The Rocks in Russia’s Harbours

For some reason, Russia has decided to respond to western sanctions over its behaviour in Ukraine by banning imports of stuff Russians like to eat.  Other blogs have covered the story well in terms of its stupidity and likely impact, but I’d like to weigh in as well.

Firstly, I think Russia will find it quite difficult to diversify its suppliers across a whole sector for the simple reason that doing business with Russian companies is a nightmare at the best of times and their current suppliers will have gone through a long, hard, and painful route to get where they are now.  New entrants from South America and Asia will find themselves having to leap through endless bureaucratic hurdles, provide reams of documentation containing papers which don’t exist outside of Russia, negotiate umpteen obstacles thrown in their path by every bureaucrat and gangster who has seen a way to make a quick buck, and then probably find that, after all that, they’re not actually going to get paid.

Secondly, I think enterprising Russians based overseas will quickly re-route, repack, and relabel EU produce and then send it through the otherwise normal channels, in the manner in which Israeli products routinely get sold in the Gulf States after passing through Lebanon or Jordan.  This operation needn’t be sophisticated, just good enough to allow a well-bribed customs official to plausibly claim deniability.  Although what it will do to the accuracy of sell-by dates of products on supermarket shelves may have some Russian consumers hoping toilet paper is one such foreign product that can still be imported.

We can also expect “businessmen” in Kazakhstan and Belarussia to do well out of this.  These two countries have not adopted the Russian sanctions yet are in a customs union with Russia.  Therefore, in theory, these countries can import as many EU goods as they like and re-export to Russia without interference.

I expect these two re-routing options to meet the bulk of the demand for goods banned by the sanctions, at a cost to Russian residents of somewhere around 10-30% in price and reduced freshness of the produce itself.  Where the Russian government intervenes with price controls, we can expect those products to disappear from shelves almost entirely and a healthy black market springing up.  The EU producers will suffer, but only in the short term whilst these re-routing schemes are put in place.

I am quite certain that the demand won’t be met, as some Russians have been confidently predicting, by domestic suppliers.  Yes, Russia does make cheese but Russia also makes cars.  There are good reasons why these imported goods appeared in the first place.  There is also the issue of whether Russia’s factories can increase production to meet demand.  I once pointed out to a rather dim journalist that just because watercress can be grown in Britain, it does not mean that all imports of watercress are unnecessary, i.e. ability to produce a certain quantity does not equate to an ability to be self-sufficient.

As several people have noted, the nostalgia for the USSR among sections of Russian society has been apparent for some time.  Up until now, I didn’t know such nostalgia included Brezhnev-era food shortages and 1920s double-digit inflation.  But as I’ve said before, many times, Russians will gladly endure any manner of hardship if it allows them to thumb their noses at the West and feel better about themselves.  See this post, for example.

Good luck to them.

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8 thoughts on “The Rocks in Russia’s Harbours

  1. The crazy thing is the Putinists think the world will respect Russia for cutting off its nose to spite its face in this way. In fact the average Putin-loving Russian comes across as the archetypal redneck: poor and uneducated (and proud of it), prone to random violence, jingoistic, xenophobic and paranoid about anything the slightest bit foreign or different. Putin’s Russia is kind of like Deliverance, but with balalaikas instead of banjos.

  2. Just like they think we will respect them for their expensive and baroque visa requirements, rather than thinking “What a shithole”? Yes, it’s the same mindset, isn’t it?

  3. The Russian version of cutting off the nose to spite the face is, “I’m going to freeze off my ears to spite Grandma”. Only it’s not exactly Putin’s own ears in this case.

    These sanctions cannot work as serious import-substitution policies because they are short-term and retaliatory. For industries with long investment cycles, a credible commitment to a long-term policy favoring local production is a must. It has actually worked in the automotive sector. Decent cars are being produced in Russia thanks to its relatively consistent, long-term policy of discouraging car imports and favoring localized full-cycle plants. Already in 2013, Russian-made foreign models accounted for half of cars sold and half of car sales (http://www.pwc.ru/en_RU/ru/automotive/assets/automotive-market-results-and-development-2013.pdf). In contrast to Ladas and imported cars, this segment kept growing even in 1H14 (http://www.pwc.ru/ru_RU/ru/automotive/assets/automotive-market-results-and-development-2014.pdf).

    Cattle farming, for one, requires long-term planning, and short-term growth in beef production tends to cut longer-term forecasts – a cow slaughtered today won’t breed next year. I fear that some Russian beef producers are tempted to slaughter livestock now while the sanctions last. Surely no one will be prompted to invest in new farms by one-year sanctions.

    JCass: “In fact the average Putin-loving Russian comes across as the archetypal redneck.” I wish he were exactly that but I’ve observed two other vaguely pro-Putin types. There are technical professionals and managers don’t speak much English and get their information from pro-government sources; and there are people who really, really should know better. My beef is mostly with the latter.

  4. In fact the average Putin-loving Russian comes across as the archetypal redneck: poor and uneducated (and proud of it), prone to random violence, jingoistic, xenophobic and paranoid about anything the slightest bit foreign or different.

    That is true, many pro-Putinists are tracksuit-wearing knuckle-draggers who hang around the local park drinking Bochka at 10am. Unless they are in Eastern Ukraine, in which case they have the opportunity to run an entire province. Lucky, lucky East Ukrainians.

    But as Alex K. says above there are other pro-Putin types, a further two of whom I have observed (as well as the technical professionals to whom he refers):

    Firstly, there are those you encounter online who write (and presumably speak) impeccable English and are of a generation who received their education in the post-Soviet era, an education which was likely private and/or abroad. In other words, the sons of the elite who rose to power in the post-Soviet chaos and are quite removed from the lives of ordinary Russians are very pro-Putin. Similarly, Kim Jong-un was reportedly pretty supportive of the rule of Kim Jong-il.

    Secondly, you have the diaspora. Russians are not alone in this by a long shot, but you often find the most vocal pro-Putin Russians are those who emigrated years ago and are thus insulated from the effects of his policies and are wholesale beneficiaries of the countries and systems which they criticise in the same breath.

    On a similar note, when I wrote that infamous summary of my three years in Nigeria, I found that the majority of Nigerians who saw fit to criticise my take on the place and assure me it was far better than I believed it to be were living in the UK, US, and Australia. From those Nigerians who still lived there, I had more support.

  5. Yes, it’s the same mindset, isn’t it?

    Indeed. Normally the defence mounted by Russians for their visa laws is that other countries make it difficult for Russians to get visas. Which is true, but if the Thais took that approach they’d be a lot poorer than they are.

  6. Yeah, I was probably exaggerating a bit based on the tracksuit-wearing knuckle-draggers in eastern Ukraine. Plus that Nazi biker rally in Crimea with Steven Seagal last weekend. Many of the rebels look pretty “trailer trash” and rednecky, especially when they pose in ill-fitting uniforms with their guns and beer (or vodka) bellies in front of their banners (by a strange coincidence the flag of “Novorossiya” resembles the Confederate one).

    There are technical professionals and managers don’t speak much English and get their information from pro-government sources

    The scariest thing is the number of Russians who apparently believe what the government media is telling them, given that the media is now permeated with conspiracism. I found it hard to believe anyone could take some of the stuff they were saying about MH17 seriously. According to experts like Andrei Lankov, even the average North Korean has figured out by now that the state media is lying through its teeth.

    you often find the most vocal pro-Putin Russians are those who emigrated years ago

    This is quite a common phenomenon. Take Sean Connery: passionate Scottish nationalist, who’s lived in Spain for years.

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