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momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
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The Russian Embargo: direct and indirect impact for French agriculture



Thierry Pouch, APCA



On 7th August, Moscow imposed an embargo on agricultural produce from Europe, the United States, Norway, Australia and Canada in response to the sanctions against Russia amid the crisis in Ukraine. The embargo has been issued for a period of one year and applies to beef, pork, poultry, fish, cheese, milk and milk produce, vegetables and fruit.

According to Eurostat, Russia absorbs 10% of Europe’s agricultural and food exports. The produce recently targeted by Moscow represents a total of 5 billion euros, while agricultural and food exports from the EU to Russia annually reach about 12 billion euros. For France, exports of agricultural produce to Russia in 2013 accounted for € 756 million. So what impact will this have on our agriculture? In a recent article (extract here
1) Thierry Pouch answers this question and provides some figures.

Even though France appears to be less exposed to the direct consequences of the Russian embargo, it could be weakened by the indirect consequences. The windfall effect for countries that may replace the EU on the Russian market, but also strategies to conquer the European market by European countries, like Poland, are potential aggravating factors; a situation that has also led to congestion on the European market with consequences on price decreases.

The situation is even more explosive than economic depression is real and geopolitical instability growing. As well as the cyclical decisions made by the European Commission to deal with the Russian embargo, the EU cannot do without further analysis of the severity of current geo-economic turmoil, in the words of Thierry Pouch, to reframe geostrategic choices accordingly, especially for the agricultural sector.


momagri Editorial Board



The global economy has entered into a new phase of geopolitical instability, exacerbating the economic uncertainty caused by the financial and economic crisis of 2007/2008. The sanctions imposed on Russia by the European Union - but also by the United States, Australia and Norway – have led Russia to impose their own embargo in return. Economic embargo is a traditional instrument used to protect internal markets; its degree of success varies depending on the historical period in which it takes place, the sectors it concerns and its duration. Just like embargo, economic sanctions against countries have often been used in the past, notably for multiple reasons.

Sanctions taken against Russia concentrate chiefly on financial assets, travel bans for leaders, the suspension of loans to public banks, an embargo on arms and oil drilling equipment. Russia immediately responded by declaring an embargo on European agricultural and food produce. An examination of the impact of such a ban is even more important given that Russia has already closed its borders to pork; admittedly this particular case was for health reasons. So what might be the consequences for the French agricultural sector, especially within a context of sharp economic downturn? What measures have been adopted at the European level to overcome this embargo?


THE PRODUCE AND COUNTRIES CONCERNED

Last 7th August, Russia decided on an economic embargo against the EU and its agricultural and food exports as a way of responding to sanctions applied and related to the Ukrainian crisis. To take measure of its probable effects, it is first necessary to list the produce covered by the Russian embargo:
     - Beef (live animals, fresh and frozen)
     - Pork (fresh and frozen)
     - Poultry and edible offal (fresh and frozen)
     - Fish, crustaceans, molluscs,
     - Milk and milk produce (including cheese)
     - Fruit (apples, pears, quinces, apricots, nectarines, peaches, cherries and plums)
     - Vegetables (tomatoes, cabbages, other)
     - Sausages and similar products.

Now look at the countries most vulnerable to the impact of this embargo. If one looks at the total value of exports of agricultural and food produce, a limited number of countries are first in line. Across the EU as a whole, exports on average, depending on the year, represent 11-13 billion dollars (8 to 10 billion euros), that’s 9% of total EU trade flows. Another precision, concerning European processing industries, Russia is its second biggest export market, behind the United States. The EU gains regular and structural surpluses from its bilateral trade with Russia.

With regard to France, exports of agricultural and food produce in 2012 amounted to approximately 690 million €, and 756 million in 2013. France’s food trade surplus vis-à-vis Russia last year was more than 500 million €. It should be noted that the embargo does not cover alcoholic or non-alcoholic wines and beverages, which represent 22% of Frances agricultural and food exports to Russia. Table 1 shows the exports of the major countries affected by the embargo and the evaluation of the loss for each country [see link]. The French agriculture and food sector appears less dependent on the Russian market than other EU countries. Observers have highlighted the fruit and vegetables that according to them would be most negatively impacted by the Russian embargo. In reality, this is not the case.

The most exposed sectors are, by order of importance, dairy produce, pork and fruit and vegetables.

Pork, already hard hit by the embargo earlier this year for health reasons, accounted for more than 43 million € of exports to Russia, barely 5% of total sales to that country . The orders of magnitude for fruit and vegetables are 28 million € (0.8%). However, for segments such as cabbage (including broccoli), France is the leading European supplier to Russia. Dairy produce however is a sector weakened by the embargo. Indeed, in 2013 French exports have reached nearly 100 million €, or 1.5% of agricultural and food produce trade flows to Russia. Even if it is not a priority destination in the current economic depression, and insofar as Russia is one of the world's largest importers of cheese, this embargo has appeared at the worst time.

The EU exports about 260,000 tonnes of cheese to Russia, accounting for nearly 3% of Community production.

France appears not to suffer too much from the direct consequences of the embargo. But things change if we look at the indirect effects. By this is meant the postponement of exports from other countries to the European market. Poland and the Baltic countries and Germany should in fact deploy a strategy to conquer this market - fruit (apples) and vegetables (potatoes) and dairy produce (cheese, powders, butter) being first in line – in order to sell products that Russia has forced out of its borders. Congestion in the European market has also led to a downward trend in prices, as for prices of full fat milk powder.

Another side effect of the Russian embargo is the emergence of countries that can replace the EU. The embargo has led Russia to enter into contracts with non-European countries to meet their food needs. An economy like Argentina, plagued with new financial difficulties, will benefit, boosting its economy by exporting more fruit, dairy produce and meat to Russia. This is also the case of Brazil, Chile, Ecuador and, more recently, Turkey or Morocco. Moreover, all these economies have the depreciation of their currencies to boost their price competitiveness. These sources of supply will allow Russia to postpone the risk of inflation which could arise due to an inadequate supply of foodstuffs. Has EU shot itself in the foot?


1 The full article is available from
http://www.chambres-agriculture.fr/fileadmin/user_upload/Revue/Article/Revue_1036/1036_Embargo_Russe.pdf



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Paris, 19 December 2018