What will Russian sanctions mean for Australian agriculture?

Published 20140814

The Russian ban on imports for fruit, vegetables, meat, fish, milk and dairy products from some countries including Australia will have varying adverse impacts on world agricultural trade. The impact on Australian farmers will depend on whether other current markets can take extra volumes, or new markets can be found. Fortunately, there is relatively strong global demand for most agricultural products at the moment (with some question marks around dairy) so the immediate market impact should only be slight.

On the 7th of August 2014, Russian import bans were imposed on a list of agricultural products including commodities from the Australian beef and dairy sectors (see here). Russia’s Agriculture Minister pointed out that Brazil and New Zealand would still have market access and could effectively alleviate any shortages in Russia.

International agricultural trade data has been used to assess potential impacts on world agricultural trade and to identify some of the other markets that could offset Russia’s trade disruption. Farm input markets have also been highlighted as these could be impacted by economic sanctions. If regional economic sanctions worsen and embargoes on farm inputs such as fertiliser were introduced, farmers could be affected by restricted world supply which would increase prices for these products.
International agricultural trade data shows that Russian imports of beef and butter (from all sources) have increased considerably since the early 2000s (see chart below). Russian frozen beef imports have remained above US$2 billion since 2008. Frozen beef originating from Australia has accounted for around 6% of total imports, while frozen beef originating from Brazil, Paraguay, Uruguay and Argentina has accounted for around 80% collectively over this time. Trade access to the Russian beef market has also not been easy for Australia, with import restrictions having been in place since April 2014 due to allegations of beef containing traces of trenbolone growth promotants
Australian beef exporters are having to look for other opportunities that can offset the beef trade previously destined for the Russian market. International agricultural trade data indicates that China, Indonesia, the Middle East and the EU have been increasing Australian beef trade in recent years, therefore these markets will largely be targeted when offsetting the trade disruption with Russia.
Australian butter exports to Russia will be one of the major agricultural commodities that will be most affected by Russia’s import bans. In 2013, Europe was the largest export market for Australian butter with Russia being the major destination (see chart at the bottom). Interestingly, the share of Australian butter exports to the ASEAN and Africa and Middle East regions have reduced considerably from the levels experienced in the late 1990s. Therefore, Australian butter exporters will increasingly shift their focus towards these markets when offsetting the trade disruption caused by Russia. Building on the Australian butter trade with China will also be important, as the value of this trade has been growing at 20% per annum over the last five years.
The final point to make relates to potential impacts that further economic sanctions with Russia could have on farm input markets. Russia is a major world supplier of farm inputs including energy and fertiliser. Farmers in the EU are particularly vulnerable should a trade war between Russia and the EU escalate. Reports suggest that countries such as Ireland procure 25% of all fertiliser as either being manufactured in Russia or distributed by a Russian-based trader. If further sanctions were enforced that included farm inputs such as fertiliser, this would restrict world supply which would ultimately increase prices for these products.

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