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Thursday, August 07, 2014

What will the impact of the Russian retaliatory sanctions be?

Russia earlier unveiled the key plank of its retaliation against the ‘stage three’ EU sanctions confirmed last week. It has said that it will now ban all imports of fruit, veg, meat (including fish) and dairy products from the EU (as well as the US, Australia, Canada and Norway).

How will this impact Europe?

This helpful factsheet gives an idea of the overall level of EU agricultural exports to Russia. As the box above shows, agricultural exports are about 7% of total EU exports. Of this, 10% goes to Russia. This means that agricultural exports account for around 0.7% of overall EU exports – it’s important to remember that this figure includes much more than the specific parts targeted in the sanctions.

In terms of specific countries, the chart below highlights that the Baltic countries (Latvia, Lithuania and Estonia) will be hardest hit – in terms of the trade as a share of GDP. In absolute terms, Poland, the Netherlands, Germany and Denmark will also face losses.

How will this impact Russia?
Well, as has already been pointed out, the likely fallout will be higher prices for Russian consumers (driving up inflation more broadly) and reduced consumer choice. As we pointed out previously, Russia does import some agricultural products but only to the tune of around 1.2% GDP per year. This is dwarfed by some of its other imports.

That said, it still accounts for some 13.3% of overall imports. This is a sizeable chunk of imports to replace, but Russia has a few options:
  • Expand domestic production. Not impossible given the natural resources and land at Russia’s disposal as well as the state’s resources (although these could take a hit from the escalating sanctions). In terms of security this has long been on Russia’s list of things to move towards.
  • Expand production with Eurasian partners. As part of its ongoing response to the crisis Russia is deepening links with surrounding states and specifically members of the fledgling Eurasian Union. Some of these states will have significant agricultural sectors, although they will unlikely be quickly able to help supply a country the size of Russia.
  • Look farther afield. Rumours of Russia trying to strike agricultural deals with Latin America abound, while (as is always the case these days) Russia will likely look to China for support. This would obviously undermine any attempt to increase food security, however, would help limit the economic impact.
Does this set the scene for a broader trade war?
Hopefully, not yet. The sanctions on both sides remain quite targeted and specific. That said, it’s hard to see how either side could easily change position. That is feeding into a broader feeling of unease when it comes to the private sectors of both sides doing business together. This indirect or de facto halting of trade is likely to be the largest negative effect from this escalation.


Anonymous said...

I certainly do hope things escalate from here.
At least one more series of of sanctions against industrial and service sectors (so that West Europe gets it too) would possibly help some Eurosheeple clear their mind.
Eventually some members would start ignoring EU sanctions or speed up their referendum schedule.
Until then, let's enjoy the new eurozone recession!

Jesper said...

It will be interesting to see the reply from the CAP-lobby :-)

Might affect many people but most are likely to be poor migrants who may or may not have been part of the black economy. Solidarity with them is non-existent now so solidarity will probably be non-existent going forward.

Smuggling might impact the effectiveness of these particular sanctions. If Russians were to starve then the customs officials might not look to hard at food coming into Russia...

Currency fluctuations might impact the price of food more than the sanctions.
Which currency will be used in the new trade-deals? Will USD be emptied out of the Russian currency reserve?

Angus said...
This comment has been removed by the author.
Patrick Barron said...

Putin is waging war against his own people in the misguided view that it is money that people desire and not the goods and services that money will buy. Soviet era Russians had plenty of money; they simply had nothing to buy. Most reports of the so-called Russian boycott concentrate on the loss of sales, as if no one else in the world desired the products that Russians were buying, and ignore that Russia is harming itself. Of course, Putin and his cronies will eat well, but not so the poor, always ignored Russian citizen.

Rollo said...

The EU unleashed all this with their naïve meddling, offers of membership of EU and Nato, and support for the rioters carrying out their coup against the legitimate (though piss-poor ) government. They failed to note the ethnic divide, a remnant of Yalta and Churchill, Roosevelt and Stalin's arbitrary borders. So now we are all suffering from the whirlwind they sowed. The solution : EU: Stop meddling with things you do not understand.

Anonymous said...

I live in Ukraine. I do not know English, but still write. So I will write short primitive sentences. They are easier to translate with the help of an interpreter.
Respect of the German Chancellor Otto Eduard Leopold von Bismarck. He did a lot for his country. This is his statement about Russia. Translated and understand everything.

• «Россия опасна мизерностью своих потребностей».
 «Примитивная война против России - самоубийство из-за страха смерти».
 «Русских невозможно победить, мы убедились в этом за сотни лет. Но русским можно привить лживые ценности и тогда они победят сами себя».
 «Даже самый благоприятный исход войны никогда не приведет к разложению основной силы России, которая зиждется на миллионах русских».
 «Не надейтесь, что единожды воспользовавшись слабостью России, вы будете получать дивиденды вечно. Русские всегда приходят за своими деньгами. И когда они придут — не надейтесь на подписанные вами иезуитские соглашения, якобы вас оправдывающие. Они не стоят той бумаги, на которой написаны. Поэтому с русскими стоит или играть честно, или вообще не играть».
 «Он, как всегда, с улыбкой примадонны на устах и с ледяным компрессом на сердце» (о канцлере Российской империи Горчакове).
 «Могущество России может быть подорвано только отделением от неё Украины… необходимо не только оторвать, но и противопоставить Украину России. Для этого нужно лишь найти и взрастить предателей среди элиты и с их помощью изменить самосознание одной части великого народа до такой степени, что он будет ненавидеть всё русское, ненавидеть свой род, не осознавая этого. Всё остальное — дело времени».
 «Никогда не воюйте с русскими. На каждую вашу военную хитрость они ответят непредсказуемой глупостью».
 «Русские долго запрягают, но быстро едут».

Anonymous said...

To me 42 years. I was born in the big country of the USSR, and the territory of the Donbass. Now I live in Kiev. We have since the collapse of the USSR permanently on the territory of Ukraine are economic killers (read John Perkins, then understand what I write). And now full of jackals American military instructors in military Ukrainian Ministry. What they have us do? We love America so that it is ready to "strangle in his arms." As I understand it the whole world loves. And your country is too weak and can not resist it. Donbass mastered Russian and Ukrainian as the state has never had. Ukrainian nation created in the second half of the 19th century.
The war in Ukraine: it is America's war with Russia in Ukraine. If America wins, will be a unipolar world. Is that what you want? If you want to be stronger, bear a strong opponent. And what happens if we live in a unipolar world under the control of America. I think all the smart understand. We will be slaves of America. Although we have become them.
Do not worry for Russia, that she would not be what it is. She is no stranger. During the Great Patriotic people generally did not eat anything and defeated fascism. People know and remember. This is a great and mighty nation, need to be friends with him.
Russian faithful ally, was always so. But the envy of neighbors and friends, able to do something stupid.
I do not want the European Union, because I was alien to your values and religion. I'm not saying that you live worse. No. I'm RUSSIAN in spirit and faith.

For Ukraine, and not say that, at her 20 years there have been no normal ruler. Unscrupulous, greedy thieves - American dog.
That's why everything is as it happens. Destroying Russia, you will all be worse off, and do not think that will be different. Since the collapse of the Soviet Union, you have all the live worse, because there is a worthy opponent. And the older generation remember this.

Today I read an article from 10 years iyulya2014 that many European countries would boycott the third sanctions against Russia. And then the plane was shot down and all signed. Do not you think that this is reminiscent of the Iraqi scenario, searching for weapons, which have not appeared.
Anything that is not happening in the world politics - it set a precedent that anyone needs. I do not deny that the plane was hit by a Russian, but do not say. In Ukraine, a lot makes no provocation. Believe and Ukrainian troops could bring down, because they ordered America. But you need to look into the essence of the conflict. Who needs it ?????

Rik said...

Looks like as far as Russia is concerned it has moved into phase 2. Because mainly of the clumsiness of the European leadership.

Which has different characteristics than phase 1.
Phase 1 was mainly show, warningshots for European politicians. Phase 2 will play more for the European public.
US will be kicked out of Russia one way or another anyway. Trade will be minimised and especially companies related to the US government will likely be forced to pack their bags (which opens a lot of new businessopportunities for others).
Basically Putin will like to normalise relations with Europe. But in order to do so there need to be political pressure on the European leaders )and what is better than a nice triple dip recession, unemployed workers and angry farmers).

Phase 3 would be energy. But better to play that card at the beginning of the winter and with the Ukraine being the culprit.

R Davis said...

Jesper:- you say "poor migrants that may or may not have been part of the black economy"
The black economy is the REAL ECONOMY.
The "economy" that mainstream talks about is the political arena & banking sectors inflicting measures upon the population that have nothing to do with reality. They take on the determiner of Madam Lash with a fetish for inflicting misery & pain upon humanity, only.
Psychopathic, crude S&M aficionados at best.
I have a shipping container full of can of tuna to the value of 1 million dollars.
I could sell them to you for 1 million dollars.
I could exchange them for a shipping container to equal value.
I would then break it up to may units which I would sell & make a large profit.
This is the barter system & this is how they buy & sell - oil- grains - lives tocks - meats - everything in fact.
The books - what about the books you ask - you may well ask.