• A
  • A
  • A
  • ABC
  • ABC
  • ABC
  • А
  • А
  • А
  • А
  • А
Regular version of the site

Russian food embargo to hit business and society

In the coming months, Russia’s embargo on food from western countries could result in decreased consumption for the low-income groups of society and a drop in the quality of the consumer basket for mid- and high-income groups, experts from HSE’s Centre of Development said in the latest issue of Comments on State and Business

Russia responded to western sanctions in early August by banning the import of several broad categories of food products. Experts estimate that the ban, which extends to both raw goods and finished products, includes some $8 billion worth of goods, based on data from 2013. It is obvious that the market’s natural reaction to the supply shock will be increased prices or a shortage in specific goods if embargoed products are not immediately replaced by either stockpiles or new supplies.

The magnitude of the goods’ supply shock will be anywhere from the relatively ‘harmless’ 5%-10% of the market in physical terms (beef; poultry; dairy, excluding cheese; and vegetables) to a very real 20%-30% of the market (pork, fish, cheese, and fruits). Particularly vulnerable are the separate goods previously dominated by imports from countries affected by Russia’s retaliatory sanctions.

Table 1. Volumes and percent of overall imports from embargoed countries, by separate goods (data for 2013 and in terms of value)

 Value of imports from embargoed countries (mln dollars)Share of imports from embargoed countries in overall import volumes (%)
Fresh, refrigerated or frozen pork157073,5
Fresh or refrigerated fish, excluding fish fillet and other fish meat of product item 030491093,3
Cheese and quark128360,3
Fresh apples, pears and quince 72761,7
Fresh apricots, cherries, peaches and nectarines, plums and sloes32953,6
Other fresh fruits23238,7

Source: Federal Tariff Service, calculations by HSE’S Centre of Development.

It is not yet clear how successfully goods previously imported from western countries can be replaced by those from neighboring CIS countries, Asia or Latin America. In any case, this will require time and result in additional costs. It is also important to note that many food importers have also suffered losses from the fact that goods paid for in advance were not delivered, which was to be expected.

More resources and several years will be needed to improve and fine tune Russian domestic production where actually possible.

Domestic producers that actively use imported raw goods will have new opportunities that will come with new problems.

Table 2. Share of imports in spending on raw goods and goods from separate sectors of the food industry (data for 2012)

 Share of imports in spending on raw goods, % 
Production of meat and poultry products24,5
Processing and preservation of fish and seafood31,1
Processing and preservation of vegetables21,3
Processing and preservation of fruits and nuts 70,6
Production of plant juices and extracts, peptic substances, mucilage and thickeners 19,4
Production of grape wine21,2
Production of malt34,9

Source: Rosstat, calculations by HSE’S Centre of Development.

Similar problems will arise with the food service industry, but retail will suffer the main blow.

Though accelerated growth in prices is inevitable in the current situation, the president and the government are determined to fight this growth using the preferred method of hands-on control. It seems that for now, retail chain owners are informally taking on additional costs and lowering margin by establishing new connections in place of old ones. The average share of chain retailing in Russia’s overall turnover did not exceed 20% in 2013, however. What about the others? If the situation reaches the level of public administrative price regulation for any broad circle of goods, everything could end in a deficit. Not in the capitals, of course, but in remote regions where the selection of goods is not so broad and transportation costs are high.

Russia’s retaliatory sanctions may ultimately lead to an absolute reduction in the public’s consumption of food products, deepening the trend that began forming in the spring and summer (in June, turnover for retail trade in food fell in real terms by 1.2% year-on-year). In addition, the main blow will be absorbed by the mid- and low-income groups of society. Food accounts for over 40% of total household expenditures for the three low-income 10% groups, while it accounts for 16% of expenditures for the highest 10%. In addition, meat, fish, dairy and produce make up more than 65% of overall food consumption for all income groups. If the situation on the food market worsens and economic stagnation continues, the low-income groups of society may be forced to lower consumption and ultimately return to raising household farms. As concerns mid- and high-income groups of society, a lower quality consumer basket becomes unavoidable.

Natalia Akindinova


August 13, 2014