Russia's Import Ban: Where Are The Opportunities?

On August 7, Russia introduced a one-year ban on imports of certain agricultural products from the US, EU, Canada, Australia and Norway. In light of the sanctions, we outlined our initial view on the major winners and losers of the decision, as well as the impact on the Russian consumer and economy (see 'Limited Overall Impact From Import Ban', August 8). In this analysis, we highlight the countries, sectors and sub-sectors which stand to benefit the most from Russia's ban.

Meat Provides The Biggest Opportunity

As a result of the ban, Russia will have to find import markets for about 40% of its agricultural imports, and 4% of its total imports. In 2013, agricultural imports accounted for 10.4% of total imports (USD terms). The table below shows the percentage of total agricultural imports by category that will be lost if new trade partners are not found for Russia. The biggest opportunities exist in categories at the top of the table, which we identify as imports of meat, dairy, fruit and nuts and fish. Throughout the article, the trade figures we quote are from 2013 and in USD terms.

Russia's Import Ban: Where Are The Opportunities?

On August 7, Russia introduced a one-year ban on imports of certain agricultural products from the US, EU, Canada, Australia and Norway. In light of the sanctions, we outlined our initial view on the major winners and losers of the decision, as well as the impact on the Russian consumer and economy (see 'Limited Overall Impact From Import Ban', August 8). In this analysis, we highlight the countries, sectors and sub-sectors which stand to benefit the most from Russia's ban.

Meat Provides The Biggest Opportunity

As a result of the ban, Russia will have to find import markets for about 40% of its agricultural imports, and 4% of its total imports. In 2013, agricultural imports accounted for 10.4% of total imports (USD terms). The table below shows the percentage of total agricultural imports by category that will be lost if new trade partners are not found for Russia. The biggest opportunities exist in categories at the top of the table, which we identify as imports of meat, dairy, fruit and nuts and fish. Throughout the article, the trade figures we quote are from 2013 and in USD terms.

Russia - % Of Total Agricultural Imports At Risk
Item 2013 Imports (USDmn) Imports At Risk (USDmn) Imports At Risk By Category (%) Imports At Risk/Total Imports At Risk (%) Imports At Risk/ Total 2013 Imports (%)
Meat 6,724.2 2,834.4 42.2 20.8 8.6
Dairy products 4,319.2 1,918.7 44.4 14.1 5.8
Fruit and nuts 6,396.2 1,771.2 27.7 13.0 5.4
Fish 2,861.3 1,502.7 52.5 11.0 4.6
Miscellaneous edible preparations 1,818.6 1,087.9 59.8 8.0 3.3
Vegetables 2,872.6 926.6 32.3 6.8 2.8
Preparations from cereals 1,229.7 803.7 65.4 5.9 2.4
Preparations from vegetables, fruit and nuts 1,600.0 609.0 38.1 4.5 1.8
Oil seeds 1,355.1 483.0 35.6 3.6 1.5
Animal or vegetable fats 1,235.6 379.3 30.7 2.8 1.2
Preparations of meat and fish 707.7 238.4 33.7 1.8 0.7
Products of the milling industry 186.0 108.7 58.5 0.8 0.3
Products of animal origin 101.4 50.8 50.2 0.4 0.2
           
Total 32,960.1 13,605.0 41.3 100.0 41.3
Note: Imports At Risk By Category is Imports At Risk/ Total Imports (%). Some sub-categories are omitted from table. Source: Trade Map, BMI

Meat (Beef, Pork & Poultry)

Russia will lose 72.1% (USD terms) of its pork imports, 51.5% of its poultry imports, and 9.3% of its beef imports. In value terms, meat imports will be hardest hit by the trade ban, with the segment contributing to a loss of 8.6% of total agricultural trade.

Russia - Beef, Pork & Poultry Imports
  Total 2013 Imports (USD'000) % Of Imports Banned
Beef 2,858,904 9.26
Pork 2,135,102 72.07
Poultry 839,337 51.52
Note: Banned imports originate from countries covered by the import restrictions; Source: Trade Map, BMI

Australia will be the biggest loser in its beef trade, and will need to find other markets for its USD130.4mn worth of exports to Russia in 2013, comprising 4.6% of Russia's total beef imports. Russia accounts for less than 3% of Australia's total beef exports, and we are confident Australia will be able to increase its exports to countries such as Japan, the US and South Korea. These three countries accounted for 62.0% of Australia's beef exports combined in 2013. Brazil will be the largest beneficiary in beef trade to Russia, as well as Paraguay, with Paraguay accounting for 21.7% of Russia's beef imports in 2013.

Russia's pork trade will face the biggest changes over the coming year, as the country has banned imports from 10 out of 11 of its largest import markets. Brazil - which made up 20.5% of pork imports in 2013 -  will be the overwhelming beneficiary of the trade ban over the next year, though we do not believe the country will be able to make up the entire shortfall. We therefore see significant opportunities in other Latin American countries such as Chile and Paraguay, as well as regional neighbour Belarus. Belarus will also be able to take advantage of the free trade agreement it has with Russia.

Russia imports less poultry than beef or pork, though would currently stand to lose over 50% of its imports for the next year. The biggest loser will be the US, as Russia is the US's fourth largest destination for poultry exports, with a 6.1% share. Some of the best opportunities will again be in Latin American markets such as Brazil and Argentina, though we believe Belarus will be the largest beneficiary, as it is Russia's second-largest exporter of poultry.

Dairy 

Russia's import ban will have a significant effect on the manufactured dairy products sector ( butter and cheese), as the country relies heavily on imports of these products from the EU. The liquid milk sector has traditionally had a very large domestic milk production surplus, and the little milk Russia does import is almost entirely from Belarus, meaning that we expect little disruption in liquid milk trade.

Russia - Butter & Cheese Imports
  Total 2013 Imports (USD'000) % Of Imports Banned
Butter 683,556 34.93
Cheese 2,128,862 60.43
Source: Trade Map, BMI

Russia imports about a third of its butter consumption and half of its cheese consumption requirements. We believe Russia will substantially increase its production of cheese and butter in 2014/15, by converting more of its large milk surplus into these value-added products. However, Russia will still have to find new suppliers as its dairy industry is made up overwhelmingly of small-scale producers who do not have the capacity to considerably increase production at short notice. In this respect, we again highlight Belarus as one of the major potential beneficiaries of the ban, as the country is the largest export market to Russia for both butter (31.3% of imports in 2013) and cheese (21.5%). Uruguay and Argentina could increase their trade in dairy products to Russia, as well as New Zealand, one of the largest producers of milk in the world.

Fruit & Nuts

The most affected fruit and nut products will be northern hemisphere-grown goods. Trade in exotic fruit such as bananas and citrus fruit, as well as speciality nuts, will be largely unaffected by the ban as the growers of these products - largely in temperate climates - are not included on the banned list. Trade of fruit such as apples, pears, apricots, cherries and peaches will be most disrupted.

Russia - Selected Fruit Imports
  Total 2013 Imports (USD'000) % Of Imports Banned
Apples & pears 1,178,619 61.57
Apricots, cherries, peaches, nectarines & plums 613,918 60.53
Source: Trade Map, BMI

Just under two-thirds of imports of fruit in the above table will be banned from entering Russia. Almost all of these goods come from EU countries such as Poland, Belgium, Spain and Greece. For apples and pears, Argentina, China and Chile stand to benefit the most from increased trade. In particular, China accounts for about 13% of world exports in apples and pears, and we believe the country will be able to increase exports of fruit and vegetables to Russia over the coming year.

Turkey will stand to benefit from an increase in exports of apricots, peaches etc. to Russia. Turkey is one of the largest exporters of such items in the world, and Russia is its second largest export destination of the products after Germany. Turkish fruit imports, however, are subject to a 2.4% tariff, which products from Uzbekistan and Moldova are not. Following the ban, Uzbekistan and Moldova are now Russia's second and third largest sources of imports for apricots and peaches etc., though we are sceptical that the countries will be able to increase exports to meet the entirety of Russian demand.

Fish

Norway will be one of the biggest losers of Russia's trade ban, due to the Nordic country's fish trade with Russia. Norway accounted for 40% of Russia's fish imports in 2013, with Russia being Norway's biggest destination for fish exports, accounting for about 11% of the total. Chile and China will have the greatest opportunity to increase fish exports to Russia over the next year.

Russia - Fish Imports
  Total 2013 Imports (USD'000) % Of Imports Banned
Fish 2,861,284 52.52
Source: Trade Map, BMI

Chile and China are two of the biggest exporters of fish in the world. Last year, Chile exported USD4.1bn worth of fish, while China exported USD12.5bn worth. Both countries have established trade links with Russia, and a low (relative to other countries) import tariff (9.1%) is applied on goods from both countries in Russia. Fish from Iceland, for example, has an 11.9% tariff imposed by Russia.

Vegetables

Russia is largely self-sufficient in its vegetable requirements, though imports a fairly high number of tomatoes, cucumbers and pickles. Russia will have to re-arrange about 20-25% of its imports of these goods over the next year, which will open up particular opportunities for exporters from Turkey, China and Iran.

Russia - Selected Vegetable Imports
  Total 2013 Imports (USD'000) % Of Total Vegetable Imports % Of Imports Banned
Total vegetables 2,872,589 100.00 32.26
Tomatoes 1,101,848 38.36 26.60
Cucumbers and pickles 287,270 10.00 19.73
Potatoes 233,029 8.11 21.39
Onions, garlic and leeks 203,112 7.07 27.78
Source: Trade Map, BMI

Turkey is the largest exporter of tomatoes and the second largest exporter of cucumber and pickles to Russia, and stands to benefit the most in increased vegetable exports as a result of the trade ban. Iran, for cucumbers and pickles, and China, for tomatoes, cucumbers and pickles, will be other major beneficiaries.

Prepared Products

As a whole, the percentage of imports of prepared products that will be potentially lost is the highest of any agricultural sub-category. This is because a lot of the imported prepared products are luxury items from Europe, such as specific cheeses and hams. Regular consumers of these goods will be the most affected by the ban, as it will be very difficult to find new markets for the importation of such specific food items. The most significant price rises over the next year are likely to be in specialised prepared products as a result of this reason, and as such any new entrants into the marketplace will benefit tremendously. However, these products will have to be substitutes of goods from the banned countries, and will not be allowed to be simply re-exported.

Shipping Via Belarus

Russia will not allow large shipments of banned goods to come into the country via Belarus and other regional neighbours unaffected by the ban. We believe that there is little opportunity for goods to come into Russia this way on a large scale. This is especially true as the length of the ban (one year) will limit investment into black market or other trade routes from central Europe into Russia. While some goods will be allowed into the country for personal use, no bulk shipments will be permitted.

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