April 6, 2018

Impact on Europe's pork industry: Russia, EU sanctions not likely to end soon


The recent election of Russian president, Vladimir Putin, means the EU's sanctions and Russia's counter-sanctions would not end anytime soon - a serious development which costs Europe's pork industry EUR1.4 billion (US$1.7 billion) yearly, according to a EUobserver report.  

Russia's ban of EU pork imports happened in 2014, following the annexation of the Crimea region in Ukraine. The country claimed that the ban was implemented due to the risk of bringing in African Swine Fever (ASF).

After the World Trade Organisation (WTO) rejected Russia's veterinary ban last year, the latter reimposed the pork ban in response to EU sanctions targeting its energy firms, arm exporters and banks.

"Its real motive [for the pork ban] was more likely an economic one," EUobserver's  Andrew Rettman wrote.

"Up to half of Russian pig farms are expected to make a loss this year due to high feed costs, overcapacity, low domestic prices, and poor export opportunities. Another 500,000 tonnes of pork a year in extra capacity is scheduled to come online by 2020."

To export its pork to markets not affected by the EU sanctions, Russia had turned to the troubled Donbass region in eastern Ukraine as well as China, which showed "little interest" in Russian pork due to the ASF risk.

"[Donbass], which is home to six million people, has become the principal foreign destination for Russian pork, consuming a significant majority of the 21,000 tonnes of pig meat and 50,000 tonnes of pig offal and by-products that Russia exported last year," Rettman added.

Pre-sanctions, Russia had imported close to 500,000 tonnes of EU pork and other by-products, which made up for 18% of overall European exports. 

Rettman observed that the Russia's current aggression in Donbass showed no signs of ending while the EU would probably renewed economic sanctions in July.

However, even if Russia lifts its 'political ban' on EU pork, "there will be a threat to Russian pig production," Yulia Melano, the spokeswoman for Russian veterinary body, Rosselkhoznadzor, said in December last year.

The net cost of Putin's foreign and agricultural policy for EU pork producers amounts to EUR1.39 billion (US$1.7 billion) a year in lost sales, rising by 15% yearly. The figure is the same sum that European Commission asked the WTO in January for permission to levy as compensation through new tariffs on other Russian imports.

Russia protested the move, which would set the stage for a WTO arbitration hearing over the matter.

Nevertheless, some EU states hope for an end to Russian sanctions. Ireland, in fact, had sent a delegation, which included its trade minister and 17 businessman, to the Agrofarm trade exhibition in Moscow this year. 

"But Ireland, as well as other EU states, such as Finland, are also looking to reorient lost pork and other food sales from Russia to further afield in the long term," Rettman pointed out.

For now, Europe is exploring China, the world's biggest pork import market, worth 1.2 million tonnes a year.

Finnish pork seller Atria had launched its products in Chinese shops last summer and aims to sell 5,000 tonnes in its first year of trading.

EU companies can offer cautious Chinese consumers quality products as compared to Russia, said Atria CEO, Juha Grohn.

"What we can offer is transparency and traceability. We can follow production from farm to the last step of delivery to China," he commented.

- EUobserver