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Aaron McKenna: We should aim to do less, not more, trade with Russia

We shouldn’t be focused on Vladimir Putin’s bullyboy ban on many EU foods – we should be making ties with ambitious countries that share our values.

Aaron McKenna

MUCH HAS BEEN made recently of cheese and meat mountains building up in Ireland and across Europe in response to Vladimir Putin’s bullyboy ban on many EU foods. The trade embargo comes in response to EU sanctions targeting Russia after its interventions in Ukraine, and Putin used it as an opportunity to call for more Russian patriotism and self-reliance.

Russia is a major importer of food, with a third of the typical Russian food shop coming from abroad. In more middle class and urbanised areas this is much higher. Despite having 16% of the world’s land mass, Russia is not a productive agricultural country. Russian food imports have exploded over the past decade, with beef and dairy imports increasing from under €500 million apiece to over €2 and €3 billion a year, respectively.

During the height of the Cold War the Soviet Union regularly relied on grain imports from the USA to prevent starvation. Interestingly, even during trade embargoes – such as one the US levied after the Soviet invasion of Afghanistan – food managed to make its way into Russia via third parties.

Russia is a startlingly inefficient country, and calls by Putin for Russians to produce more of what they eat are more likely to produce another chapter in Soviet-style agricultural mismanagement than any great miracle. Russia will continue to rely on imports of food from abroad, turning to Asia and South America in particular for its imports.

Fungible goods

In the very first instance, Irish and European producers can rest a little easier: food is a fungible class of goods. South American fields can only produce so much this year and next, and whomever they would have sold their produce to if not Russia will need to find replacement sellers.

In the short term we are seeing anecdotal shifts of food with shorter shelf lives, such as cheese, which may impact prices. The Dutch and Germans send about a third of their cheese to Russia, and according to The Farmers Journal this week we are seeing that stuff sent instead to places like the UK in the short term as they dump their stock before it goes off.

About 2.5% of all Irish food exports go to Russia. We sent 1,300 tons of beef cuts to Russia last year, and 6,000 tons of offal. That sounds like a lot, but in context it represented €10m of our total €2bn in meat exports. We can and will find other markets for it, and disruptions to the market like that from Dutch and German cheese will pass over.

It is the opportunity cost to Irish producers that is being lamented as much as real loss in trade, which is small. Bord Bia had targeted Russia as a big growth market for Irish exports in years to come. In many other areas we and other European countries see trade opportunities with Russia.

Russia is not a rational trading partner

Trade has also been a tool of foreign policy by the EU towards Russia. Increased trade links are seen as a way to lock countries together and foster enmity. Europeans used to regularly fight and draw in otherwise unconcerned countries and issues to disputes over over who really owned a particular provincial region (see in this particular centenary year, Alsace-Lorraine); not unlike Russia and Ukraine.

Under normal circumstances with rational trading partners, increasing something like dairy imports by over €2.5 billion a year over a decade would lead to a lot of vested interests in peace and continued trading friendship. But Russia is not a rational trading partner: it is a quasi-dictatorship, a large country with tin-pot regional ambitions to rule over its neighbours and glorify itself.

The leadership of Russia is willing to allow its people to undergo massive hardships in response to an entirely self-created and unnecessary crisis. Russia is interfering in a formerly subjugated country, looking to get back tracts of land that will cost it money to integrate into itself. The country has very likely done things like hand surface-to-air-missiles to rebels who went on to shoot down a passenger airline. This is a country that once, very likely, poisoned a former spy in the UK with the radioactive Polonium 210 in his tea. Russia under Putin is almost a Bond era caricature of itself.

A difficult place for business 

Companies find it very difficult to work in Russia, because the country regularly raids offices, reneges on deals, nationalises industries and locks up business people. There’s a reason so many Russian billionaires, whatever the source of their wealth, have fled to London to drive up the price of property and football players. Russia is not a safe place to do business. You’re a friend of the Kremlin one day, in a cell or dead the next.

The big fear in Europe is that Russia will cut off gas exports to us if we don’t behave and play ball with Moscow’s agenda. This will cause the European economy far more damage in the short term, because gas is a lot less fungible than food. Pipelines and other infrastructure are needed to get it from Russia to here or elsewhere.

But it is telling that Russia has not yet gone to this point. The Russian economy suffers from self-imposed embargoes as much if not more than foreign countries. According to The Economist, the Russian stock market trades at a discount of about $1 trillion when you look at the price of shares compared to the earnings of companies, contrasted to other countries. Most Russians don’t own stocks and so don’t feel this impact, but it is one of many that the country suffers for being an impetuous, closed-off place.

Proceeding on the basis that we are afraid that Russia might cut off the gas is also a poor strategy. Vladimir Putin is not a rational actor. Keep him happy today and he may keep the gas flowing, but what about tomorrow? What will irk him sufficiently to cut it off then? You can’t rely on the moods of KGB era strong men like him for your economic security.

Minimise exposure to Russia

Europe would be better off developing a credible strategy to combat Russia economically. As the EU is so good at doing, it has dithered on energy security as well as practical military security relating to Russia for years. The result is that when Russia does things like contribute to killing innocents on an aeroplane, Europeans call for “careful investigations” and argue over whether or not one of us should really be selling beach-invasion specialist warships to them this year (looking at you, France.)

We should minimise our exposure to Russia, and not only because it has an odious leadership we find repugnant (sure, we’d have to stop trading with half the world). It’s bad business because Russia is a threat on European borders and, even when it’s behaving itself, the Kremlin is very likely to welch on deals and do you harm anyway.

Let Russia figure out, for the umpteenth time, that it is incapable of thriving as a country without close cooperation among its neighbours. It has got into economic pissing contests with the west before and lost. It will lose again. Meanwhile, let’s go trade with ambitious countries that share our values of wanting a better future for their children more than they want to plant a flag on some post-industrial wasteland in east Ukraine.

Aaron McKenna is a businessman and a columnist for TheJournal.ie. He is also involved in activism in his local area. You can find out more about him at aaronmckenna.com or follow him on Twitter @aaronmckenna. To read more columns by Aaron click here.

Read: Russian armoured vehicles seen near Ukraine aid trucks

Read: Ireland goes east in bid to offload meat mountain

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