Agriculture hasn’t bounced back from Russian sanctions

CEO of Tere dairy at the time Oliver Kruuda reported in April of 2015 that he has exported a hundred tons of milk powder to Japan in what was a media field day. Six months prior, Russia had countered EU sanctions with a set of its own, aimed chiefly at primary agricultural products, which had caused European countries, Estonia among them, to seek alternative markets.

Unfortunately the venture has found little success. Even Kruuda’s hundred tons of powdered milk were not made from Estonian milk, but came from Germany instead.

“Asian markets are attractive due to growing demand; however, as many food sector companies have found, they can be difficult to penetrate,” said chief specialist of the Ministry of Rural Affairs’ processing industry department Marie Allikmaa. “Securing sales contracts takes dedication and in most cases years of work.”

Slump not only in case of Russia

Data from the European Commission suggests export of Estonian agricultural products to so-called third countries, or outside the EU fell by 28 percent to €237 million in 2013-2016, meaning exporters’ proceeds fell nearly €100 million short of the 2013 result. Export to Russia fell by 58 percent, or €134 million to €96 million in the same period. Export volumes continued to fall last year, coming to 10 percent and €10 million year-over-year.

This means that while export outside the EU has improved somewhat, growth has been modest.

In addition to a drastic slump in exports to Russia, export of primary agricultural products to the EU has also fallen. If in 2013, €636 million worth of agricultural products were exported to the union, export had fallen by 3 percent, or €3 million last year.

USA and the European Union introduced sanctions against Russia after the latter annexed Crimea and launched hostilities in Ukraine. The sanctions first and foremost concerned financing of the Russian state and national banks, export of defense and dual-purpose products, and exploration devices and services.

To counter, or rather to get even, Russia laid down an import ban on EU agricultural products.

The result was a 53 percent decrease in export of European agriculture products to Russia in 2013-2016. The blow landed the hardest in the dairy sector in which export to Russia has all but disappeared by today, while export of fruits and vegetables fell by 94 percent and that of meat and livestock by 91 percent.

Russia’s closest neighbors were most affected: the Baltic countries, Poland, Finland. Export of agricultural products to Russia fell by 38 percent in Latvia, 58 percent in Estonia, 69 percent in Lithuania, and 72 percent in Finland. Agricultural exports relied most heavily on Russia in all of the said countries.

“It is true that export of Estonian agricultural and food products outside the EU was 17 percent lower in 2016 than it was in pre-sanction 2013. One way to assess the food sector’s ability to adapt is to look at whether companies have managed to restore pre-sanctions sales revenue in third countries, or compensate for the disappearance of the Russian market on others. The other way we can evaluate the sector’s success in coping is to look at export to third countries without Russia in the reference base,” Marie Allikmaa explained.

Success in every sector

If we separate goods moving to Russia from the export turnover of agricultural and food products, it turns out Estonian companies sold 36 percent, or €40.4 million worth more goods to third countries compared to 2013.

“Whereas growth has not come exclusively from sale of cereals that has been breaking records for the past few years. Even though the total export of dairy, meat, and fish sectors that were hit the hardest has not bounced back in full compared to 2013, all main production sectors have managed to boost sales to other third countries (except Russia). In other words, Estonian exporters have managed, despite sanctions - or perhaps because of them, to broaden export opportunities outside the EU after the disappearance of the Russian market,” she added.

Baltic and several other Eastern European countries have, however, been less successful at finding new markets than the West. For example, Ireland, the Russia exports of which fell by 68 percent after 2013, has managed to boost its export outside the EU by 35 percent. Ireland has also managed to boost its Russia export by 12 percent compared to 2015. Estonia’s agricultural products export fell by 10 percent in 2016 year-over-year.

Read more news of the city site of Tallinn.

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