How was Russian agribusiness affected by unprecedented sanctions, and what to expect in the future?
Russian agribusiness was under unprecedented pressure from sanctions in 2022. This will continue. What to expect in the future?
Before discussing the current situation in the agricultural sector of the Russian Federation, it is necessary to clarify that this industry economics has a particular specificity. The resources in agriculture are land, plants and animals, so its functioning is biological.
Production processes in this sector are seasonal. It is leading to uneven use of labour throughout the calendar year. The exact impact of agricultural products on companies’ sales markets and financial income.
The products produced as a result of the activities of the agricultural sector are indispensable. Therefore, the state’s food security largely depends on the effectiveness of the agro-industrial complex.
The functioning of the agro-industrial complex of the Russian Federation should be considered in the context of two main sectors of agricultural production: crop production and livestock production. Crop production accounts for more than half of the total value.
So, the Russian Federation, with a large margin, ranks first in the production of sugar beets, second in – the production of sunflowers, and third – in the production of wheat and potatoes. Russia also has a leading position in many types of livestock products. For example, our country is fourth in total meat production, second only to China, the USA and Brazil. In addition, the Russian Federation was in seventh position in milk production.
Special Military Operation and its Impact in 2022
2022 greatly influenced the situation in the domestic economy. Against the backdrop of the global geopolitical crisis associated with the situation in Ukraine, many industries faced severe challenges, some of which have not yet been dealt with. The agro-industrial complex of the Russian Federation was not an exception.
The most critical problem for representatives of the agricultural business in Russia was the gap in the global supply chains that developed during the economic activities of farming companies. The food industry is highly vulnerable to foreign supplies of special equipment, and consumables, which can reach 70-80%. Domestic enterprises reacted extremely sharply to changes. Many companies have already managed to cope with the sanctions pressure. They are reorienting their logistics routes to Russian-friendly states.
New economic conditions have led to decreased accessibility for state support to farmers. Many large producers were forced to reduce their investment activity in the new realities. That could negatively affect the state of agriculture in the future.
The agricultural sector in Russia prefers a weaker currency
Russian agricultural sector’s balance between export and import heavily favours export. Therefore, they prefer weaker currency when exchanged on international markets. We are currently observing the changed importance of exchange rates for currencies not used in payments in the past. It is not entirely clear how the sector is adjusting to that change.
The sanctions pressure from Western states caused considerable damage to the domestic agricultural complex. At the same time, this sector of the economy has additional incentives for development. Given the importance and indispensability of products manufactured in agriculture, the country’s authorities should provide all necessary measures to support domestic farmers. That is the best way to ensure the country’s highest possible food security level.
It is important to note that the Russian agricultural sector is essential for food security in Russia and abroad as Russia is a prominent exporter of agricultural produce. The collective West is doing its best to damage the Russian reputation by doing everything possible to prevent regular food supplies to poor countries of the global south. However, I am confident that Russia will deal with that problem in the best interests of its customers and their country.