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Russia bans Western food imports in Ukraine sanctions retaliation

Source: Reuters - Thu, 7 Aug 2014 16:03 GMT
Author: Reuters
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* Russia bans all meat, fish, poultry, dairy, fruit and veg from US, EU, Canada, Australia, Norway

* Move affects imports worth $9.2 billion last year

* NATO calls for Moscow to pull back from brink of war with neighbour

By Polina Devitt and Natalia Zinets

MOSCOW/KIEV, Aug 7 (Reuters) - Moscow banned imports of most food from the West on Thursday in retaliation against sanctions over Ukraine, a stronger than expected measure that isolates Russian consumers from world trade to a degree unseen since Soviet days.

In eastern Ukraine, a Dutch recovery team called off its work at the site where a Malaysian airliner was shot down over rebel-held territory last month, saying escalating fighting had made the frontline location too dangerous.

NATO's secretary general, visiting Kiev in a show of support for Ukraine, called on Russia to pull back from the brink of war against its neighbour. The Western military alliance says Moscow has massed troops on the border in preparation for a possible ground invasion.

Russian share prices fell after the announcement of Moscow's one year ban on all meat, fish, dairy, fruit and vegetables from the United States, the 28 European Union countries, Canada, Australia and non-EU member Norway.

Russia has become by far the biggest consumer of EU fruit and vegetables, the second biggest buyer of U.S. poultry and a major global consumer of fish, meat and dairy products.

President Vladimir Putin ordered his government to adopt the measures in retaliation against Western countries which imposed sanctions on Russia's defence, oil and financial sectors over its support for rebels waging an insurrection in east Ukraine.

Putin had promised to ensure that the measures would not hurt Russian consumers, which suggested he might exclude some popular products. But in the end, the bans announced by his prime minister, Dmitry Medvedev, mentioned no exceptions.

The announcement saw Russian bond yields rise to their highest levels in years and Moscow's already reeling share prices extend a sell-off.

Agriculture Minister Nikolai Fyodorov acknowledged that the measures would cause a short-term spike in inflation, but said he did not see a danger in the medium or long term. Russia would compensate with more imports from other suppliers such as Brazilian meat and New Zealand cheese.

The EU's executive Commission said it reserved the right to take action to retaliate against the Russian ban.

RUSSIAN DOMESTIC MARKET HIT

Food represents a small fraction of Russia's overall imports from the West. But the ban will have a disproportionate impact on farmers in specific sectors in producing countries, and on Russian consumers, who will face higher prices and shortages with inflation already rising and the rouble falling.

"The first casualties would be the domestic market. However it will have some implications for the farmers in the producing countries," Abdolreza Abbassian, a senior economist with the United Nations Food and Agriculture Organization, said.

Russians have relished imported food since the fall of the Soviet Union, when year-round supplies of fresh fruit and vegetables arrived and ubiquitous cheap American frozen chicken quarters became known as "Bush's legs" after the then president.

The ban affects all meat, fish, poultry, fruit and vegetables from the listed countries, but does not include other food items - mostly commodities such as grains, seed oils, sugar, coffee, tea and cocoa. Russia spent $25.5 billion last year on imports in the affected categories, $9.2 billion of it from the countries hit by the ban.

It spent $39 billion overall on food, including $17.2 billion on all food items from the listed countries.

The nascent middle class in Moscow, which buys Italian cheese and American beef at supermarkets, will take a hit, but so will ordinary people who buy Polish apples and Greek cucumbers in street markets. Russia bought 28 percent of EU fruit exports and 21.5 percent of its vegetables in 2011. It bought 8 percent of U.S. chicken meat exports last year.

Moscow may also ban Western airlines from flying transit routes though its air space. This would raise European carriers' fuel costs as their jets fly around Russia on the way to Asia, but would also deprive Moscow of hundreds of millions of dollars in overflight fees.

BACK FROM THE BRINK

The rebels in Ukraine are led mainly by Russian citizens and armed with tanks, artillery and other heavy weapons that Kiev and its Western allies say can only have come from Russia.

They have declared independent "people's republics" in two industrial provinces of eastern Ukraine which they call "New Russia" - a term Putin has applied to all of Ukraine's south and east. Here most of the population speaks Russian as a native language, while identifying themselves as Ukrainians.

Sources told Reuters that the main rebel leader in the city of Donetsk, a Russian, may be replaced by one of the separatist commanders who is a local man. Rebels said this was being discussed but could not be confirmed.

NATO's Secretary-General Anders Fogh Rasmussen visited Kiev in a show of support for Ukraine, although the Western alliance has made clear it will not fight to defend the country, which is not a member and not covered by its mutual defence treaty.

Kiev said Rasmussen had discussed a possible NATO fund to help Ukraine pay for defensive systems like command and control.

NATO says Russia has massed 20,000 troops at the border and may be planning to declare a humanitarian mission as an excuse to invade. Rasmussen said Moscow should "step back from the brink" and not "use peacekeeping as an excuse for warmaking".

Western countries imposed initially mild sanctions on Russia after it annexed Ukraine's Crimea peninsula in March, but tightened them after Malaysia Airlines flight MH17 was shot down on July 17.

The latest Western measures limit access by Russian state banks to global capital markets and also block imports of defence and oil industry equipment.

Washington and Brussels say the Malaysian airliner was almost certainly shot down by an advanced anti-aircraft missile system supplied to the rebels by Russia. Moscow denies this.

The disaster galvanised politicians, particularly in Europe, who had previously been reluctant to take strong action against a big trading partner.

Dutch inspectors are trying to investigate the cause of the disaster and recover any personal effects and remains of bodies of the 298 victims of the crash that might still be left at the site. Their work was halted by fighting in the area, which is near the road linking the two main rebel bastions of Donetsk and Luhansk near the Russian frontier.

"Over the past few days, the security situation in eastern Ukraine - including the MH17 crash site - has been getting progressively worse," Dutch Prime Minister Mark Rutte said. "In this light, it is currently not advisable to continue the repatriation mission."

Ukrainian military spokesman Andriy Lysenko said seven more Ukrainian service members had been killed in the past day of fighting.

Despite their advanced weapons, the rebels have steadily lost ground since June, leaving them mainly besieged inside two provincial capitals, along with hundreds of thousands of civilians who fear a full-scale government assault.

Russia has announced military exercises near the border this week. On Wednesday, NATO said Moscow had amassed 20,000 troops near the frontier and could be planning a ground invasion under the pretext of launching a humanitarian mission.

Putin has rallied Russians with relentless nationalist campaigns in state media against Ukraine and in support of the rebel cause, and Western officials fear he might invade to prevent a humiliating rebel defeat. (Additional reporting by Reuters Moscow, Richard Balmforth in Kiev, Tom Miles in Geneva, Andrew Deutsch in Amsterdam, Anton Zverev and Dmitry Zhdannikov in Moscow, Maria Tsvetkova in Donetsk, Barbara Lewis in Brussels and Isla Binnie in Rome; Writing by Peter Graff; editing by David Stamp)

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