Following the Western penalties imposed on Russian companies in 2014, the Russian government responded with countersanctions, banning imports of many western food products. This encouraged import substitution and made Russian exports more competitive, thus showing that despite the poor state of east-west relations, there are plenty opportunities to be found in the Russian market.
The Russian government, with an already set goal to diversify its economy which is heavily dependent on energy exports, has provided RUB215bn ($3.2bn) for the development of the agricultural sector, resulting in sudden and significant growth. In 2016, it has overtaken arms sales to become Russia’s second-biggest export sector after oil and gas.
Russian agriculture, in decline since the collapse of the Soviet Union in 1991, has been recently experiencing a brisk rebound. The country reached a record crop of 119 million tons of grain in 2016 and became the world’s leader in grain exports, after shipping 34 million tons, outpacing Canada and the US. Russian farmers also have completely substituted imports of chicken and pork with domestic production. Russia became self-sufficient in fowl and in 2015 became a net exporter of pork for the first time in history. Additionally, the country became a top producer of sugar beet with greenhouse vegetable output increasing 30%.
The government subsidies, coupled with the sudden disappearance of cheap EU dairy goods from the Russian market created an opportunity for local players of all sizes, who were able to increase their production, not only allowing the country to feed itself without imports but even to increase its exports.
Benefiting from its geographical position close to export terminals on the Black Sea, Russia managed to secure agriculture supply agreements with significant North African and Middle Eastern wheat importers, such as Turkey and Egypt, find new opportunities in China and renew its agreements with Iran.
In March 2017, the Russian minister of agriculture Alexander Tkachev proposed to extend the food embargo by another 10 years, stating that if the embargo continues, the country has a good chance of becoming the net exporter of food, able not only to feed itself but also Europe.
This sudden development suggests that the Russian government may have been using the sanctions as cover to advance the strategic objective that it has already set: making Russia increasingly self-sufficient in food and less vulnerable to any western sanctions in the future. The country looks to be on its way to become an agricultural superpower, producing enough of most foodstuffs to feed its own population and more.
To find out more read Market Line Analyst Insight: Russian agriculture: Sanctions to create an agricultural superpower?