Russian counter sanctions open opportunities to export vegetables to Russia

This article gives details about the sanctions placed by the Russian Federation on food from United States of America, Canada, Australia, Norway and the European Union.  There are also sanctions in place against Turkish fruit and vegetables and Ukraine has sanctions against exporting to Russia.

The details will help farmers, growers and processors to decide whether to pursue this unique opportunity to enter a wide open new market. The most affected markets are Fish, cheese, other dairy products, pork, fruit, vegetables and sausages.  Opportunities for individual countries are also addressed, including surprisingly the United Kingdom which may have an opportunity to export sheepmeat.

The table of affected food groups below is based on Volga Trader’s original research and goes into more detail than the press statements by the Russian and EU administrations.  It allows the potential exporter to target opportunities more precisely.    The sources for this table are based on the Russian Federation Presidential Decree 560, a question and answer session speech by Prime Minister Medvedev and Minister of Agriculture Nikolai Fyodorov and EU export statistics.  This table does not include all food imported from the USA, Canada, Norway (mostly farmed salmon) and Australia as the amounts are small, typically less than a tenth of the imports from the EU unless noted in the discussion.

The column   “Imports as a share of the Russian market” is an indication of the stress felt by Russian importers as they seek to replace the lost sales.  It uses figures from Medvedev’s speech which was based on tonnes of food.  There are other versions of these figures in circulation which are based on value or different splits of HS codes.  In these the share of imports is often higher.  Where the share of market held by EU and US imports was high, supplies are now extremely short and buyers are looking for new suppliers to avoid going out of business.  The remaining data concerns the value of the now banned imports from the EU.  The HS Code is the customs classification for the type of food and the value of imports is in millions of Euro, the quantity is in kilotonnes.

In addition, not shown on the table are the sanctions imposed against the import of Turkish Fruit and Vegetables. Russia is short of about $4Bn worth of fruit and vegetables. Tomatoes are particularly badly affected. These shortages amount to about 20% of the Russian market. This is four times more than the EU sanctions shown in the table.
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Generic Type	Imports as share of Russian market by tonnage	HS Code	Description	Imports from EU Value m€	Imports from EU Quantity kt
Meat	Beef 2.5%	0201	Beef, fresh or chilled	53 431	13 726
		0202	Beef, frozen	57 123	18 653
	Pork 13%	0203	Pork, fresh, chilled or frozen (plus an additional €197m from the USA and Canada)	968 574	369 920
	Poultry 7.9%	0207	Poultry including offal (plus an additional €247m from the USA)	78	74
		0210	Salted meats	20 442	3 737
Fish	Fish 13.3%	0300	Fish and shellfish (plus an additional €1.3 Bn from Norway)	153 761	110 631
Dairy	All Dairy 1%	0401	Fresh milk	52 750	37 959
		0402	Concentrated and sweetened milk	80 826	26 656
		0403	Buttermilk, yogurt, kefir etc	51 377	29 604
		0404	Whey and other milk constituents	34 490	27 482
		0405	Butter	144 199	35 363
	Cheese 30%	0406	Cheese and curd	985 114	257 230
Vegetables	All 5.8%	0701	Potatoes	40	94
		0702	Tomatoes	255	230
		0703	Onions	41	90
		0704	Cabbages	49	118
		0705	Lettuce	42	34
		0706	Carrots	35	91
		0707	Cucumbers & Gherkins	40	35
		0708	Leguminous	1	-
		0709	Other	200	140
		0710	Frozen	54	111
		0711	Preserved for processing	-	-
		0712	Dried vegetables	9	2
		0713	Dried legumes	4	4
		0714	Other roots and tubers	-	-
Fruit	All 14.7%	0801	Coconuts	2	2
		0802	Other nuts	8	1
		0803	Bananas	123	59
		0804	Dates, figs	45	34
		0805	Citrus fruit	126	152
		0806	Grapes	64	47
		0807	Melons	8	8
		0808	Apples	523	991
		0809	Apricots, cherries	249	215
		0810	Other fruit, fresh	196	119
		0811	Fruit & nuts, processed	26	45
		0812	Fruit & nuts, preserved	34	19
		0813	Dried fruit	11	2
Sausages		1601	Sausages (from this HS Code only 00)	55 148	13 652
Malt extract		1901	Malt extract (From this HS code only 9100 & 9200)	15	8
Processed food		2106	Milk preparations made from vegetable fat.(5 subcodes from this HS code)	No data	No data

​The biggest single product affected was the import of fresh salmon from Norway which lost over a  one billion Euro of sales.  Pork in its various forms is also a huge part of the sanctions.  The opportunity to import other forms of meat as a substitute for pork is very large.  Meat and offal from sheep, goats, horses and at a competitive price, venison are all options.  The sanctioned dairy products represent a large share of the Russian market and retailers will soon be stressed to find replacement suppliers especially for cheese.

Philip Owen, sales director of Volga Trader said “Volga Trader can assist new suppliers to enter the Russian market.  We have comprehensive access to Russian import data and uniquely, the database technology to make it meaningful to suppliers.  We employ full time project managers in Russia who understand marketing and negotiation because of years of senior level experience.  We can get you in front of the buyer..”

However, he added words of warning.  “Export to Russia is not for beginners.  There are costs such as our fees, product certification to Russian standards, printing of retail packages in Russian and sometimes shipment to Russia which may need export finance.  You will need a budget of 10 to 20 thousand Euro to get the job done.  However, doing it yourself by frequent plane trips will probably cost more, deliver less and use a lot of your team's time.  Most of the money will be spent after you have found a customer so it is not all speculative.  Of course, on occasion, especially now at the early stages of sanctions, a Russian importer may offer to buy bulk produce, at EXW prices paid in advance so removing all problems but don’t rely on that. It is very much a benefit for the early movers.  Volga Trader can give you the extra resource so that you can make a serious effort to find Russia importers, wholesalers and distributors.”

Why are there sanctions?
Led by the USA, a group of countries imposed sanctions on state owned banks controlled by Russian Government officials believed to be responsible for the decision to annex Crimea from the Ukraine by referendum.  These sanctions were quite technical.  They restricted the ability of Russian banks to raise finance for credit periods of more than 90 days.  Rosselkhozbank, the main agricultural bank, finances the storage of Russian agricultural produce in the winter.  It needs interbank loans of more than 90 days.  It’s difficulty in raising long term finance prompted the Russian Government to declare a ban on imports of food from the USA led countries.  Early announcements suggested that all imports of food were banned from USA, Canada, Australia and Norway.  Actually, it turns out that the sanctions are the same as those against the European Union.  Generally, the categories where imports have been banned are businesses where Russian producers have strong industry associations that have been demanding protection from foreign suppliers.  The total opportunity for new suppliers to replace these lost food imports is over 13 billion euro.  The sanctions are in place for a year.

Dimitry Medvedev, the Prime Minister and former President, said when discussing the list on 7th August  2014 that the list was very unlikely to be expanded. Volga Trader believes that this is because all the major trade associations for food producers have already been satisfied and the large supermarkets, who are also powerful, will protest strongly against more supply chain disruptions. Further counter sanctions are likely to be in other industries such as pharmaceuticals and automotive components not food.