In August, Russian officials announced the country would ban or limit many agricultural imports from the United States, the European Union, Norway, Canada and Australia. This was done in retaliation for sanctions imposed by these countries on the Russian banking, energy and defense industries in response to Russia’s intervention in Ukraine. Conversely, Russia has no plans to cease grain exports out of the country, which are imported by several countries in the Middle East, Africa and Asia. The bans have already led to larger than expected inflation and higher food prices in the country.
Food Inflation
The one-year Russian bans or limitations include meats, fish, dairy products, fruits and vegetables, among other agricultural imports.
The effects of the ban are already reaching consumers, as inflation in Russia worsened throughout August. Prices are 7.6 percent above where they were last year, exceeding the country’s inflation target of 5 percent.
In a Bloomberg article, Bank of America’s Chief Economist for Russia Vladimir Osakovskiy stated: “The acceleration is mainly due to the stronger-than-expected impact of the recent import bans. We expect another precautionary 50 basis-point rate hike later in the year, but the likelihood of a move in September is rising and will depend on the future trajectory of inflation.”
Black Sea Region to Continue Grain Exports
Russian officials have also publically stated that bans on various U.S. and EU agriculture imports will not affect Russian grain exports. They expect to export more grains in the 2014/2015 marketing year compared to last year, at approximately 28 million metric tons.
“I don’t think the sanctions have fundamentally changed anything,” Macquarie Group analyst Christopher Gadd told Reuters. “Russia is still competitive on the export market and production looks likely to have exceeded expectations.”
Prices for grains out of the Black Sea region – in particular wheat – stayed high in August due to continued fighting in the Ukraine near Crimea. However, grain prices dropped recently to their lowest point in three weeks as leaders in Russia and the Ukraine agreed to take steps toward easing the conflict.
In the short-term, Russia’s food import bans have already affected Russian food prices more than expected, as inflation increased over the last month. The bans are also not stopping the country’s involvement in the grains trade since Russia still expects to see surpluses for export. However, the long-term effects of the bans have yet to be seen and only time will tell the true impact of these trade-disrupting measures.