On August 6th, Russia adopted a retaliatory package of sanctions against the West. Namely, they ban imports of food coming from the US, European Union, Norway, Canada, Japan, and Australia. In theory, the initiators of the restrictions have sought to hobble Western economies by hitting their exports to Russia. In fact, Russian authorities seem to have done much more damage to Russia’s own economy instead. The total volume of food exports from the EU to Russia was 126 billion euros in 2012. However, that number represents only 9% of the EU’s food exports, a noticeable decline, yet not fatal. Nevertheless, Europe’s #1food importer is still the USA, not Russia. Russia has occupied second or third place in European trade. Meanwhile, China, India, Saudi Arabia are each rapidly rising economies with growing population and thus growing demand for food. As a result, it won’t take long for Europe to divert its food exports to these regions thereby ameliorating the eccentricities of its rowdy eastern neighbor.
The new measures will be detrimental for the Russian market and ordinary Russian citizens. First, it is important to consider that before the restrictions so-called “domestically-produced” products were made partially with imported ingredients. Russia’s hot dog and sausage industry relies on imported ferments and fillers. Russian chocolate also depends on foreign ingredients. To make a chocolate bar, Russian confectioners add local ingredients like sugar to cacao solids brought from abroad.
Second, to maintain the variety and quality of home-made goods the market needs to be open and conducive for small and medium business. The companies, in their turn, need to be competitive. Russia’s current situation is the opposite. A few monopolists dominate the market. Shelf space is literally purchased, rather than won on the basis of price or quality. In such an environment, there is little chance that the isolated Russian food market will be able to offer a large assortment of goods at similar to Western quality.
Third, barring Western brands from Russian market won’t really stop the flow of goods from the West. Belarus and Kazakhstan haven’t adopted any restrictions on foreign food items, plus both are in the Customs Union with Russia, which acts as a free trade zone. Thus, Belarus and Kazakhstan will become essentially the gateway for foreign food to enter Russia’s market. Replacing foreign stickers with “Made in Russia” is a well-known trick practiced in Belarus. So, little will change from the exporters’ perspective; however, people who work along its path will get a lot richer. In Russia, instead of the anticipated deficit of foreign foods, there will be a giant black market controlled by gangsters, who will charge outlandish prices. The situation will be analogous to that of Venezuela, which implemented currency controls, resulted in nothing more than a thriving black market for foreign currency.
Who will pay for a social experiment with entirely predictable consequences? Obviously, Russia’s ordinary people will.. For how long? For at least a year, as Putin made it clear. Bearing in mind recent attempts to protest in the streets over the past two years, it’s highly doubtful that the Russian people will be eager to tolerate such a denial of their basic rights. It is also doubtful that after such a retaliation against Western pressure and sanctions, Putin will still be enjoying his current 85% approval rating. Prohibition of food imports from the West is a draconian measure primarily directed against Russia’s own people and yet is just a mosquito bite for the targeted countries. In this regard, tension in Russian society will increase. Russian indignation with their decision-makers should spill over to other social clusters and including both the older generation and low-income groups, giving it the potential to become massive. In the best case scenario, Putin will soon realize that and change their policy trajectory. In a worst case scenario, the peoples’ resentment might soon grow to a revolutionary fervor.