How the EU is handling Russia’s food import ban

Compensating their exporters. EPA/Wolfgang Kumm

The European Commission has announced emergency EU funding of €125m for fruit and vegetable growers hit by the ban imposed by Russia on imported Western food in retaliation for the West’s own sanctions over the Ukraine crisis. The funding is compensation for fresh produce which will be distributed for free to schools, hospitals and other institutions, instead of going to waste.

Meanwhile, Mella Frewen, the director general of FoodDrinkEurope, the European trade association for the sector, has called upon “political leaders at both EU and national levels … to seek a swift resolution to the current situation and work towards a normalised, stable and long-term trade relationship between the EU and Russia”. With leaders insisting their resolve, this might not happen any time soon, but Europe’s traders need not despair.

The emergency funding provided by the European Commission won’t offset the entire losses that Russia’s sanctions will cause, but it’s a good start. It also demonstrates that the European Union can take speedy action to offset the economic impacts of sanctions. Saying that, members states can and must take some responsibility too.

The total available in EU crisis reserves for farmers facing potentially ruinous emergencies is €420m. It would be unusual and perhaps imprudent, however, to spend this all at once. There could be another type of emergency for which the money would be needed, such as one resulting from severe weather conditions. And, although the whole European food industry will be affected by the sanctions, the extent of the impact differs considerably by country and by sector.

Russia remains the EU’s second most important food export market after the US. In 2012, the value of food and drinks exported from the EU to Russia was close to €9 billion. Russia is in fact the number one export market for some EU member states. Europe’s food and drink industry also has a large trade surplus with Russia, with the imports of foodstuffs from Russia to the EU at just €1.3 billion in 2012.

EU food and drink products make up almost half of the total Russian food and drink imports. The ban will therefore also have a significant impact on Russians, both by having an inflationary impact on food prices and by making certain products, particularly luxury ones, unavailable. However, Russian prime minister Dimitry Medvedev said he did not think the ban would push up food prices, although he also expressed the hope that the measures would not last very long.

Impact across Europe

EU exports to Russia vary from country to country, with meat, dairy and beverages being the most important categories. A large part of the EU food and drink exports to Russia come from Germany, the Netherlands, France and Poland, which means these countries are likely to be more affected than others.

Russia buys 27% of Europe’s cheese exports and 19% of its butter. The dairy industry is particularly vulnerable at the moment because production has been high and demand in the Far East has been weak. As a result, world wholesale prices are low, affecting the price paid by processors to farmers. Any increase in domestic supply could further hit prices and this would be particularly difficult for large Dutch dairies. The Finnish dairy industry is particularly dependent on exports to Russia.

Polish apple producers are another sector to be hard hit, along with the Latvian cheese industry. In Poland there has been a public campaign to encourage people to eat more home grown fruit. The UK exports relatively small amounts of farm products to Russia. In 2013 the top direct exports were £5.4m of cheese and £1.5m of poultry meat, both less than 1% of total trade.

Alternative markets

It is possible to find new markets for many products, however. For example, Russia has banned EU pork products since January because of concerns over swine flu, but producers have found new markets. German producers have increased their sales to South Korea, the Philippines, Hong Kong and Japan.

The food and drink industry as a whole is worth €3.5 trillion to the EU economy and provides 32 million jobs. Farmers are, of course, a small part of that total. Some of the effects of Russian sanctions can be offset by promotional campaigns and finding new markets. Some produce might be exported via Switzerland to Russia.

Where the EU can particularly help is with fruit and vegetables, which might otherwise be left to rot in the fields or on the trees or dumped by the roadside. Its intervention should help to deal with these sorts of problems, but solutions also need to and can be found by the producers themselves.