Troy Media Columnist
Russia has banned Canadian pork, but judging from the response of the Canadian government you might question if it even happened.
After Russia’s broad agriculture sanctions were announced last week, Gerry Ritz, Canada’s Minister of Agriculture, stated that this was “short-sighted desperation from the Putin regime” and that “thanks to the continued efforts of our government and industry, Canadian pork producers have access to numerous other lucrative markets around the world.” Ritz’s statement is great rhetoric: he is, after all, known for great one liners. But this is not “death by a thousand cold cuts”, it is a serious blow to the industry.
Ritz’s comments on pork completely downplay the importance of the Russian market, the ease with which exporters could pivot to new markets, and the overall significance of the sanctions on future international trade.
Russia’s sweeping ban on agricultural products from Canada, the U.S., Australia, and Norway are a calculated move designed to inflict the maximum amount of damage on countries that imposed sanctions on it, while at the same time minimizing the impact to Russian consumers. More importantly, it is a “shot across the bow” in an economic battle that could move the world away from unfettered globalization to a more protectionism and bilateral trade world.
When Putin choose products to ban, he did so knowing that Russian consumers would bear the brunt of sanctions. Pork was chosen because it has two major substitutes, beef and chicken, both of which could be purchased from friendly countries – namely Brazil, Argentina, and China.
Switching markets isn’t as easy as switching supermarkets; especially when it is our third largest export market we are losing. Russia was importing nearly $500 million a year of Canadian pork. Adding to the problem is that U.S. and EU pork has also been banned from Russia.
U.S. pork exports to Russia, albeit small – $16.1 million last year – have picked up considerably since March when Russia lifted a ban on U.S. imports. In June, the U.S. exported nearly $34 million worth of pork to Russia.
Prior to a ban put in place in January because of swine flu, the EU was selling more than $700 million a year of pork to Russia. Since then, the EU has begun pursuing non-Russian markets, thus removing much of the excess demand in Asia. There has actually seen a significant drop in pork prices in China because of it.
If demand cannot be found in existing markets, demand will have to be created. Pork is highly price- elastic, so in order to build more demand sellers will need to reduce price. This will reduce profits for Canadian farmers, if they can even find a market where demand can be grown.
And pork, albeit important, may be just the beginning of the economic confrontation that will engulf all of our exports, from agriculture to potash to oil and gas in a new economic “Cold War” with all the regional conflicts, proxy battles, and races that go with it.
Rather than bullets and bombs, this battle will be fought with dollars, rubbles, and yuan. We have already seen India and China decide not to implement sanctions against Russia and Japan has watered down its sanction. This was done mainly because of the growing importance of Russia’s energy security blanket in Asia. If this trend continues, Canada’s pivot towards Asia may be over and old trade relationships between Canada and Europe and Canada and North America will be essential for our continued growth.
International trade is not a zero sum game; it is a world of shades of grey. Russia’s ban of Canadian pork will damage our economy, just as the West’s sanctions damaged Russia’s economy. It would behove us to lower the rhetoric and focus on revaluating our export strategy so that we can be competitive in world where sanctions and geopolitical risk are very quickly superseding free trade and open-borders.
Ryan Lijdsman is a Canadian-based international business consultant.