Since restrictions on food imports to Russia have been introduced by the Russian authorities, the best way to mitigate the effects of these sanctions is to cancel them.
Since restrictions on food imports to Russia have been introduced by the Russian authorities, the best way to mitigate the effects of these sanctions is to cancel them. Clearly, Russian officials have realized this and are willing to go ahead and lift some restrictions (seed potatoes, fish hatchlings, supplies to Crimea and the Kaliningrad Region, etc.). Other decisions could alleviate tensions on the Russian food market as well. For instance, foods that have already been paid for by Russian importers but have not yet crossed the Russian customs border could have been given some slack.
In the best-case scenario (if import substitution will not involve a loss of quality), the aerospace and defense industries, whose plight was discussed extensively during Government meetings, are in for a temporary decline that will last for as long or as short as parts and components remain available at warehouses. In case of the loss of quality or failure to import substitution, a temporary downturn may become steady. A drop in the quality of products and the loss of competitiveness on the international market should then be expected.
The degree of the Russian defense industry’s dependence on Ukrainian suppliers should not be underestimated either. According to experts, Ukraine is the world’s fifth or sixth largest arms exporter and the bulk of the parts and components for the defense industry go to Russia. The helicopter construction faces the biggest problems because the Ukrainian engines that are built in Zaporozhye, Ukraine, are used in over 70% of the newly built helicopters in Russia. The old engines also need repairs and maintenance. Russia is facing major challenges in terms of operating SS-18 strategic missiles, The Satan, which were produced in Dnepropetrovsk.
Arguments about domestic production hold no water. Food is needed today. Any investment in Russian production will yield results in a couple of years at best. By that time, the empty niche will be – with the support of the Russian Government – filled by products from countries that did not come under restrictions. You have to understand that international food production is a competitive business where producers who cut costs and expand output come out as winners. Russian producers slowly win back their spot under the sun on the international (grain) and domestic (poultry and pork) markets. However, for climate reasons, we will never be able to accomplish this with regard to other food items.
The impact of food sanctions on Russian consumers is clear and primarily concerns a decline in the quality of life, which will manifest itself in various forms. For high-income consumers, this will mean a reduced, less sophisticated and lower quality diet. Middle-income households will feel the pinch of rapidly rising food prices and reduced consumption of non-food items. Low-income families will have to reduce their food consumption.
Russia's allies in the Eurasian Economic Union (EAEU) may support Russia, but in a limited fashion. For example, Belarus is a leading supplier of dairy products to Russia, and, perhaps, can increase the supply in a couple of years. No country is a meaningful exporter or producer of such foods, whose imports to Russia have been restricted. This includes meat and meat products, fruit and vegetables, and fish. Brazil can potentially increase the supply of meat, and China fruit and vegetables, but it is unclear how products supplied by new exporters will compete on the Russian market in terms of their consumer properties.
With regard to technology supplies, I have no reason to believe that EAEU or BRICS will be in the position to replace American- or European-made products. These countries are active importers of numerous technologies and equipment, but not manufacturers.
Perhaps, there are numerous examples of successful import substitution worldwide. The question is what should be considered as such? No one has ever been able to cut imports altogether. No country has such a goal, either, though. In his time, Karl Marx spoke about the inevitable division of labor on a global scale, and modern economic science does not refute this argument.
In the long term, success does not come to countries that try to focus on domestic demand and oppose imports with everything that they have. Long-term success is based on international competitiveness, i.e. on the economy's ability to produce better and less expensive things that the rest of the world can use. The fact that the global market is more than 30 times greater than the Russian market means that international sales can be 30 times larger than domestic sales. A product that can conquer the global market will inevitably conquer the domestic market.
