Trade disruptions add to regional food insecurity

Posted by on August 26th, 2014 | 0 Comments »

By Edona Dervisholli

Over the next 30 years, the demand for food is expected to double, according to GHI’s 2013 GAP Report. Factors such as climate change and volatile and extreme weather patterns will greatly impact the food supply chain and increase food insecurity. Further complicating the challenges we face to feed a growing global population are the unforeseen political turbulences, such as geopolitical tensions between Ukraine and Russia that lead to trade disruptions, sanctions and economic retaliation.

This tumult will have severe consequences for Russia’s economy as well as for countries that export there and whose products won’t make it to the Russian market. Some of the changes we are witnessing right now have already impacted countries that trade with Russia;  products such as wheat and grain prices in Britain, and products such as cheese, in France (“The sanctions fight with Russia could make Britain go hungry, 11 August 2014 – The Telegraph). Wheat products, such as bread and pasta, will experience a price increase because Russia will be unable to trade products through Crimea. Crimean citizens will suffer, as the export-related jobs in the port will decline and wheat prices will increase because wheat supplies cannot exit Crimea in order to reach international markets. In the meantime, Crimea is experiencing a shortage in food supplies, especially in dairy products which had previously been imported from Western countries. As a result, Crimea is seeking a waiver from the Russian authorities to accept dairy product imports from Ukraine.

Another example is Russia’s retaliation against sanctions imposed by Western countries in the wake of the civil war in eastern Ukraine and the annexation of Crimea. Russian President Vladimir Putin banned American, Canadian, Japanese and European agricultural imports for the upcoming year. Major products from various countries will be impacted. The impact of this ban is likely a domestic price increase for many goods in Russia, thereby making these sanctions hurtful for the average Russian consumer.

Photo: Bloomberg News

Photo: Bloomberg News

Just last year, according to US data, Russia imported over $1.3 Billion in U.S. food and agricultural products (U.S Trade and Investment Data- Bureau of Economic Analysis of the U.S. Department of Commerce). That is a lot of food to replace for the Russian economy and agricultural sector. It will be costly and require a long time to restart Russian production, and suppliers might not have sufficient production capacity to meet the demand in the short run. Switching food production is not easy and may result in higher prices or at least an increase in food insecurity.

However, Clifford G. Gaddy, an economist specializing in Russia, recently commented on the sanctions and Russia’s outlook as it isolates itself from the international arena. According to Gaddy, these sanctions protect Russian producers who have suffered over previous years due to Western competition. Gaddy’s comments came during an appearance at the Brookings Institute’s event, ‘The Ukraine Crisis and Russia’s Place in the International Order’ on Wednesday, August 20, 2014. Gaddy’s views, however, are in the minority because most believe increasing markets and trade actually eases food security concerns. Nevertheless, many Russian consumers and retailers shared their insights and support for sanctions, such as Mr. Rusanov, director of a major Russian retail group: “Our customers are very flexible, they can adapt easily to new conditions. If they don’t see one thing, they’ll see something else.” (“Russia bans food imports from U.S., E.U.”, 20 August, 2014, Washington Post).

It remains to be seen if this regional trade disruption will have a wider trade impact on wheat prices and other food prices. However, it vital to note that countries such as Germany, the largest exporter of food and agricultural produce to Russia, will have greater challenges when faced with competition in the region for new markets. An array of agricultural products such as meats, seafood, fruits, and vegetables from various EU countries will need to find a new market or find an alternative solution until the Russian market reopens.

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