World dairy and meat prices are tipped to fall after Russia’s ban on many food imports from the West.
Moscow’s trade sanctions are expected to wipe $200 million off Australia’s $38 billion food export industry, but commodity analysts say the full effect will be more far-reaching.
Rabobank dairy analyst Michael Harvey said the food bans could prolong a weak dairy market, which has already fallen by between 20% and 30% this year.
“Russia is the world’s second-largest importer of dairy products, so it will have a significant impact on the balance of global supply and demand,” he said. «We need to ascertain if they will impose the ban for the full year, like they said they would, and if it will be strictly enforced.”
Russian President Vladimir Putin banned food imports in retaliation for Western countries’ sanctions on Russia’s defence, oil and financial sectors for the country’s support for rebels in eastern Ukraine.
The stronger-than-expected measures aim to isolate Russian consumers from world trade to a degree not seen since the Cold War.
Industry research firm IBISWorld said the greatest challenge to Australia’s agriculture industry will be stronger competition from Europe and the US, as players search for new markets for their products, and thus put pressure on commodity prices.
Europe supplies Russia with most of its cheese and butter, and dairy exports amount to about 500,000 tonnes a year. Australia exported about 22,000 tonnes of dairy products to Russia last year, which Australian Dairy Farmers says was worth about $112 million.
IBISWorld said global dairy price falls could be limited if New Zealand, which was omitted from the sanctions, sent more products to Russia. This could help offset price falls.
“As dairy markets are flooded with EU produce previously destined for Russia, one of the largest dairy importers, diversion of trade from a large exporter such as New Zealand could stem price declines in other markets,” an IBISWorld report said.
“Similar trends could also occur in meat and fruit industries, with exports to Russia increasing from Asia and South America.”
Before Moscow announced the food ban, Mr Harvey had said Rabobank expected the global dairy market to remain weak for the rest of the year, before recovering in early 2015. “Our view hasn’t changed much but the Russian ban remains a risk,” he said.
Australian Dairy Farmers president Noel Campbell said the sanctions were a blow, considering recent falls in commodity prices. “China hasn’t been buying as much as they were,” he said. “It [the food ban] is disappointing but it’s too early to say what impact that will have on farmgate prices.”
Source: The Australian Farmer Online