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Russia's Sanctions On EU Costing Farmers Hundreds Of Millions (Picture)

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You’ll recall the rather odd economic policy thatVladimir Putin enacted (well, it was Dmitri Medvedev that announced it but no one believes anything happens in Russia without Putin’s say so) in reaction to the limited financial sanctions imposed upon various cronies? He decided that there should therefore be a complete ban on the importation into Russia of European Union fruits and vegetables. We’ve an interesting little story today telling us the damage that that is doing to the EU economy. Not a lot actually: indeed, comparable to spitting during a biblical flood.

Here’s the actual number:

The European Union activated emergency support for fruit and vegetable producers with a budget estimated at 125 million euros ($167 million) through November after Russia restricted imports of European farm goods.

The EU measures include market withdrawals for some fruit and vegetables as well as compensation for non-harvesting and curbing yields, the European Commission said in a statement today.

As I’ve said before the basic idea itself is nonsense, for the benefits of trade go to the people who are doing the importing, not to the exporters. Sure, the exporters get some money but in this case the importers get some food to eat: and it’s easy enough to work out which we consider to be more important for all of us are in general delighted to hand over our cash for the food that we get to eat. We’re the people who benefit from this trade with farmers and the imposition of an international border in between the people in the transaction changes nothing.

 

We’ve also noted that the Russian propaganda outlets don’t quite seem to get this:

 

The problem is that although the European leaders have repeatedly mentioned the principle of European solidarity, there is no legal mechanism to compensate the countries suffering from Russian retaliatory measures. It is also safe to assume that finding additional funds in order to pay the compensations will be a difficult task, given the dire state of the European economy.

Certainly, those issues will not prevent political leaders from countries affected by the Russian embargo from demanding financial aid because for them it is the only viable political strategy.

According to the EU ambassador to Russia, the European Union may lose up to 12 billion euro ($16 billion) because of Russia’s ban on food imports. However, this estimate is unlikely to be accurate because it only takes into account the direct damage inflicted by the ban. Farmers who are unable to sell their crops to Russia, won’t be able to pay their bank credit, their suppliers and employees. Affected countries, trade groups and agricultural unions will seek compensations from the European Union, rightly blaming Brussels for their woes.

 

And that’s what today’s news helps us to work out. The damage done to those exporters is of course not the total amount of the value of the crops they cannot now sell in Russia. It’s the difference between that value and what they can get for those same crops elsewhere. Which is what the EU is now compensating them for: to the tune of that 125 million euros.

 

At which point we can do a few sums. The Russians imposed a ban on €12 billion of imports. The damage to the exporters appears to be €125 million. The damage to Russian consumers is, at least as far as we currently know, that full €12 billion. And far from bankrupting the EU the payment of this compensation is, in the context of a €50 billion odd agriculture budget, or a €130 billion EU one, or even of the $15 trillion EU economy, more of a rounding error than an actual problem. And of course imposing 100 times as much damage upon Russia as your actions damage the EU you’re trying to punish doesn’t really sound like the most efficient way of trying to achieve anything at all.

 

We might even describe it as a mistake: which of course it is, as is any trade policy built upon the misconceptions of mercantilism going to be. MOREHERE

 
 



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