Putin's Boomerang Effect on Russian Consumers Lies Ahead

Thursday, 07 Aug 2014 11:50 AM

By John Morgan

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There will be winners and losers from Vladimir Putin's retaliatory sanctions on food and agricultural imports from the West.

CNBC took a look at the consequences, and it appears some of the initial impact for both sides will be in the area of produce and foodstuffs.

Russia's sanctions could have a boomerang effect, according to some experts.

Editor’s Note:
New Warning - Stocks on Verge of Major Collapse

Bob Stallman, president of the American Farm Bureau Federation, issued a statement: "This is clearly a political move. It is unfortunate that the biggest losers in this will be Russian consumers, who will pay more for their food now as well as in the long run.

"America's farmers and ranchers would have been more surprised if Russia's leaders had not announced bans and restrictions on food and agricultural imports. They do so regularly for seemingly small reasons and now they have to deal with sanctions imposed by our nation and others," Stallman said.

Imports by Russia of fruit, vegetable, meat, fish, milk and dairy products from the United States, European Union, Australia, Canada and Norway were banned for a year on Thursday.

CNBC said Russian supermarkets will have to scramble to find substitutes.

"One notable omission from the sanctions list is alcohol, which may be a relief to international drinks companies like Heineken – and to Russians wanting to drown their sorrows."

Pork from Serbia is expected to replace pork from Canada and the European Union on Russian dinner tables, and Belarussian cheese will substitute in Russia for highly regarded French cheese.

The big losers in the United States might be chicken producers. "In Putin's geopolitical game of chicken, poultry is ironically one of very few industries where he can economically damage the U.S. Previous bans have occurred at times of strained relations between the countries," CNBC said.

Other losers are Polish fruit farmers are the Norwegian fish industry.

Russian supermarket shoppers will apparently feel the pinch. "It will take months or maybe years for domestically or EEU [Eurasian Economic Union]-produced goods to replace those banned under sanctions. With inflation already at 7.9 percent in the first half of 2014, purse strings will have to tighten," CNBC predicted.

The economic sanctions levied by the West against Russia for its role in the Ukraine conflict will take some time to filter through the Russian economy, but could have a significant impact on the country in the future, according to the Canadian Broadcast Corp. (CBC).

"We're not seeing it in a macro economically significant way yet — businesses being closed and pulling out — but we're certainly seeing investments being reduced," said Robert Kahn, a senior fellow at the Council on Foreign Relations.

Kahn predicted a pretty significant recession in Russia during the next year and a half as a result of the West's economic sanctions that include financial asset freezes and loan bans.

Since the beginning of the year when Russia annexed Crimea from Ukraine and began fostering civil strife in the rest of the country, investors have withdrawn approximately $75 billion from Russia in what's regarded as "capital flight," the CBC noted.

Editor’s Note: New Warning - Stocks on Verge of Major Collapse

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