Did Putin Just Harm His Fellow Russians By Banning Food Imports?

The Kremlin has its hands full with international pressure due to the Ukraine crisis. But Putin's attempts to retaliate against the West by banning food imports may be inflicting more pain at home for Russians than with trade partners.

Sep 1, 2014 at 12:12PM

Images

Russia means business, but it's tough to take seriously if you consult the data. Source: Dmitry97ken/ Wikimedia Commons.

Russian President Vladimir Putin and Prime Minister Dmitry Medvedev have been fighting fire with fire. When the United States and European Union announced expanded economic sanctions against Russia at the end of July for its role in the Ukraine crisis, Putin and Medvedev responded by placing a one-year ban on a sweeping list of food imports from the United States, European Union, Canada, Australia, and Norway that included beef, pork, poultry, fish, fruit, vegetables, and dairy products. Ouch.

The ban targeted Tyson Foods (NYSE:TSN) and the $303 million worth of chicken exported from the United States as well as nearly $1.15 billion in seafood from Norway. Meanwhile, several McDonald's (NYSE:MCD) locations were closed in Moscow for "health concerns," although government officials promised not to ban the food chain's 440 restaurants outright.

In the days following the announcement, news headlines suggested that the food import ban was big news and would surely increase pressure on Western powers while limiting their moves in the unfolding crisis. But the economic numbers say quite the opposite -- as do Russian food prices nearly one month into the 12-month policy. As it turns out, Putin may have only expedited the harmful effects of Western sanctions on the Russian economy.

The numbers game
In 2013, Russia imported $43 billion in food products to supplement domestic production and feed its 142 million citizens. While total food imports combined for a relatively low total on their own, the imports included in the ban only represent about $9 billion, or 21%, of that total. Closing the door to $9 billion in total imports from over 30 countries makes it difficult to think many noticeable effects will come outside of Russia's borders, although there are exceptions.

By the same logic, thinking Russian domestic agricultural production could pick up the slack from missing imports (without warning no less) sets lofty expectations. Consider that in 2013, Russia generated $110 billion in GDP from agriculture. In order to replace the banned food imports, the country would have to increase production across multiple food industries -- seafood, fruits, vegetables, dairy, poultry, and more -- by 8.2% (again, without planning). That's a tall order.

To further illustrate why the food import ban will hurt Russia more than the countries targeted, take a look at the importance of agriculture to each nation's economy and labor force. I've also included the importance of each nation's specific imports included in the total ban for the top 10 exporters.

Country

Agriculture % of GDP

Agriculture % of Labor Force

Banned Imports % of Agriculture

Russia

4.2%

9.7%

8.2%

Norway

1.2%

2.2%

34%

Poland

4%

12.9%

3.4%

Netherlands

2.6%

2.3%

4.7%

Spain

3.1%

4.2%

1.9%

United States

1.1%

0.7%

0.35%

Germany

0.8%

1.6%

2.4%

Denmark

1.5%

2.6%

17.7%

France

1.9%

2.9%

0.9%

Canada

1.7%

2%

1.2%

Finland

2.9%

4.4%

6.8%

Using 2013 economic estimates. Source: CIA World Fact Book, Russian Federal Customs Service.

While the Norwegian fishing industry and Denmark's pork industry would come under increased pressure, the banned products represent just 0.41% and 0.27%, respectively, of total GDP. Finland's cheese exports would also take a hit, but they still account for just 0.20% of the nation's GDP. Besides, each nation is looking for other trade partners to pick up the slack, which will be easier on an individual basis than increasing all of Russia's agricultural production in the next year.

Where Russia's food ban really hurts
Axing 21% of your food imports without increasing production (or having the ability to do so rapidly) will increase prices accordingly. The numbers aren't so pretty for Russian citizens one month into the new closed-door policy, as Niall McCarthy of Statista recently reported.

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To be fair, some of the increases in food prices shown above (calculated from the beginning of the year) are from a combination of inflation and previous sanctions. However, it's quite clear Putin and Medvedev have effectively taxed their own citizens in their efforts to stand up to the West. Aside from a few outlier industries in the 30-plus nations affected by the food import ban, many countries are not heavily dependent on trade with Russia involving banned food products. While his hands are largely tied, perhaps the next time Putin thinks about inflicting pain on trade partners in retaliation for sanctions, he will consider analyzing the economic data. 

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Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolioCAPS pageprevious writing for The Motley Fool, or his work with SynBioBeta to keep up with developments in the synthetic biology industry.

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