March 20, 2014

Trade sanctions may hurt Russian meat industry

In case the US and the EU decide to impose trade sanctions against Russia due to the situation in Crimea, the country's meat industry may be seriously affected.

According to official data from Russia's Ministry of Agriculture, the Russian market is going through a difficult period, with a ban on meat imports from the EU leading to an acute shortage of raw meat, resulting in a 20-25% rise in the average price of meat products since the beginning of the year.

The US and the EU have already imposed the first wave of sanctions against Russian officials, claiming that if Russia does not take the relevant steps to de-escalate the situation in Crimea as quickly as it can, more serious sanctions may be put in place.

A large number of Russian regions, such as Moscow City, purchase 67% of their meat from abroad, with 40% of that coming from North Atlantic Treaty Organisation (NATO) countries, the Russian government's Trade and Services Department said.

"When NATO announced the first threats that they would block our supply, we analysed all our suppliers," said Alexey Nemeryuk, head of the Trade and Services Department. "It is possible that a shortage of food supplies in Russia could be reduced via cooperation with the Brazil, Russia, India and China (BRIC) countries".

The department noted that about 20% of current meat imports in Moscow are from Brazil. The official added that the two countries "have normal business relations" and that supplies from this country have the potential to be stepped up in response to the trade sanctions from NATO.

Experts have said it is possible that Western countries will not impose trade restrictions on the meat market, instead introducing restrictions for Russian banks. However, this, too, could seriously hurt the meat industry, as banks will be forced to raise interest rates on loans, which will reduce meat companies' profitability.

Profitability in the Russian meat industry is already falling even without the problem of sanctions. According to statistics in 2013, the largest meat producer in Russia, Miratorg, saw its net income down 13%, while the second-largest producer, Cherkizovo, reported a drop in profits of 70%. Experts fear that sanctions can only exacerbate the problems in the meat market.