Canadian businesses are bracing for a possible next wave of Russian sanctions after Moscow banned imports of key food products in an escalating economic war over the conflict in Ukraine.
Sanctions the Kremlin announced on Thursday could cost Canadian exporters about $600-million a year, with pork and shrimp exports bearing the brunt. Small quantities of fruit, vegetable and dairy exports are also affected.
With Prime Minister Stephen Harper vowing not to let “business interests” dictate his government’s foreign policy, Canadian exporters are worrying about whose products might be next.
“There are a number of other sectors that this sends a signal to, and they are concerned,” said Jayson Myers, president and chief executive of the Canadian Manufacturers and Exporters (CME), which represents thousands of companies. “There are other areas where we could be susceptible if this continues to escalate.”
Potential future targets are wheat, barley, commercial jets, energy and farm equipment, Mr. Myers said.
That worries Brad Nelson, general manager of Honey Bee Manufacturing Ltd. of Frontier, Sask., which makes grain harvesters. He said the showdown between Russia and the West over Ukraine has not affected sales yet, but it is stoking uncertainty.
“I’m always concerned about these things,” he said in an interview. “Sanctions start with something and end up with something else.”
Farm equipment manufacturer Schulte Industries Ltd. of Englefeld, Sask., has seen sales to Russia dry up in the past few months. “With the recent unrest and change in the exchange rate, we haven’t had any sales there,” president Greg Archibald said.
Clearwater Seafoods LP of Bedford, N.S., a leading shrimp exporter to Russia, said it could lose an export market that was worth nearly $16-million in 2013, representing about 3 per cent of its global business. “Any time you have these arbitrary sanctions announced that affect global trade, it creates dislocations,” president and chief executive Ian Smith said in an interview. “The greatest impact, unfortunately, will be on the Russian consumer.”
Russians will have fewer products on store shelves, and likely higher prices, he said.
Clearwater will find ready markets in Japan, China and Europe, said Mr. Smith, adding that the sanctions would have no “material” impact on the company. “The great thing right now for a [shrimp] harvester is that global supply is quite short,” he said.
The story is similar in the pork market due to disease outbreaks in several countries, including the United States, pointed out Martin Rice, executive director of the Canadian Pork Council. Those “tight” markets will allow Canadian producers to replace lost Russian sales.
Mr. Myers of the CME added that a spike in food prices in Russia could be good for Canadian exporters, barring further sanctions. He said Russia might have to bring back domestic farm subsidies, which could increase demand for imported farm equipment. “Let’s hope things don’t get out of hand,” he said.
Mr. Myers said exporters should protect themselves by diversifying markets and making sure they have political risk insurance. The CME is also asking Ottawa about short-term compensation for exporters caught up in sanctions.
In a statement on Thursday, the Prime Minister’s Office said impact on Canadian trade was considered when the government introduced new sanctions against Russia on Wednesday.
The PMO said in a statement Russia’s move shows Russian President Vladimir Putin is becoming desperate.
“While these actions only demonstrate Putin’s increasing desperation, Canada will continue to monitor developments closely and ensure that information on any Russian economy measures which target Canada is relayed to Canadian industry as required,” the PMO said.
The Russian sanctions – aimed at Canada, the U.S. and Europe – include a one-year ban on beef, pork, poultry, smoked meats, fish, shellfish, dairy products, vegetables, fruits, nuts and sausages.
In 2012, Canada exported $492-million worth of pork to Russia, making it the industry’s third largest export market after the United States and Japan. Pork accounts for nearly 90 per cent of Canadian agri-food exports to Russia. Canada also sold $108.5-million worth of seafood and less than $10-million worth of fruit, vegetables and dairy products. Of concern down the road are the nearly $400-million a year in Canadian machinery and equipment sales to Russia and the $240-million worth of of jets and other transportation equipment.
Russia is also considering banning commercial airlines from its airspace, affecting so-called overflight rights needed to take the shortest route to Asia. The measure is believed to be aimed largely at European airlines and will not likely affect Air Canada. The Canadian carrier does not fly between Canada and Russia, and said on Thursday that its scheduled flight paths do not go over Russia.
BARRIE MCKENNA AND DAVID HAINS
OTTAWA and TORONTO — The Globe and Mail
Published Thursday, Aug. 07 2014, 9:25 PM EDT
Last updated Friday, Aug. 08 2014, 6:55 AM EDT