Food subsistence at a time of economic sanctions
Date of publication
01.03.2016Igor Nikolaev, Director of Institute for Strategic Analysis, spoke on “Food subsistence in the setting of economic sanctions”. He noted that the impact of food embargo on agricultural production and food market is quite ambiguous. On the one hand, counter-sanctions have had certain stimulating effect on the dynamic development of domestic agri-production: the level of import substitution has risen up to 95-97 per cent. On the other hand, food inflation has been heavily affected and is expected to be further accelerated.
“Consumer prices have risen by 11.4 per cent by the end of 2014 and by 12.9 per cent by 2015, whereas in 2013, prices increased by as low as 6.5 per cent. Such price hikes have been, no doubt, driven by weaker rouble, while the Russian counter-sanctions have also had considerable effect on a prices environment. This was unanimously recognized by the Bank of Russian and the Ministry of Economic Development,” said Nikolaev.
The expert opines that the aftermath of the embargo imposed on certain types of food stuffs and agri supplies from other countries that have imposed their sanctions against Russia hasn’t been thoroughly assessed, while the hasty action on the part of the government could affect not only the quality of life of common people but the level of agricultural production.
He went on to say, “If we compare economic performance for 2015, the year Russian sanctions were effective on a full-scale, with that for 2014, the year sanctions were just imposed, what we observe is even weaker performance of agri-business and food industry. Agri-production grew by 3.5 per cent in 2014, while 2015 saw a decrease to 3 per cent; food industry grew by 2 per cent in 2015, which is half a percentage point weaker compared to the 2014 performance.”
Natalya Shagayda, Director for the Agriculture and Food Policy Centre at RANEPA, dwelt specifically on structural changes in agricultural market. Despite the sanctions, domestic currency depreciation and sharp increase in costs of seed material and means of productivity improvement, the country’s cropland hasn’t shrunk, it is still at the same level, and this could be deemed as a guarantee for stability. A number of segments has seen an increased share of domestic manufacturers. Retailers have demonstrated increased interest in cooperation with domestic suppliers. These developments could be assessed as positive change. Meanwhile, agricultural producers are realigning their activities to focus on production of export products, which could affect the products assortment. Product prices are being driven up, which is being brought about mostly not only by sanctions and depreciation of rouble, but by structural imbalance inside the sector, specifically high concentration of production which entails market monopolization. Sanctions cause further concentration of monopoly power rather than eliminate it. Another negative trend mentioned by Natalya Shagayda is the lack of capacity to reduce production costs in agricultural sector in this country. She knowledgeably noted that domestic producers’ prices have come closely nearer to global benchmark prices and substitution of exported goods by domestic products normally does not drive product prices down.
Vasily Uzun, a leading researcher, the Laboratory of Agrarian Policy, the Gaydar Institute, opines that participation in international division of labour is critical to the country’s economy. He noted that imposition of sanctions was politically biased rather than economically motivated. As explained by Uzun, to foster production of foodstuffs inside the country, it would be wiser to boost export rather than reduce import through sanctions. He believes, Russian agricultural sector had been quite robust before sanctions were imposed, except for a few elements.
Yevgeny Gontmakher, a renowned Russian economist, a professor of the National Research University Higher School of Economics spoke on social and economic aspects of food counter-sanctions. Agri-producers while favouring protectionist measures cannot saturate domestic market with goods of adequate level and in adequate amounts. This is partly because they believe risks associated with rescission of sanctions are high, which prevents large-scale investments into production. Furthermore, consumption structure is changing due to the economic environment: income of a number of population categories is dwindling, inflation, especially food inflation, which is dubbed by the expert as a poverty tax, drives changes in the range of consumable products. More and more people have to spend less and be thrifty when it comes to choice issue, which drives changes in a supply pattern and cumulatively affects the quality of life.
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