Limited Overall Impact From Import Ban

BMI View : In retaliation to trade sanctions imposed by the US and EU, Russia on August 7 introduced a one-year ban on imports of certain agricultural products from select countries. Multilateral food trade will, generally speaking, be relatively unaffected; however the US poultry sector and Norwegian fish sector will be the biggest losers. The Brazilian meat sector and Belarus's agricultural industry will be the greatest beneficiaries.

On August 7, Russia introduced a one-year ban on imports of certain agricultural products from select countries. We outline the major implications of the trade sanctions below:

  • Multilateral food trade will, generally speaking, be relatively unaffected.

  • The US poultry and Norwegian fish sectors will be the biggest losers.

  • The Brazilian meat sector and Belarus's agricultural industry will be the main beneficiaries.

  • The import ban is likely to marginally increase Russian food price inflation, which will provide added impetus for Russia's central bank to raise interest rates in the coming months.

  • The ban adds downside price pressure to world grain markets. 

In retaliation to trade sanctions imposed by the US and EU, Russia on August 7 introduced a one-year ban on imports of certain agricultural products from select countries. Russia will ban imports of the following agricultural products from the US, EU, Canada, Australia and Norway:

  • Beef

  • Pork

  • Poultry

  • Fish

  • Milk and dairy products

  • Vegetables

  • Fruit and nuts

  • Prepared meat

  • Finished food products

Brazil Stands To Benefit Most
Russian Food Imports By Origin - Poultry (LHC) & Pork, % Of Total Imports In Value Terms In 2013 

Limited Overall Impact From Import Ban

BMI View : In retaliation to trade sanctions imposed by the US and EU, Russia on August 7 introduced a one-year ban on imports of certain agricultural products from select countries. Multilateral food trade will, generally speaking, be relatively unaffected; however the US poultry sector and Norwegian fish sector will be the biggest losers. The Brazilian meat sector and Belarus's agricultural industry will be the greatest beneficiaries.

On August 7, Russia introduced a one-year ban on imports of certain agricultural products from select countries. We outline the major implications of the trade sanctions below:

  • Multilateral food trade will, generally speaking, be relatively unaffected.

  • The US poultry and Norwegian fish sectors will be the biggest losers.

  • The Brazilian meat sector and Belarus's agricultural industry will be the main beneficiaries.

  • The import ban is likely to marginally increase Russian food price inflation, which will provide added impetus for Russia's central bank to raise interest rates in the coming months.

  • The ban adds downside price pressure to world grain markets. 

In retaliation to trade sanctions imposed by the US and EU, Russia on August 7 introduced a one-year ban on imports of certain agricultural products from select countries. Russia will ban imports of the following agricultural products from the US, EU, Canada, Australia and Norway:

  • Beef

  • Pork

  • Poultry

  • Fish

  • Milk and dairy products

  • Vegetables

  • Fruit and nuts

  • Prepared meat

  • Finished food products

In the table below, we outline the major exporters of these products to Russia, and give our opinion on the countries that stand to gain and lose the most as a result of the measure.

Banned Food Products & Implications
Product Imports As % Of Russia Consumption Major Exporters Major Losers Major Beneficiaries
Beef 42.7% Brazil, Paraguay, Belarus n/a n/a
Pork 20.3% Brazil, Denmark, Germany, Canada Denmark, Germany, Canada Brazil
Poultry 14.7% US, Belarus, Brazil US Belarus, Brazil
Fish n/a Norway, Chile, China Norway Chile, China
Dairy 1.1% Belarus Netherlands, Finland Belarus, Ukraine
Vegetables n/a Turkey, China Netherlands, Poland Turkey, China
Fruit n/a Ecuador, Turkey Poland, Spain Ecuador, Turkey
n/a = not available/applicable. Source: USDA, Trade Map, BMI

Meat (Beef, Pork And Poultry)

The US poultry sector will be one of the main losers from the sanctions, but we believe that poultry companies will be able to find other export markets in the coming months. Though the US accounts for about 40% of Russian poultry imports in US dollar terms in 2013, Russia's share of US poultry exports stands at only 6.1%. The share prices of US poultry companies Pilgrim's Pride and Sanderson Farms have each fallen by more than 10% since late July, and US poultry companies in general could experience additional share price weakness in the coming weeks. However, we believe they will be able to redirect exports and limit much of the negative impact.

The pork industry in Denmark, Germany and Canada will also be adversely affected, as these countries account for 14.9%, 13.7% and 11.5% of Russia's pork imports respectively. We believe that the main beneficiaries as a result of the sanctions will be Brazilian meatpacking companies such as BRF and Marfrig, though their share prices have not yet significantly reacted to the news. In our view, Brazil will increase its pork and poultry exports to Russia to take up the shortfall from EU and North American providers. In 2013, Brazil accounted for 20.5% of Russia's pork imports and 17.6% of Russia's poultry imports in US dollar terms. We also recognise the potential for Belarus to increase poultry exports to Russia, since the country only accounts for 19.2% of Russian poultry imports.

Regarding beef, we believe that there will be a very limited effect on multilateral Russian beef trade, as none of Russia's major export partners exist on the banned countries list. Brazil currently accounts for the overwhelming share of Russian beef imports.

Brazil Stands To Benefit Most
Russian Food Imports By Origin - Poultry (LHC) & Pork, % Of Total Imports In Value Terms In 2013 

Fish And Dairy

We believe that the Norwegian fish sector will be another of the major losers following sanctions. In 2013, Norway accounted for 39.9% of Russian fish (and related products) imports in US dollar terms. Indeed, the share prices of Norwegian fish companies such as Marine Harvest and Salmar fell by between 10% and 15% on the day of the sanctions announcement. According to Bloomberg data, fish accounts for 80% of Norway's exports to Russia.

There will be limited effects on Russia's dairy sector. Imports account for just 1.1% of Russia's fluid milk consumption (which comprises both milk and products derived from milk such as butter and cheese). Owing to the limited shelf life of milk and dairy products, most production is domestic. Major dairy exporters to Russia include the Netherlands and Finland, which will see their exports banned. However, we highlight that this impact will be muted.

Fruit & Vegetables

Similar to dairy, we believe that the impact of sanctions on imports of fruit and vegetables will be subdued. Russia grows most of its own fruit and vegetables owing to its diverse climate, though it imports some produce. Most of this comes from Turkey, China and Ecuador. A mix of EU countries, such as the Netherlands, Poland and Spain, account for a fairly large percentage of Russian imports, though the impact on these countries will be limited.

Impact On The Russian Consumer

The import ban will have a marginal effect on the Russian consumer. We believe that of all the agricultural products, domestic meat prices are most likely to rise as Russia imports a very high proportion of its meat requirements - higher than most OECD countries. In particular, Russian poultry price inflation is at multi-year highs, and the removal of its largest source of poultry imports (the US) may drive food prices higher. We therefore see possibility that food price inflation could increase in the coming months. That said, we believe that a significant rise in food price inflation is unlikely, as Russia will be able to acquire much of its pork, poultry and fish requirements from other trade partners such as Brazil and Belarus. Indeed, weakness in the Brazilian real will continue to encourage external trade from the Latin American country. Furthermore, consumers may substitute away from meat to cheaper fruit and vegetables.

Poor Time To Ban Poultry Imports
Russia - Food Price Inflation (% y-o-y, LHC) & Poultry Price Inflation (% chg m-o-m)

If food price inflation markedly rises, we believe there is a significant chance that Russia will raise interest rates in the coming months. Our Country Risk team holds the view that the country's hawkish central bank would be willing to raise rates if inflation were to increase, and rising food price inflation - which we believe is a likely scenario - could provide a major catalyst.

Impact On World Agricultural Markets

The Russian sanctions will present downside pressure on CBOT grain prices. The ban on imports is likely to mostly affect meat consumption in the country, which, in turn, adds downside pressure on grain consumption growth. Russia is one of the world's largest producers of wheat, though we do not believe the country will reduce its exports in 2014/15. Most of Russia's wheat exports go to the Middle East and North Africa region, which is not involved in the trade dispute.

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