The European Commission had already considered raising import duties on deliveries of grains, oilseeds and their processing from Russia. The main goal of Western officials is to protect farmers in the EU and prevent them from receiving income for special promotions. However, the EU market itself has not asked to protect it from Russian agro-industrial products. And for some segments of the European economy, a possible reduction in the volume of goods imported from Russia will have rather negative consequences.
On March 95, the European Commission proposed increasing import tariffs on grain, oilseeds and processed products from Russia and Belarus. Tariffs should be high enough to prevent imports of these products into the EU, but at the same time not affect exports to third countries, the European Union’s official website says. Depending on the product, tariffs will rise to either €50 per ton or %. In addition, Russia and Belarus will no longer have access to the EU’s WTO grain quotas.
The measure has several goals, Western officials say. Firstly, the aim is to prevent destabilization of the EU market if Russian grain is diverted to the EU on a large scale in the future. Secondly, the export of grain from new regions of Russia should be prevented. Thirdly, export revenues to the EU should be prevented from being used to finance war. “We propose to increase tariffs on Russian imports to address the growing risk to our markets and our farmers,” said European Commission President Ursula von der Leyen. – And we stand by our commitment to global food security, especially for developing countries.
According to Valdis Dombrovskis, Vice-President of the European Commission in charge of trade, the proposal is a necessary and timely step. Imports of grain and grain products from Russia and Belarus into the EU market were previously subject to low or no tariffs, and in 2023 the volume of supplies from these countries will increase significantly, he reminded. The proposed drastic increase in tariffs will make the import of these products unviable, the official stressed.
The European Commission’s communication states: “The proposal is currently being examined by the EU Council and, once adopted, the increased tariffs will be introduced immediately.” This was expected to happen in the coming days. However, at the time of writing, the tariffs had not yet been approved. The European Commission did not respond to Agroinvestor’s request.
No agreement yet
The import restrictions on agricultural products from Russia were discussed in late winter – at the meeting of agriculture ministers of the EU member states on February 26 (the meetings are held every six months), recalls Vladimir Olenchenko, senior researcher at the Center for European Studies of the Institute of World economy and international relations. The discussion was initiated by EU countries such as Lithuania, Latvia, Estonia, Poland and the Czech Republic. Previously, the Baltic republics had considered this measure together with the relevant structures of Ukraine and came to the conclusion that sanctions against Russian goods could weaken Russia’s position in the CIS. Poland, in turn, wanted to divert the attention of its farmers from grain imports from Ukraine. And the Czech Republic expressed its dissatisfaction that the grain it produces is not in demand in the EU.
However, no consensus could be reached on the issue at the ministerial meeting. The issue was shifted to the EU summit, which took place in Brussels on March 21 and 22 under the Belgian presidency. But no decision was made there either, Olenchenko knows. “Under EU rules, the EU presidency is held alternately by member states for six months. The country that holds the presidency announces the agenda for the next six months and organizes ministerial meetings and summits,” says the expert. – On July 1, Hungary, which has a balanced position towards Russia, will take over the EU Council Presidency and so far this country has not announced the agenda of its presidency. Belgium’s current EU presidency also does not have the issue of restrictions on the import of agricultural products from Russia on its agenda.
As for the February address of the five countries, Olenchenko believes that it did not correspond to the actual situation. The main items of Russian exports to the EU are not only grain, but also, to a significant extent, oil cakes and feed components, oils and drinks. In addition, the main recipients of e.g. B. Russian Wheat (durum wheat varieties) are not the initiators of possible restrictions, but Spain and Italy, and for oil cake and feed components the Netherlands. “Imports are carried out at the request of European recipients, while Russian imports of agricultural products into the EU account for 6% of the total volume of agricultural products purchased by the EU, and the main suppliers remain Ukraine, Brazil and Canada,” the expert said.
According to calculations by the European Commission, Russian grain exports to the European Union increased from 960 thousand tons in 2022 to 1,5 million tons in 2023. In total, according to EU representatives, last year 4,2 million tons of grain, oilseeds and processed products worth 1,3 billion euros were delivered from the EU to Russia. 610 thousand tons of these products worth 246 million euros were imported from Belarus. Taking all trading partners into account, the EU will import 2023 million tonnes of grain and 37,2 million tonnes of oilseeds in 39,1.
Political solution
The European Commission expects the tariff increase to reduce grain and oilseed imports from Russia and Belarus by almost 5 million tonnes per year. This supply deficit is partially offset by the EU’s own production, thus benefiting local farmers who can sell their produce on the domestic market, according to the European Union’s official website. In addition, the deficit is expected to be partially offset by imports from third countries that traditionally supply the EU market, such as the USA, Brazil, Ukraine, Serbia or Argentina.
Imposing a tariff of €95 on a ton of wheat from Russia and increasing tariffs on imports of other agricultural products by 50% would make the export of these Russian goods economically pointless, Vladimir Olenchenko said. However, for our country, deliveries to the EU account for only 3% of total exports of these goods, so possible restrictions in the event of their introduction would not be critical. In addition, there is already a ban on the export of in Russia from December 1, 2023 to May 1, 2024 Durum wheat (which accounts for a significant part of the shipments of this type of grain to European countries), he reminds.
The European market also sees a number of risks in the possible EC decision. Thus, the Financial Times quoted the opinion of its sources who believe that the introduction of the tariff could lead to a rise in grain prices by at least 50% and “destroy demand.”
Andrei Sizov, director of the SovEcon analytical center, commented on his social networks that the restrictions will have almost no impact on real grain trade and prices. At the same time, he described the European Commission’s decision as “politically motivated, probably primarily out of a desire to appease European farmers.” Since last year, farmers in the EU have been regularly protesting with strikes against new EU policies that impose harsh working conditions on them as part of the “green” agenda. The environmental taxes and restrictions imposed will hit farmers hard and are expected to lead to the closure of thousands of small businesses. “It would not surprise me if the opposite were true, since the issue of Russian supplies was not on the agenda, unlike supplies from Ukraine or a free trade agreement with South America,” Sizov wrote.
Vladimir Olenchenko agrees that the introduction of restrictions on Russian agricultural imports into the EU is generally political in nature. Their introduction will have a negative impact on European countries that import Russian products, he says.
Despite the fact that the discussed level of the tariff is prohibitive, this decision is unlikely to have a significant impact on either European domestic prices or the prices of Russian exports, says Denis Ternovsky, a researcher at the Center for Agricultural and Food Policy at the Institute of Applied Economic Research . “On the one hand, the import volume of Russian grain and oilseeds is small compared to the European market, but on the other hand, these are products with a very competitive market, hardly tied to specific logistic routes,” he explains. According to the expert, the lost volumes can easily be redirected to other markets. The biggest problem for exporters is not the ban on exports to the EU, but the current low level of world market prices for these goods.
According to calculations by the Rusagrotrans analytical center, the volume of agricultural products exported from Russia to the EU in 2023 will amount to almost 4,9 million tons. Grain accounts for around 1,4 million tons. “This mainly includes soft and durum wheat, rye, corn and barley, which were delivered to southern European countries (Italy, Spain, Greece), as well as to Belgium and Germany,” said the center.
According to the chairman of the Association of Grain Exporters Eduard Zernin, quoted in the association’s Telegram channel, Russian exports of grain products will not suffer from the possible introduction of EU tariffs on grain from Russia and Belarus. At the same time, the restrictions could have a negative impact on European processors, particularly in the Italian and Spanish markets. For Russian exports of agricultural products, the EU is more of a competitor than a target market.
The most important principle is to do no harm?
As for grain, the possible tariff will not have serious consequences, confirms Dmitry Rylko, general director of the Institute for Agricultural Market Conjuncture (ICAR). “With the possible exception of durum wheat exports to Italy (which will be allowed again – editor’s note),” he emphasizes. – However, this flow can be redirected to North Africa. However, the situation with oilseeds is more serious. The oilseed flax and oilseed meal sector, especially rapeseed and sunflower flour will have the hardest time, says the expert. And, above all, EU countries themselves could be seriously affected by the restrictions, as Russian products account for a significant share of their imports. In particular, exports of rapeseed meal from Russia to the EU have already exceeded 300.000 tonnes in the current season, and those of sunflower meal 350.000 tonnes. “Let us hope that no measures will be introduced to restrict the import of Russian products or that the Europeans will make exceptions for a number of sensitive positions, otherwise these measures would be tantamount to a shot in the foot,” Rylko said.
It will be extremely difficult for Europe to replace Russia in such raw materials as linseed, sunflower meal or oilcake, say experts from the Rusagrotrans analytical center. Data from the Price Reporting Agency (PRA) AgriCensus confirm: Russia is the second largest supplier of sunflower meal to the EU after Ukraine in the 2023/24 season, and Russia’s share in the total volume of deliveries of this item to the EU varies from 21,5 to 38%. Russian rapeseed meal is also actively purchased. As the Tridge data center reports with reference to Dr. Heinz-W. Strubenhoff, from July 2023 to February 2024 the European Union imported 576,1 thousand tons of this product from Russia, which is 40,3% of total imports. Sunflower and rapeseed meal is purchased mainly by Germany, Denmark and France, Rusagrotrans reports.
For some positions, the introduction of tariffs on imports of Russian products from the oil and fats market will harm the EU market more than the EU market itself, comments Mikhail Maltsev, Executive Director of the Russian Oil and Fats Union. The EU countries import more than 850.000 tons of oil linseed every year, and more than half of this amount will be delivered from Russia in 2023. “And our country is at the forefront in the production of this plant,” he reminds. – It is very difficult to replace our products”.
As for the export of vegetable oils, the restrictive measures of the European Union will have no impact, since our country supplies there only minimal quantities: last year just over 150 thousand tons, the expert reminds. The main export of this domestic product goes mainly to friendly countries. The most important buyers here are India, China, Egypt, Turkey, Algeria and others.
Only 3% of exporters focus on the EU market
At the beginning of 2024, INFOLine conducted a survey of more than 400 food manufacturers together with WorldFood Connect. It turned out that 47% export their products outside of Russia. In the next three to five years, 54% of the companies surveyed plan to enter the markets of the Customs Union countries, 26% – the markets of Central Asia and the Caucasus, 21% – China. 33% do not plan to look for markets outside of Russia. Turkey and the EU accounted for only 3% of responses.
In the case of vegetable meal (sunflower, rapeseed and soybean meal), almost a third of the total exports of this product are now delivered from Russia to the EU. In 2023, a total of 1,35 million tonnes will be exported to the EU. Another around 350.000 tons flour are delivered there from Belarus. “The imposition of tariffs, if it occurs, will require a realignment of supplies of these quantities to other markets, which in some cases will be extremely difficult or impossible to achieve logistically and economically,” Maltsev said.
However, the expert emphasizes that such a measure regarding flour is also disadvantageous for EU countries. Finally, the share of Russian sunflower meal in total imports last year was over 23%, while for rapeseed meal it was almost 60%. It is a very difficult task to replace suppliers of such a volume in a timely manner, he says.
The possible introduction of tariffs on Russian agricultural products by the countries of the European Union will not have a serious negative impact on the development of exports of oil and fat industry products, believes Kirill Lozovoy, analyst at the information and analytical agency OleoScope. Nevertheless, processors will have to reorient themselves to other markets for certain positions. This is particularly true for oilseed flax as well as sunflower and rapeseed meal, says Maltsev. At the end of the first half of the 2023/24 season, Russia delivered more than 700.000 tons of linseed oil abroad, including 288.000 tons to the EU, the expert said. Shipments of all types of flour reached almost 2,1 million tons during this period, of which 629 thousand tons were exported to the EU. However, that is 7,5% less than in the September – February 2022/23 agricultural year. The EU’s share in the structure of Russian flour exports also fell over the year, and quite significantly – from 45 to 30%, according to Lozovoy.
“Although the tariffs have not yet been imposed, Russian market participants are actively preparing for the introduction of these restrictive measures by the EU and are working on the possibility of restructuring supply routes to other regions,” the analyst said in April. – The main focus is, of course, on China, but other directions are also being considered – Belarus, Turkey, Uzbekistan, Kazakhstan and other countries”.
At the same time, the restrictive measures will make the situation even more complicated for the EU itself, Lozovoy and Maltsev agree. After all, Russia remains the leading supplier of rapeseed meal to Europe, while our country takes second place in sunflower meal. “The largest exporters of flax are Russia, Kazakhstan and Canada, which also determine market conditions, but EU countries should be aware that refusing Russian flax will only increase their dependence on imports,” the expert warns. – And this is where situational aspects come into play: the area under cultivation for this oilseed in Canada is at its lowest level since the middle of the last century, the last harvest in Kazakhstan is quite small, and the flax balance on the world market is generally low.
Consumers could suffer
In response to the possible introduction of tariffs, Russian exporters may find new markets, including developing countries, which will lead to a change in the export structure and possibly an increase in Russia’s share in these markets, according to Anton Vinogradov, head of the business services practice in the agricultural sector of the company “Trust Technologies”. “Consumers in EU countries will probably suffer more than Russian exporters, as they will have to replace our products at a higher price,” he emphasizes. – At the same time, the damage is still inflicted on individual European countries (that buy our products), but not on the EU as a whole.
Things are getting easier for Russian exporters as the EU’s share of total exports of domestic agro-industrial products has declined over the last two years, the expert continued. Russian companies are also quite successful in opening up new markets. “In 2023 alone, goods from Russia went to 17 new destination countries, exports to friendly countries increased by almost a quarter and their total share exceeded 85%,” lists Vinogradov. At the same time, he is confident that even if tariffs or import bans affect all agricultural industry products in the long term, this will not cause significant damage to Russian exporters.
However, according to Svetlana Silenina, head of the consumer market department at INFOLine, the greatest damage to domestic companies has already occurred. Sanctions pressure and geopolitical tensions have disrupted existing relations. “In addition, we must not forget that we have been under the influence of the food embargo for 10 years,” she notes. And although the agri-food sector has not yet fallen under the sanctions of the European Union, the share of this region in all-Russian exports is gradually decreasing.
For example, in 2021, before the start of the ETS, exports of food products and raw materials for their production to the EU accounted for 14% ($4,35 billion) of total Russian agricultural exports in monetary terms. The main export items were fish and seafood (36 percent), animal feed (20 percent), grain (14 percent), vegetable oils (8 percent) and oilseeds (6 percent). However, after the start of the special measure, there was a significant restructuring of exports to the European Union. The reason for this was the breakdown of logistical and financial chains, geopolitics and tensions in the markets in general. Thus, by the end of 2022, according to INFOLine estimates, the EU’s share in total exports will have already dropped to 10%. And this is also largely due to contacts that have already been concluded and paid for. In currency terms, exports have decreased by 7%.
Last year, exports to the EU continued to decline, which is logical in the current situation, says Silenina. According to Eurostat, almost €2,3 billion (about $2,5 billion) worth of food, drinks and tobacco products were imported into EU countries from Russia. The top five buyer countries for domestic products in 2023 included China (15%), Turkey (11%), Kazakhstan (7%), Egypt (5%) and South Korea (3%), the expert adds.
Possible restrictions on imports from Russia could mainly affect small export companies, since large companies do not export significant quantities in this direction, comments Dmitry Kasatkin, managing partner and head of the consulting and analysis department of Kasatkin Consulting. The same applies to importers of Russian products to the EU: small and medium-sized market participants will be most affected, but in general the measure will not affect the trade balance.
Without additional shocks in 2024, stagnation and a gradual decline in the volume of Russian agricultural exports to the EU can be expected, according to Denis Ternovsky. If introduced, prohibitive tariffs on the import of grain, grain legumes, oilseeds and their processed products could lead to a loss of up to 60% of export volumes to Europe, he emphasizes. According to the expert, restrictions are theoretically possible for other types of agricultural products, since in this case the deterrent mechanism that exempts the Russian agricultural sector from the direct impact of sanctions does not work – the EU tariffs do not affect global food security.
The imposition of higher tariffs will lead to price increases in Europe and complicate Russia’s exports, said Yaroslav Kabakov, strategy director at Finam Investment Company. This could increase inflation in the EU and force Russian suppliers to look for new markets. The tariffs will hurt European consumers due to high food prices and prompt domestic producers to refocus their exports. If tariffs are extended to other agro-industrial products, the number of problems for Russian exporters will increase, especially in the grain segment. The prospect of restrictions on other product categories will increase challenges for both sides, impact costs for EU consumers and force Russia to adapt to market changes, he concludes.
Source: Agroinvestor (Russia)