Russia is responding to fresh sanctions from Canada, the U.S. and other countries with a ban on food imports for a year.
Russian Prime Minister Dmitry Medvedev says the ban covers Canada, the U.S. the European Union, Australia, Norway and covers:
- Milk and milk products.
- Fruit and vegetables.
The move announced Thursday was taken on orders from President Vladimir Putin in response to sanctions imposed over the crisis in Ukraine. The ban will cost farmers in North America, Europe and Australia billions of dollars but also isolates Russian consumers from world trade to a degree unseen since Soviet days.
Russia's sanctions will mostly affect Canada's pork industry. Canada's agricultural exports to Russia amounted to $563 million in 2012, according to Agriculture and Agri-Food Canada, and most of them were frozen pork.
Canada on Wednesday slapped new sanctions and travel bans on several top Russian and Ukrainian politicians and groups with ties to Putin's government. Those sanctions, imposed in co-ordination with the U.S. and the EU, came amid reports Russia is massing thousands of troops along the Ukrainian border.
Prime Minister Stephen Harper has frequently said Russia's occupation of the Crimean Peninsula and provocative military activity in eastern Ukraine is a "grave concern" to Canada and the world.
Harper said Canada is prepared to take further actions if Putin's government continues its military aggression.
Russia depends heavily on imports
Russian stock indexes initially fell by about 1.5 per cent on the news before recovering most of the losses a few hours later.
Agriculture Minister Nikolai Fyodorov acknowledged that the measures would cause a short-term spike in inflation, but said he did not see a danger in the medium or long term. He said Russia would compensate with more imports of products from other suppliers such as Brazilian meat and New Zealand cheese.
Russia depends heavily on imported foodstuffs — most of it from the West — particularly in the largest and most prosperous cities such as Moscow. In 2013 the EU's agricultural exports to Russia totalled $15.8 billion US, while the U.S. Department of Agriculture says food and agricultural imports from the U.S. amounted to $1.3 billion.
Medvedev argued that the ban would give Russian farmers, who have struggled to compete with Western products, a good chance to increase their market share.
But experts said that local producers will find it hard to fill the gap left by the ban, as the nation's agricultural sector has continued to suffer from poor efficiency and shortage of funds.
While the government claimed it will move quickly to replace Western imports by importing more food from Latin America, Turkey and ex-Soviet nations to avoid empty shelves and price hikes, analysts predicted that it will further speed up inflation.
Chris Weafer, an analyst at Macro Advisory in Moscow, said the ban will likely speed up inflation and further cloud an already grim economic outlook. "Along with higher interest rates, higher food costs will mean that households have less money to spend and that will depress the economy," he said.
Market watchers said consumers in the expensive food segment will suffer the most, losing access to goods like French cheeses and Parma ham, but others will also eventually feel the brunt as food variety will shrink and inflationary pressures increase. With retail chains stocked up for months ahead, the ban will take time to hurt, however.
The measure led to sardonic comments across Russian online media and liberal blogs, bringing reminiscences of empty store shelves during the Soviet times, but there was no immediate indication of consumers trying to stock up.
Moscow will be hit hard
The damage to consumers inflicted by the ban will be felt particularly hard in big cities like Moscow, where imported food fills an estimated 60-70 per cent of the market.
Russians have relished imported food since the fall of the Soviet Union, when year-round supplies of fresh fruit and vegetables arrived and ubiquitous cheap American frozen chicken quarters became known as "Bush's legs" after the then president.
Medvedev said Russia is also considering banning Western carriers from flying over Russia on flights to and from Asia — a move that would significantly swell costs and increase flight time. He said a decision on that hasn't been made yet.
Russia may also introduce restrictions regarding imports of planes, navy vessels and cars, Medvedev said, but added that the government will realistically assess its own production potential.
Medvedev made it clear that Russia hopes that the sanctions will make the West revise its policy and stop trying to pressure Russia with sanctions.
"We didn't want such developments, and I sincerely hope that our partners will put a pragmatic economic approach above bad policy considerations," he said, adding that the ban could be lifted earlier if the West shows a "constructive approach."
If the West doesn't change course, Russia may follow up by introducing restrictions regarding imports of planes, navy vessels, cars and other industrial products, Medvedev warned, but added that the government will move carefully.
"The government understands how important such co-operation is, and naturally, we have a realistic assessment of our own capacities," he said.
EU Commission spokesman Frederic Vincent voiced regret about the ban. He said the commission still has to assess the potential impact, and reserves "the right to take action as appropriate."