Russia Reveals Possible Billion-Dollar Cost of Western Food Ban

Wednesday, 20 Aug 2014 11:14 AM

 

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Russia's agriculture minister warned Wednesday that Moscow must spend billions of dollars in the coming years subsidizing farmers in order to avoid a shortage caused by its ban on most Western foods.

Agriculture Minister Nokolai Fyodorov's stark comments represented Moscow's first admission that its decision to strike back at U.S. and EU sanctions with sweeping food bans may have long-term costs for both its budget and consumers.

The trade war is part of a broader crisis in East-West relations sparked by Russia's perceived attempts to split strife-torn Ukraine in two after Kiev's decision to seek a closer political and economic alliance with Europe.

Russia relies heavily on foreign fruits and vegetables because its long winters and inhospitable climate keep farmers from growing produce desired by the country's booming middle class.

It also imports huge volumes of Australian and European meat along with U.S. poultry and Norwegian salmon, all banned under Russian President Vladimir Putin's orders earlier this month.

The agriculture minister told the Rossiya 24 news channel that "the volume of additional support needed to substitute for the embargoed items in full, if we are talking about short-term, through the end of the year, is tens of billions of rubles."

Ten billion rubles is now equal to $275 million (about 200 million euros).

"But there are also medium-term measures: next year and in the subsequent years, you could say that this sum will be measured in the hundreds of billions of rubles," Fyodorov said.

His estimates suggest that Russia may have to spend at least $10 billion on farm subsidies over the coming few years.

That level of support has not been provided for in the federal budget and may require other popular social programs to be cut.

Russia's economic slowdown has limited the government's tax revenues while jitters over Ukraine's future and possible additional Western sanctions have kept investors from filling the void left by cautious levels of state spending.

Natalia Shagaida of the Russian Presidential Academy of National Economy and Public Administration said the government's current agricultural subsidies see just eight kopeks spent for every ruble of goods produced.

"In order to enjoy greater production, you need money spent on agricultural modernization, especially in the dairy farming industry," Shagaida said.

"You need cheep loans and enormous state support," the economist said.

"You may then see some results in vegetable farming, for example, as early as next year. Even with dairy, you might see progress within two years. But the rest will take at least five years," Shagaida said.

© AFP 2014

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