Financial Comment - Who is winning the economic war

Who is winning the economic war

Consider two recent sets of news items. The first one from Russia, where natural gas monopolist Gazprom reported that its net profit plunged by 36% in the first half of 2014 on the back of growing costs and western sanctions (which did not prevent the board of directors to boost their own remuneration by 40% during the same period to more than $30 million). There are also reports that wholesale prices of different foods, like fish, which can no longer be imported from Western countries to Russia as a result of Russia’s retaliatory “sanctions”, have jumped up by at least 15%-20% in recent days. Russian observers are anticipating much steeper price spikes in corresponding retail prices. After these sanctions have been in effect for several days, Russian authorities are already considering to exclude some products from the embargo upon realization of the adverse effects (this relates in particular to whitebait needed to replenish fish stock and certain dairy products).

The other set of news items relates to prices in Western countries for foodstuffs which are part of Russia’s import ban. Due to increased supply, these prices are going down globally (with the exception of Russia), not just in the Western countries that are affected by the Russian import sanctions. Despite the negative effect of lower prices on global food producers, many analysts are paying more attention to the prospect of lower retail prices benefiting consumers. Due to a relatively small share of sales to Russia in overall output, Western meat producers are expected to survive the ban. As the Washington Post noted recently, the U.S. beef industry has fared just fine after last year’s Russian ban on American beef. The Canadian domestic food market could also be affected, especially considering that Canada exports about $600 million worth of food products to Russia annually. Ontario-based meat producers should not be affected heavily as they account for less than 10% of Canada’s imports to Russia.

By: Ukrainian Credit Union Limited