By Carl Meacham
The past eight months or so have seen much of the international community focusing on the unfolding crisis in Ukraine, as countries and international organizations alike have struggled to respond. Over the summer, the United States and the European Union began a process of imposing sanctions on Russia in an effort to dissuade Vladimir Putin’s further escalation of the conflict. And that process continues to date, with another round of joint U.S.-EU sanctions on the Russian oil, defense, and finance sectors imposed this past weekend.
In response to the summer’s sanctions, Russia announced a one-year full embargo on food imports from the countries participating in the sanctions in a retaliatory measure aimed to harm those states’ export economies.
But with Russia’s traditional sources of food imports off the table, who stands to gain? Could Latin America be poised to fill the void—and derive significant economic benefits—from the ongoing
sanctions?
Q1: What is the Russian ban on food imports?
A1: On August 7, Russia announced a one-year full embargo on food imports from the United States, European Union, and several of their allies, including Australia, Canada, and Norway. This measure was adopted after the United States and European Union tightened existing economic sanctions given the further escalation of the Ukraine crisis, where Russia is accused of supporting pro-Moscow separatist rebels in the East.
That round of sanctions tightening by the West came after suspicions of Russian involvement in the downing of Malaysia Airlines Flight MH17 on July 17, in which all 298 passengers died. The first round of sanctions hit following Russia’s annexation of the Crimea region in March of this year.
Russia is the European Union’s second-biggest market for food exports—consuming 10 percent of all European food products, valued at about US$43 million a year. The ban hit hard in the United States and Norway, as well, including US$303 million worth of U.S. chicken and upwards of US$1 billion of Norwegian seafood. Once it instated the ban, Russia began to seek new ways to boost farm production and to substitute for banned goods in order to prevent an upward surge in food prices. And this need for substitutes has created an unusual opportunity for countries in Latin America—especially Argentina, Brazil, Chile, Ecuador, and Uruguay.
Many of these countries, while already exporters to Russia, have been limited in export volumes by Russia’s strict phytosanitary import requirements and permit system. But since the announcement of the embargo, Russia has eased many of those requirements while hindering future imports from Europe by revising their phytosanitary standards.
In response, the European Union has urged countries not party to the sanctions or ban to condemn Russia’s participation in the Ukraine conflict by refusing to increase agricultural exports to the country.
Q2: Is Latin America willing to fill the gap in Russia’s economy?
A2: Several Latin American countries have indicated their desire to increase exports to Russia in order to boost their own economies.
Brazil is in favor of strengthening its commercial ties and becoming a long-term, stable partner for Russia. Chile has assured it can significantly increase its exports of poultry, swine, fish, vegetables, and fruits. Uruguay, in turn, has stated that it had never agreed with European sanctions and that it intends to significantly increase its meat exports to Russia.
And, just as it exported wheat during the 1980 Western wheat embargo on the Soviet Union, Argentina has announced its willingness to export meat and milk to Russia to help meet the country’s sizeable demand.
The effects of the Russian ban on food imports can already be seen in statistics, with Russia already surpassing Hong Kong as the world’s largest importer of Brazilian meat. But the future of trade between Russia and the region depends on a series of other factors—not just governments’ willingness to export their goods—as the size of Russia’s internal market and the (planned) one-year duration of the embargo will, ultimately, pose significant challenges for Latin American countries commercially engaged with Russia.
Q3: What are the short- and long-term effects of the import ban on Latin America?
A3: The current demand for food products creates a window of opportunity for Latin American countries to expand their exports—so, in the short run, this adds up to modest economic gains and export boosts for the Latin American countries willing to fill the gap.
But it’s important to recognize the limitations on those gains. Though Latin American countries will enjoy fast export boosts, it cannot be assumed that this increase will give way to any kind of stable, long-term connection between Russia and countries in the Americas—and most of this uncertainty has to do with the short length of the embargo.
Latin American countries, to date, have expressed their interest in meeting Russian food-import needs—but at the moment, the region does not have the capacity to completely respond to Russia’s demand. Beyond the short term, Latin American countries have the ability to expand their production—increasing their output of dairy, meats, etc.—to meet their own needs while feeding Russia’s population as well.
This is where the problem arises. Dramatically increasing production requires larger-scale investment in existing Latin American industries, investment that is not worthwhile without long-term contracts on agreed-upon export volumes. Without that commitment, a fluctuation (or drop-off) in Russian demand—with, for example, the end of the embargo and the normalization of trade flows between Russia and Western Europe—would lead to overproduction, loss of resources, and grinding industrial contraction.
Russia could, in theory, make up for this risk by paying higher-than-market prices for Latin American foodstuffs. But in reality, this is unlikely. Though Russia faces incentives to increase its trade with Latin America, it has other willing and able markets for food as well—including China and India. These large countries’ greater capacity to quickly expand exports to Russia also damages the competitiveness of Latin American products, making any increase in trade with Russia unlikely to be significant.
Conclusion: As Russia’s ban on food imports pushes the country to diversify its supply chain, Moscow will likely continue to look to Latin America to fill some of its needs—both commercial and diplomatic. But the nature of the situation makes it very unlikely that Latin American countries will develop significantly stronger commercial ties with Russia—especially in the long run.
The likely suppliers, in reality, could be Asian producers, whose immense size and whose capacity to absorb external shocks make them much better equipped to meet Russia’s needs—and may even leave them poised to threaten Europe’s place in the Russian economy for years to come.
Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Vitória Moreira, intern scholar with the CSIS Americas Program, provided research assistance.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2014 by the Center for Strategic and International Studies. All rights reserved.
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