Why Russia Banned Food Imports from the West and Australia

Investor must-know: Russia retaliates against Western sanctions (Part 3 of 4)

(Continued from Part 2)

Russia retaliates with its own set of sanctions

On August 3, Dobrolet, a low-cost Russian air carrier, announced a suspension of its flight to the member countries of the European Union (or EU) in retaliation to the sanctions imposed against its key businesses and personnel by the EU. Soon after, on August 6, Russian President Vladimir Putin signed a decree halting or limiting imports of agricultural products from countries that have imposed sanctions against Russia.

Consequently, on August 7, Russia came out with its list of sanctions against its Western allies. Russia has banned imports of fruit, vegetables, meat, fish, milk, and dairy products from the US, the EU, Australia, Canada, and Norway.

Russian Prime Minister Dmitry Medvedev said the ban was effective immediately and would last for one year. Medvedev also said Russia was considering a ban on European airlines flying to Asia over Siberia.

Probable impacts of the Russian sanctions

Russia is a major market for food exports for both the U.S. and EU.

Russia has a strong appetite for U.S. chicken. According to the U.S. Department of Agriculture, around 8% of U.S. chicken exports go to Russia, making Russia its second largest buyer after Mexico.

Russia is the biggest buyer of fruit and vegetables from the EU, constituting about one-fourth of its vegetable and fruit exports. It’s the European Union’s second-largest market for food and drink and it has been an important consumer of Polish pork and Dutch fruit and vegetables.

While cutting down on food imports from the U.S., the EU, and other Western nations, Russia intends to increase food imports from Ecuador, Brazil, Chile, and Argentina. Russia’s agriculture minister, Nikolai Fyodorov, said that greater quantities of Brazilian meat and New Zealand cheese would be imported to offset the newly prohibited items.

Russia is facing an economic slowdown

Russia’s reputation as a preferred investment destination has already been marred by the flight of capital from the nation at an increasing pace.

Dark clouds currently dominate Russia’s investment climate . The country’s stock markets are at an all-time low, spreading negative investor sentiment among those investing in the country through exchange-traded funds (or ETFs).

Since the U.S. revealed its new list of sanctions on July 16, U.S.-listed ETFs investing in Russia like the Market Vectors Russia ETF (RSX)—which is heavily invested in top Russian firms like energy giant Gazprom (OGZPY) and Rosneft Oil Co. (OJSCY)—have seen their prices slump.

In a sign of the economic slowdown, even soft drink giant Coca-Cola (KO) has taken advertisements off four television channels in Russia. McDonald’s (MCD) cheeseburgers and milkshakes are being investigated by a consumer protection agency.

Read on to the next part of this series to learn how the Russian sanctions could affect businesses around the globe, some positively, while some negatively.

Continue to Part 4

By Surbhi Jain, Market Realist


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