Russian food embargo

The Russian food embargo has undermined the business of European food importers. The suppliers have to look for alternitive ways for delivering goods to Russia. 

The Russian response to sanctions was food embargo introduced in August 2014: a ban on the import of certain agricultural products, raw materials and food products from the West (please, see details below). The list of banned import goods includes vegetables, fruit, meat and dairy products, fish and nuts. The total annual volume of these products import is estimated by experts at 7-9 billion EUR. According to analysts, Lithuania will suffer the most from the embargo because the volume of exports to Russia is equivalent to 2.7% of Lithuania’s GDP. European Bank for Reconstruction and Development included Estonia, Latvia and Norway in the list of possible victims for the similar reason.

Regretfully, the retaliatory sanctions caused some problems in the Russian economy itself. The embargo resulted in the reduction of the assortment and an increase in consumer prices in grocery stores. Some local businesses are significantly affected. A fish factory in Murmansk ceased its operations due to the lack of raw materials for production. Leading food distribution companies also suffer from losses. Hopefully, the situation will not last long, western suppliers of banned products just need some time to figure the way out of the difficult situation.

Bypassing embargo

European suppliers of food products, which are under Russian embargo, are trying to adapt to the new market conditions by looking for ways to bypass sanctions. At the moment, the government has not provided clear explanations of what is legal and what is not in terms of food products turnover. Certainly, there are loopholes in the law which gives companies a certain degree of freedom in finding the ways to bypass sanctions. French agrarians are said to replace product stickers of the country in which the product is produced (“France”) with “Morocco”, “Belarus” or “Kazakhstan”, nevertheless, there are more legal ways. 


Currently three possible adaptation options can be considered:

1. The localization of production in Russia

For example, the Finnish company «Valio» (exports to Russia in 2013 are estimated at 242 m EUR) restructures its production in the Russian Federation and hurriedly considers its expansion.

 

2. Delivering products through the countries that are not under the embargo

 

a. If a food importer HAS capacities in the countries that are not in the embargo list

Importers can choose another country to deliver products to Russia. A Norway salmon supplier «Cermaq» plans to satisfy the demand in Russia by delivering products from its plant in Chile whereas salmon from Norway will substitute the lack of supply in other countries. This decision was announced by the CEO of «Cermaq» Jon Hindar.

 

b. If the company does NOT HAVE  capacities in the countries that are not in the embargo list

Companies can supply their products through countries and territories which are not affected by embargo (re-export). Primarily, territories that suit for this purpose are Belarus, Turkey, Kazakhstan, China, Faroe Island and Iceland. So, for the month of the Russian food embargo Belarusian farmers increased their exports by 7.2% compared to July of this year. Also, the Belarusian side expressed its readiness to import up to 60 thousand tons of Polish apples out of which juice, wine and baby puree can be produced. Countries of Latin America and Iran are actively planning to increase exports to the Russian Federation. For instance, the management of «Knightsbridge Foods» (vegetables exporter based in the UK) is considering the supply of products to Russian from North Cyprus through Turkey.

 

3. Change of the production process

Now fish is supplied to Belarus, and other Russian cross-border regions. Fish is processed there: fillet is separated, salted, packed in boxes, so that a new custom code is appointed to the product and afterwards the fish can be legally sent to Russia.