The Russian ban on the imports of some agricultural products from the US, the European Union, Australia, Canada and Norway has sparked much debate over the likely impact on American and European farmers and on the potential windfall for Brazil as it takes up the slack. But our research has revealed that other lucky countries are well positioned to outdo the giant from South America as the spoils are divvied up.
Our work for TradeSift, a project based at the University of Sussex and housing a team of international trade policy specialists, has run the numbers to identify the possible ebb and flow of trade in the wake of measures introduced by Russian president Vladimir Putin. The key findings indicate that while Brazil is indeed in position to benefit, it will face tough competition from Argentina, Belarus and China.
Specifically, Brazil could potentially gain at the expense of the US but even more so at the expense of the EU which is the largest exporter of these goods to Russia (30% of total Russian imports of these products compared with a US share of under 6%). The exports of Argentina, Belarus and China to Russia, meanwhile, are more similar to those of the EU, than are Brazil’s. These countries therefore stand to gain proportionately more than Brazil from the exclusion of the EU.
They will all be rivals in the same market, though, and this is unlikely to end up in a winner-takes-all result – although there may be a degree of political favour shown to Russia’s neighbours.
We use two relatively simple indicators to point to those countries likely to gain most from the closure of the Russian market for selected agricultural goods (and in current circumstances we have added Ukraine to the counties excluded).
The first table below is a measure of the similarity of export structures, which allows us to see who currently competes most directly with the excluded countries in these products. This indicator, the Finger–Kreinin index (FK), varies between 0 and 1. When the FK is equal to 1 this means that a pair of countries export exactly the same goods in exactly the same proportions. When the indicator is equal to zero this means there are no export products in common. More crudely, an FK of 0.50 for example can be interpreted as representing a 50% overlap in export structures.
In the second table, below, we look at the market shares of the excluded countries to see how much trade is open to substitution. Simultaneous analysis of the FK and the trade share gives a rough idea of what extra share of Russian trade might be accessible to a particular non-excluded country.
Reaping the results
Our first table shows that Brazil’s pattern of exports of the banned products to Russia is more similar to those of the US, Australia and Canada than to the EU. Other countries, such as Mexico and Paraguay present an even higher degree of similarity with Australia and Canada respectively. On the other hand, Argentina, China and Belarus show a higher degree of similarity with the EU than with the US. Consequently, it is expected that Russia would be likely to import more from Brazil those products previously imported from the US, and it would import more from Argentina, China and Belarus those products previously imported from the EU (and Ukraine).
Now, of course, the magnitude of the opportunity to increase exports to Russia by Brazil (or any other country) would depend also on the share that the banned countries have in the imports of Russia in these products. If a given country exports very similar products to a banned country but the given country accounts for just a tiny share of Russian imports, the effect would tend to be minimal. Although Brazil presents a high degree of similarity in the US exports to Russia, the US only represents 5.7% of Russian imports. On the other hand, the EU represents almost 30% of the Russian imports. This suggests that the absolute size of the opportunity would be bigger with respect to the EU even if the proportionate effect is bigger with respect to the US.
And all that means countries such as Argentina, Belarus and China – given the large share of the EU and their relatively high degree of similarity with the exports from the EU – would be likely to benefit more, proportionately, and possibly in absolute terms too. Similarly, Mexico and Paraguay might benefit because they could displace similar imports from Canada and Australia.