Thursday 18 December 2014

High stakes poker game in Russia's sanctions backlash

Published 08/08/2014 | 02:30

Agriculture exports will be hit
Agriculture exports will be hit

The announcement of the Russian ban by Russian Prime Minister Dmitry Medvedev was not a big shock to the Irish food sector.

It's the aftermath that is likely to sting for much longer.

Trouble first started brewing for a small, but significant, part of Ireland's €10bn food export industry when Russia banned pigmeat imports from the EU.

That was worth €59m a year to Irish exporters.

This was followed by a veterinary inspection of 12 beef, dairy and fish processing plants late last May.

It was expected to be a routine check. So when all 12 plants were delisted a few weeks later by the Russian food authority, industry leaders knew there was trouble brewing. By this stage Ireland had just lost over €100m of food exports.

At the time, there were some less than fulsome explanations from the Russians about the Irish plants not meeting the Russian food safety specifications. This was despite the fact that the plants in question, run by world-class global companies such as Kerry Group, were fully compliant with every EU regulation.

A spokesman for the Russian ambassador here, Maxim Peshkov, said at the time that the ban had "nothing whatsoever" to do with conflict in the Ukraine.

At least that pretence has now been dropped.

The immediate problem for the heavily export-dependent food sector here will be competing all the other heavily discounted product that has been displaced from the Russian market.

International dairy markets are already back by as much as 40pc this year and, with stocks peaking around now on the back of a good summer, competition to offload perishable product will be intense.

Looking to the long term, it may be harder for Irish exporters to get back into markets that others are already queuing up to fill.

Make no mistake about it - Russians will still want butter on their bread in the morning.

And Russian President Vladimir Putin has conveniently excluded some key dairy and meat exporters in New Zealand and South America from his banned list.

So in the same way that Irish whiskey never regained its heady US export numbers after the ending of prohibition - the Scotch got in instead and never left - the extent of the damage that this ban leaves behind remains to be seen.

For now, both the Minister for Agriculture, Simon Coveney, and key export bosses such as Kerry's Stan McCarthy, have adopted a wait-and-see approach.

They had hoped to see the phenomenal 500pc growth in Irish exports over the last five years repeated up to 2020 at least.

In reality, they know that they are powerless to influence the situation while super-powers - such as the EU, US and Russia - slug it out over who gets to call the shots.

They also know that much bigger players with a lot more at stake are also caught in the diplomatic cross-fire. While less than 2.5pc of Irish food exports went to Russia last year, a full 10pc of the EU's food shipments were destined for her eastern neighbour.

So this will be high-stakes poker to see who blinks first.

In the meantime, if there is a silver lining to be taken from the whole mess, it's that some Irish companies might actually benefit.

The likes of Co Kerry milking parlour manufacturer Dairymaster has built up a sizeable market for its cutting edge technology. They now have hundreds of units milking cows from Moscow to Siberia.

This latest ban on food imports will only add more momentum to one of Putin's pet projects - that of re-gaining some of Russia's food self sufficiency.

Companies like Dairymaster and Carlow's Hi Spec, with their animal feeders, could suddenly experience a serious spike in their Russian orders.

The shame is that it could be limited to just a handful of Ireland's many brilliant agricultural exports.

Darragh McCullough

Irish Independent

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