Wednesday, 13 August 2014

Minimal impact expected from Russia’s trade sanctions

As the conflict in Ukraine continues, English meat has now been inadvertently dragged into the fray.

This follows Russia’s announcement last week that it was to ban imports of fruit, vegetable, meat, fish and dairy products from the 28 countries of the EU, plus the USA, Canada, Norway and Australia, for one year.

This headline will no doubt have caused concern for many producers, and it certainly kept our press office busy, but many of those who got in touch were surprised to hear that the trade sanction is expected to have little or no impact on the UK market.

The reason for this is straightforward enough: the UK exports little or no red meat to Russia.

Those of you who are thinking “hang on a moment…” can be forgiven. You may well remember that in September 2013 the British beef industry was celebrating when it gained market access to Russia, the world’s second largest importer of fresh and frozen beef.

However, that never really had a chance to take off, because as companies began working on the logistics of exporting their produce, the first stirrings of trouble in the region flared up. This happened when the then Ukrainian president announced the abandonment of a trade union with the EU in exchange for closer ties with Russia. The people of Ukraine disagreed with this decision and launched into protest, and nine months later, here we are.

So, essentially, early in the UK’s trading process with Russia, activity ground to a halt as companies waited to see what happened.

The questions remain then: who will be hit by the sanctions? Will there be no impact on the UK?

Food imports into Russia are dominated by South American countries, which are not affected by the ban.  This is demonstrated by the fact that Brazil and Paraguay together accounted for 85% of beef imports to Russia between January and March this year. Russia actually sources very little beef from Europe, the main suppliers being Poland and Germany, but even those two supply very low volumes (2,400 tonnes each between January and April 2014).

Of course, the Polish, German and other countries’ beef that was previously destined for Russia could impact the UK, as the produce will be sent to other markets. However, aside from the fact the volumes are so low, it must be taken into account that the gap left in Russia’s market will need to be filled ­most likely by South American countries and that meat could well be diverted from the EU market.  So as one gap closes, another one opens.

The EBLEX Market Intelligence team has been looking at all angles of the trade ban to anticipate any potential bearing on the industry, and the summary remains that there is no anticipation of any huge impact. At worst, the projection is that it could cause a delay to beef prices recovering from their recent falls. But away from Russia, there is other market activity which offers a more positive outlook.

The forecast of lower production, increased exports and lower imports suggests that supplies available on the UK market next year are estimated to be lower than in 2014, meaning that the possibility of firmer prices is improved.