Russian Food Embargo

August 14, 2014

Hello everybody out there in farm country. This radio commentary is brought to you by Monsanto, and John Deere. They are all friends, supporters, and allies of a healthy farm economy and prosperous rural America. Thank you.

And now for today’s commentary—

The August crop report confirms what we already knew. We are going to harvest a very big corn crop and soy beans are not far behind.

Not surprising, the price of corn is bouncing around at a level that could result in government safety net support. Also, cotton is at a 5-year low and will likely result in government loan support.

With the above realities in mind, we should take note of the announcement last week that for the next year Russia will not buy any ag products from the U.S., European Union, Australia, Canada, or Norway. They are retaliating against sanctions imposed on Russia 2 weeks ago by the U.S. and the E.U. We cut financing of Russian banks and ended defense sector cooperation.

This back-and-forth all started with Russian annexation of Crimea (which was part of Ukraine). Russia is also suspected of providing the antiaircraft missile that shot down the Malaysian airliner over Ukraine. This dispute will not end any time soon unless Russia backs away from the eastern border of Ukraine.

So, let’s consider who will be hurt by this conflict. Russia imports a lot of food – 43 billion dollars worth. Almost half of that comes from Europe. Especially high end cheeses, sausages, and fish. European food companies and farmers will be hurt the most. Russia imports more than 16 billion dollars worth of food and ag products from the E.U. They import only about 1.3 billion dollars worth of ag products from the U.S. That’s not much. There was a time when they were a huge market for us. Our poultry industry will be hit the hardest. Russia is our number 2 customer, importing 7% of our poultry exports. Our pork industry will squeal a little bit. Russia buys 1.3% of our pork exports.

The net result of all of this will be felt in Europe and very little in the U.S. I think Russia will suffer the most from their ban on food imports. They need the food. Prices will be driven up. And their rising upper class will not be able to get the good stuff off the supermarket shelves. They will miss that good French wine.

That’s it for this week. Until next week, I am John Block in Washington,D.C.