Russia fails to succeed at import substitution on all fronts

Russia has failed to replace the supplies of basic categories of imported food products at the expense of domestic production, including those that were prohibited for import under the counter-sanctions in August 2014.

A study conducted by the National Rating Agency (NRA) has shown that Russia has actually replaced European suppliers with companies from other countries. At the same time, it goes about re-export rather than replacement of prohibited food products, the Kommersant said.

It has been eight years since the time when Russia adopted the import substitution strategy. During this time, Russia has been able to significantly reduce meat imports on the food market - by 65 percent, which was 2.8 percentage points less than was provided in the strategy.

Exports of dairy products by the end of 2020 decreased by 20 percent instead of 30 percent as was stated in the strategy, fruits and vegetables - by eleven percent instead of the planned 20 percent.  The situation with the reduction in vegetable imports turned out to be a failure: instead of the planned 70.3 percent, imports fell by only 27 percent. Russia will continue importing vegetables and fruits primarily because of climate conditions.

  • In the early 2000s, Russia imported 2.5-3 million tons of meat and by-products, including from the EU, but the volumes of meat import dropped to less than 600,000 tons in 2020.
  • This year, the country will produce 5.05 million tons of poultry and 4.25 million tons of pork, although ten years ago these figures amounted to 0.8 million and 1.6 million tons respectively.
  • Fish production is also growing: in 2019, the country produced 4.21 million tons of fish products against 3.68 million tons in 2013.

At the same time, the domestic production of the food products that were banned for imports from the EU in 2019 exceeded the volume of imports from the countries that are not subject to sanctions by 2.5 times. However, the share of imports of such food products is still high: 30 percent against 38% in 2013. The rest is imported from third countries.

During the times prior to the embargo, the EU accounted for 43 percent of all dairy products imported into the Russian Federation. Today, it is Belarus that has become the main supplier (79 percent versus 39 percent before the sanctions). Belarus has also replaced the EU in meat supplies: now its share in the structure of imports in the Russian Federation is 29 percent against 12 percent in 2013. From Paraguay, where Russia used to import meat to a limited extent before the sanctions, Russia currently imports 19 percent.

The NRA study revealed that a number of countries carry out at least partial re-export of sanctioned products to the Russian Federation. For example, Norway, which used to supply up to 40 percent of imported fish to the Russian Federation before the embargo, was replaced by Chile and the Faroe Islands, which currently account for 20 and 16 percent of fish imports respectively. At the same time, supplies of Norwegian fish to Chile have tripled.

Ecuador, from where 22 percent of fruit is imported to Russia, has actually replaced the European Union, having increased purchases of these products in Europe seven times, which exceeds the volume of domestic consumption. China has replaced vegetable supplies to Russia from Europe: the share of this country in imports has increased to 21 percent against 8 percent in 2013. At the same time, China has tripled purchases of vegetables from the European Union.

Experts claim, however, that this is not entirely true. Ecuador, for instance, mostly supplies bananas and exotic fruits that do not grow in the EU. In addition, re-export of European salmon from Chile to Russia is unprofitable due to high logistics costs.

Nevertheless, it is possible to re-export food products via other countries: nearly 110,000 tons of apples, which accounts for about 15 percent of all imports.

Last year, Russian economists from the Center for Economic and Financial Research and Development calculated that Russian consumers lose about 445 billion rubles annually in 2013 prices due to the food embargo and continue to pay for it at their own expense. Import substitution deems successful in the production of poultry, pork and tomatoes.