Has Putin shot himself in the foot by blocking food imports?

Great Debates
1

According to this NPR Piece (audio only) it was reported that Russia will suffer the most from Putin’s America and European food import ban.

It says that America will be hurt the least, as food imports to Russia account for only 7%, although it might effect exports to Europe. European countries will be hurting more, as they’ll be losing out on about 9 billion Euros and could lead to a 3/10 of 1% drop in Europe’s GDP growth. But the Russian people will be hurt the most. They will have less food to buy, and it could drive up inflation. This could lead to “popular discontent.”

On the one hand, I’d love it if this was true. On the other, Putin seems too calculating to make such a big blunder. So, is there a way he can dampen the consequences, or will this turn out to bite him in the ass?

2

Well, it depends. He could try to manage the problem by subsidising certain food products, at least temporarily, so as to limit the inflationary consquences of the sanctions he has imposed. (That, of course, creates its own budgetary problem, but not necessarily an unmanageable one.) Or, he may rely on the fact that Russia’s national self-respect is at stake, and that people will put up with a degree of inflation as a price worth paying in order to stand with their fellow Russians who are defending themselves against a neo-fascist coup in the Ukraine. Or something of the kind.

3

You do realise that their are other countries who would be happy to sell Russia food besides western ones right?

European farmers are fucked this season and some US farmers will see less money this year. But, food is a perishable item, it needs to be consumed, it’s not like cars or DVD players. So the food earmarked for Russia will be sold elsewhere (at probably reduced prices) while the Russian will have to grow more next year and buy from elsewhere, like say the Subcontinent or the Far. East.

4

It was mentioned that Putin plans on increasing Russian output and finding new importers, but that’s going to take a while, and in the meantime the Russian population will be hurting.

Or maybe price controls?

You make an excellent spin doctor. :smiley:

5

EDIT: Double Post

6

Yup. Russians will pay a bit more to import food from countries that Europe, the US, Canada or Australia. So the result will be inflation (or higher taxes or bigger government debt or some combination of the three) but not hunger.

(It’s unlikely to be simple price controls, Nobody. Price controls (unless backed up by a subsidy) would tend to produce food shortages, since nobody is going to pay 1 rouble to import a quantity of grain that he can only sell for 90 kopeks. They also tend to produce a black market. )

European, etc, food will be sold to countries other than Russia for a bit less than Russia would have paid. So the result will be lower farm incomes (or higher farm subsidies, higher taxes and/or more debt) or a bit of both.

7

European, etc., food will be sold to countries that Russia didn’t forbid imports from for the price that Russia used to pay. Then it will be resold to Russia at higher prices. Winning!

8

Or, food will be sold to third countries at the lower price, and then resold to Russia for the price that Russia used to pay!

9

Russia is an enormous market, 70% of its food is imported. The world’s food market is balanced with prices reflecting the balance. This Russian ban upsets the balance. There is no immediate excess of food available for “third countries” to sell to Russia, at least not to satisfy the whole shortage created, and the routing through “third countries” increases costs. So, no, I don’t think the same price will work.

10

Well, I was joking, sort of.

My point is that, yes, the Russian ban imposes additional costs. Either the banned food is going to be sold to third countries and then on-sold to Russia, or the banned food is going to be sold to third countries, and they food they would have bought is sold to Russia instead. But either of these will be less efficient than the free trade of food between Russia and the banned countries.

But there is no a priori rule that the extra costs will fall entirely on Russia. There is no reason why the third countries will pay the same price as the Russians used to pay; since the European producers can no longer get that price from the Russians, it is in their self-interest to accept the best price they can get. If purchasers in other countried have not up to now been offering the Russian price, why should they suddently start to do so? Logically, the price should come down, since there is less competition to buy the food - the Russians are no longer bidding.

The likely outcome is that (a) European producers will get less (or European taxpayers will pay to bail them out) and Russian consumers will pay more (or Russian taxpayers will pay to subsidise their consumption).

11

Let me put it this way. On one side there are people who have a bit of a financial interest in the trade. On the other side there are (seriously, 70% of Russian food is imported) hungry people. Who’s in stronger position?

12

There’ll only be a trade on terms that are advantageous to both parties. The thing is, the trade the European producers are in won’t have the Russians as the transaction counterparty; it’ll have third-country purchasers. Why would you see them as being in a particularly weak position?

The people who will do best out of this are the non-banned food producers, since 144million hungry Russians will be looking to buy their produce, and will be offering at least as much as they previously offered the banned food producers.

The people who will do worst are (a) the Russians, because they will have to pay more for their food, and (b) the banned producers, because they will be shut out of the market which pays more for its food (Russia). It would be nice to think that the burden would fall mainly on the Russians and hardly at all on the banned producers, but I’m afraid that’s wishful thinking; there is no reason why this should be so.

13

“Banned producers” will have the product for which there is high demand (actually higher than before, because instead of one buyer now there will be several).

14

There is also the fact that a big purchaser like Russia has more bargaining power than lots of relatively small purchasers who might be bidding against each other to get the food to resell.

15

There were always several possible buyers, in that the European producers could to sell to anybody, including Russia; now there is one buyer fewer, in that the European producers can sell to anybody except Russia.

But that has changes is not just that the pool of potential buyers for the food previously sold to Russia has shrunk. The buyer removed from the pool was, up to now, the successful buyer. This indicates that their offers were , for one reason or another, more attractive than the those of the other potential buyers. Therefore, from the seller’s perspective, they haven’t just lost one customer; they have lost the customer who was, up to now, their best customer.

16

Do any non-Western countries actually export food, on a scale great enough to meet Russia’s demand? Africa & India can barely feed themselves; there’s China, but their relations with Russia aren’t particularly rosy. Argentina, Brazil? Do they count as “Western” or third world? What about Iran?

17

Are you sure about that?

It would be interesting, if we had some more statistics…

18

Depends what they import, doesn’t it? I mean, are they mainly importing all their staples? Then that’s going to be hard to replace. Or does that 70% figure include a lot of Californian fruit, Ozzie lamb and Norwegian salmon? Because there’s lots of other countries who can step in and supply those.

Good thing “Africa” isn’t one country like the examples you group it with, then. South Africa is overwhelmingly an exporter of food. So’s Kenya, etc. Don’t make the mistake of seeing Africa as monolithic.

19

In fact, relations between Russia and China are pretty good, nowadays.

20

Most food consumed in Russia is grown in Russia, and there are already analysis showing the impact will essentially be minimal to both the EU and Russia.

What it does mean though, is that specialty foods that are primarily eaten by the urban upper middle class in Russia will no longer be available. But incidentally this is a part of the 20% of the population that hasn’t bought into Putin’s ultra-nationalist rhetoric.

Russia is honestly in a bad place and I feel bad for Russia, I feel a lot worse for Russians than I worry about Russia the long term. Russia became weak, and Putin is offering the same type of message that brought fascists to power–essentially, “we can be strong again, but you need to back my belligerence because that is how we become strong.”

The problem is, even in the 1940s it was questionable if large scale annexations made countries stronger. Maybe if the Allies had sued for peace it would have worked for Germany, but Italy was already going down the drain from its fascist policies. Russia faces an even worse calculus in the 2010s, any land Russia might want to “absorb” like eastern Ukraine or Crimea that it has already absorbed will come at a cost that will probably never pay for itself. Russia is literally being belligerent over net-negative regions, that will reduce Russian GDP and require subsidy from Moscow (this is dramatically true in Crimea–it was less true in Eastern Ukraine but Putin’s efforts there mean if he ever did get to annex Eastern Ukraine he’d be annexing a mess.) Even if Putin doesn’t go for any further annexations, just Crimea alone is going to be a long term, permanent albatross around Russia’s neck. Sanctions always hurt, it doesn’t matter if you can “find other trading partners”, sanctions still hurt. Your goods and services are most valuable when you can shop them in a truly global market to get the best price. It’s like Iran’s oil shipments to China, yes, Iran was still mostly able to move oil. But were they able to get the same price as Norway or Russia or Canada? No, they weren’t, because buyers aren’t stupid. If a buyer knows that because of sanctions you no longer have access to a truly global market, they know they have more cards than you do. They’re going to require lower prices, they certainly have no reason to offer you “market rate.”

Some of this won’t play out for years, so Russia has time to turn it around (especially since many big commodity deals are structured and play out years in advance.) But there’s really nowhere Russia can go with the “Putin plan” that makes Russia a better place to leave, and probably no way to even achieve what Putin wants, which is “geopolitical strength.” Russia is an old Europe style country that is lucky to have natural resources, but it’s solely a resource economy. It isn’t growing like Brazil, China, or India, and shouldn’t be considered economically similar to them because its engine of growth is solely natural resources, not its population.

It’s particularly unfortunate Russians have allowed Putin to close all media critical of him, as he controls 100% of the public message in Russia, because Russians should be smart enough to see that Putin’s grandiose plans just lead to GDP stagnation, debt, and no real increase in geopolitical power. Putin is basically willing to waste away Russia’s wealth to make himself look strong, to no real long term gain.