Sanctions and Empty Store Shelves.

Posted in Current Events | Posted by rodger |

I have been avoiding writing new posts since the Ukrainian crisis started.  I prefer to write humor and there hasn’t been a lot funny about that conflict. In fact, if I did write the truth about it, from the Russian point of view, I would get lot of angry letters.

However someone has to post the truth about the empty story shelves.  I constantly read in the American media about the starving Russians lining up for bread in almost vacant stores. As I write this, Russia has just announced that it is pulling its military forces out of Syria and today several America news sources are saying that this is because Russia can’t even feed its own citizens and doesn’t dare spend any more money on bombs.

My relatives in Russia also read these stories and they provide more humor and cause more laughter than anything I can write.

Now things have changed over the last couple of years. The sanctions the US put on Russia are a joke, but Putin counter sanctioned the EU and barred all food imports from them. Suddenly, all the Swiss cheese was missing from the store shelves, there was no more French wine and milk went up in price.  Nestlé’s Hot Chocolate disappeared, flowers from Denmark disappeared, no apples came in from the EU, the beef supply dropped in half, and frozen pizza was in short supply.

Then the ruble dropped in half and French wine and Danish cheese became too expensive even if you could get it.

The Russian reaction was not what I expected.  Generally they were happy about it, and ridiculous as it sounds, it makes sense if you understand Russians.  A combination of different eating habits, Russian pride and Russian guilt made them like the sanctions.

We’ve already talked about how most Russian wives cook from scratch. Real Russians buy flour in 25 pound sacks, bricks of bread, potatoes by the bushel, Russian chicken and baskets of cabbage and there was never for a single day any shortage of the basics. Russia is the world’s second largest exporter of wheat and has more farmland than all of the EU countries combined.  If they couldn’t get French wine and Danish sausages, so what? Only the people in Moscow and those rich people on the other side of town cared.

When you were reading all those stories on CNN, Fortune, Forbes and VOX predicting that the starving people of Russia were about to revolt against Putin because he emptied the store shelves, they were just buying from new sources. There are 28 countries in the EU and about 4 more US allies who joined in the sanctions. That leaves only 164 countries willing and able to sell Russia anything it wanted.  CNN failed to mention that part.

Suppliers ordered beef from Brazil to replace the EU imports, expanded contracts with Turkish suppliers for additional fruits and vegetables, and major supermarket chains started funding local farmers, helping them modernize and expand.  Any shortages were short lived.

Of course, there was that problem with the ruble. But, remember that when the ruble dropped 50% against the dollar, rubles did not drop in value by half for the people who had them. If you were buying a product made in the ruble economy, the price was still close to the same. Your rent, your cab ride, bus ticket, gas, phone bill, doctor’s bill stayed the same. Only products bought from other countries went up in price.

Unfortunately, Russia was importing a lot of its food.  I know I said that they were self sufficient on the basics, but man does not live on bread and borsch alone.  What’s life without a pit of roasting beef kabobs and a cold beer on the weekends?

By the beginning of 2014, Russia was importing almost 50% of its food.  The country with the most cultivatable land in the world, was importing half of the dollar value of its groceries. Oops.

When socialism died, every factory in Russia needed modernization, but the EU already had factories that produced processed food cheap and fast. You have to remember that processed food is not just TV dinners and Sara Lee. Chickens don’t just shed their feathers and just lay down under the plastic and pigs don’t turn into hams just because they get older.

So, Russia starting importing for the same reasons we do.  It didn’t make sense to spend millions on steel tanks and automatic milking machines to produce milk worth a dollar a gallon, when less money would drill a well that produced oil worth $120 a barrel, with a lot less labor.  Stores got filled with foreign food products for the same reason that every product in Wal-Mart carries a Made in China sticker.  It was cheaper to buy than to build.

Everybody was unhappy about it. Russians are a proud people and used to living in a world where Russia made everything. Television commentators, politicians and the man down at the end of the bar frequently said “we need to diversify and build more for ourselves.”, but it was like dieting. We all intend to do it tomorrow, or next week for certain.

When the ruble dropped by half, it suddenly became necessary to do that substitution thing. The diet was on because imports became expensive.

Fortunately that rather odd Russian government got to work. As I have mentioned before, the Russian government consists of the world’s most incompetent, corrupt and confused civil service, a congress even more useless than ours, and world class leaders on the top.  Putin and his crew actually solve problems rather than borrow money and lie about how good things are.

They started the “Import Substitution” program in August of last year.  They set up a commission to manage and fund projects ranging from pharmaceutical production to domestic diesel engine production, production of chemical and petrochemical liquids, and especially agriculture.  You can judge the impartiality of the American media outlets you are reading by noting that in October of last year, Forbes and several other American publications announced that the program was a total failure.  That’s like watching a man plant an apple seed and demanding to know the next week where the apple tree is.

We can talk about that someday, but the only topic today is those empty store shelves.

Even with the drop in the ruble, there are no empty shelves.  Food substitution was already under way.  In less than 18 months, Russia increased overall agricultural production by more than 50%.  They became exporters of chicken and pork, rather than importers.  In addition to providing the local markets, Russian agricultural exports grew from $15 billion to $20 billion.  Beef and milk production has increased and orchards are sprouting on what was fallow farm land.

The upshot is that nothing has changed much for most Russians.  Food prices are up about 10%, but there is plenty of food, and you can still buy a Snickers bar and a Coke because a lot of brands we have in America are now also produced domestically in Russia.  Things are far from perfect. It will take years to ramp up milk production and Russia will never grow its own citrus, but despite what you have read, starving Russians are not ready to rebel to get a crust of bread.








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