeted support for dairy farmers. A new legal requirement for public \nprocurement gives preferences to domestic products\u2014not just for food, \nbut across the board, including key industries like software. This \ngovernment purchasing boost, in combination with the countersanctions, \nhas been of comparatively less benefit to domestic sectors that don\u2019t \nproduce quality alternatives to imports, but the food industry has \nbenefited significantly. Even sub-sectors not covered by the \ncountersanctions have asked to get in on the game. In June 2015, Russian\n candy manufacturers asked for countersanctions to extend to European \nchocolate, hoping to capture the market niche from Belgium, France and \nGermany. The Minister of Agriculture, Alexander Tkachev, summed it up <\/a>\n neatly in 2015: We are thankful to our European and American partners,\n who made us look at agriculture from a new angle, and helped us find \nnew reserves and potential.\u201d <\/p>\n\n\n\n

Agrifood was one of the few bright spots in the country\u2019s otherwise \nbleak economy from 2014\u20132016, boasting 3.2 percent average growth. In \nthe words of Andrey Guriev <\/a>,\n the chief executive of PhosAgro, a Russian phosphate fertilizer \nproducer: In one day, the Russian agricultural sector became profitable\n as hell.\u201d And the growth continues. Russia now produces almost twice as\n much grain as it consumes, and it\u2019s nearly self-sufficient in sugar and\n meat products. Domestic production has completely displaced imports of \npork and chicken. By 2016, Russia had become the world\u2019s largest \nexporter of grains, which had overtaken arms sales to become Russia\u2019s \nsecond-largest export commodity (after oil\/gas) to the tune of almost \n$21 billion. The Black Earth region of central and southern Russia, \nclose to Black Sea ports, is well positioned to supply large wheat \nimporters like Turkey and Egypt, and there has been huge investment in \nstorage facilities and export terminals. This food market turbulence has\n attracted a new superpower; China is rapidly creating a market for \nRussian soybeans<\/a> and sunflower seeds, replacing U.S. products hit by Trump-era tariffs. And it doesn\u2019t stop there. Russia has about 50 million still-unused acres <\/a>\n of potentially productive land, on top of the seventy-nine million \nwhere wheat was grown in 2017, and its crop rotation schemes\u2014including \nwinter wheat, corn, barley\u2014hedge well against bad weather and \nunpredictable markets. Putin\u2019s May decrees\u201d last year included a goal to double <\/a> 2018\u2019s $25 billion in food exports by 2024.\n<\/p>\n","protected":false},"excerpt":{"rendered":"

by Judy Twigg Courtesy The\u00a0 National Interest These sanctions were supposed to punish Moscow’s elite, but instead they’ve spurred economic development and patriotism. The current conversation about Russia sanctions centers around targeting and scope. Are we punishing the people whose behavior we most want to change? Is there pain, well inflicted, on those individuals responsible […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10],"tags":[],"class_list":["post-86696","post","type-post","status-publish","format-standard","hentry","category-world"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/86696","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=86696"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/86696\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=86696"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=86696"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=86696"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}