Who will Russia's food sanctions hurt more?

Russia's newly announced sanctions against food imports from some Western nations are being seen as a tit-for-tat response to stepped-up U.S. and European sanctions against Russian business interests, as the ongoing crisis in Ukraine deepens.

Among the unanswered questions so far, is how will these sanctions ultimately affect both the Russian and Western economies.

The economy of modern Russia is far more globalized and dependent on food imports than its Soviet-era counterpart. The investing website ValueWalk says U.S. exports of food and agricultural products to Russia totaled $1.3 billion last year, while the European Union exported $15.8 billion to Russia in 2013.

"The first casualties (of the new sanctions) would be the domestic (Russian) market," Abdolreza Abbassian, a senior economist with the U. N. Food & Agriculture Organization, told Reuters. "However it will have some implications for the farmers in the producing countries."

At a press conference in Germany on Thursday, European Central Bank President Mario Draghi mentioned that "heightened geopolitical risks" -- an apparent reference to the Russia-Ukraine crisis -- could hamper the eurozone's ongoing attempts to recover from its devastating debt crisis. But he also mentioned that key ECB interest rates would remain unchanged as the eurozone continued its "moderate and uneven recovery."

Some U.S. food sectors are expected to feel the impact of the new Russian sanctions, especially poultry producers, which exported about 267,000 metric tons of chicken, valued at $303 million, to Russia last year.

But the National Chicken Council and USA Poultry & Egg Export Council don't appear too fazed by the news from Moscow.

"As its domestic poultry industry has expanded, Russia has in recent years become less important as an export market," they said in a press statement. "Russia currently accounts for only about seven per cent of total U.S. poultry export volume. In the mid-1990s, exports to Russia were as much as 40 per cent of that total."

"As a result," they continued, "we do not expect that a Russian ban on U.S. poultry imports will have a great impact on our industry. The biggest impact, we believe, will be on Russian citizens who will be burdened by higher prices for all food products, especially meat and poultry."

And compared to other world markets, Russia does not lean heavily on U.S. food exports.

"U.S. exports to Russia are less than one percent of our total agricultural exports," said Amanda Leister, an assistant professor of agricultural economics at Colorado State University, who specializes in trade policy.

"Some of the other key exporters of agriculture have also been excluded, as well," she notes. "In truth, (the sanctions are) less concerning for U.S. agriculturalists and most concerning for Russian consumers."

Leister believes Russia plans to offset the banned Western foods with a boost in domestic production. But in the short term, she noted, "Russian producers are not going to be able to respond in such a way to fill that void that will be caused by the loss of imports."

Financial analysts believe Russian President Vladimir Putin has invested too much political capital in his approach to the Ukraine crisis to back down now, even in the face of tighter Western economic sanctions.

"Now that Russia has demonstrated that, at least under the current government, geopolitical ambitions will trump economic concerns and the rule of law, it offers even less encouragement to investors, either foreign or domestic, to place capital there," said Charle Movit, a senior economist at IHS, an international business research group.

Movit believes the new sanctions will likely drive Russia's economy into recession for the rest of 2014, forcing Moscow to provide economic stimulus in 2015 through public sector investment and the financing of public private projects.

In Washington, some officials are criticizing the Russian sanctions as a self-inflicted economic wound.

"Retaliating against Western companies or countries will deepen Russia's international isolation, causing further damage to its own economy," a senior Obama administration official told CBS News' Major Garrett.

"Russia's Central Bank ... pointed out that bans on imported food will push up Russia's already high inflation rate, eroding the purchasing power of Russian citizens."

That unnamed official also noted that even before the Western sanctions against Moscow over the Ukraine crisis, analysts expected $100 billion in capital to leave Russia this year as "foreign investors are increasingly staying away, and Russian investors are fleeing."

  • Bruce Kennedy

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