The ban of food imports from the EU, Canada, the USA and Australia represents economic stupidity and let me explain why:
1. Belarus and Kazakhstan which are members of the Customs Union (this means they have no customs control at the boarders) didn't support the decision. Consequently, the same goods, however, at considerably higher prices will be smuggled to Russia. I presume, no one doubts that. According to the official data, in the first five months of 2014 Belarus exported to Russia $1.7 million worth of Belorussian lemons, $183,000 of Belorussian bananas, $37,000 of Belorussian pineapples, almost $1,8 million of Belorussian coco-nuts and almond, $792 000 of Belorussian mussels and $449 000 of Belorussian octopuses.
2. All the recently published calculations demonstrate that these the "counter sanctions will result in the rise of food-stuff prices in Russia’s shops. We know that over 20 per cent of the total consumption fall on the imports from the countries that are under sanctions now. One of the main reasons for price rise will be the cut of meat imports, moreover that world market meat prices have been growing. Consequently, price growth in Russia will reach 10 - 20 per cent within the next six months.
3. The decision on the ban of food imports is taken in the situation when Russia's economy has been slowing down since the Fall of 2013, and has entered recession as of results of the six months of 2014, i.e., economic decline (stagnation) has begun. Together with the growth of prices this marks the beginning of a dangerous economic decease called stagflation (stagnation + growing inflation). It means that three processes will be simultaneously taking place: a) the personal incomes will fall; b) concealed unemployment will begin (i.e., work for miserly wages); c) prices in the shops will be rising.
4. Stagflation deeply destructs the economy: it is impossible to plan anything, investments go to zero and all try to solve only small short-term tasks: for example, looking for the money for Crimea they take away pension savings and increase taxes. The money for Crimea (and it is a separate question whether it will be any good there) will be found but it will absolutely ruin the pension system and fiscal pressure on entrepreneurs and citizens will increase even more.
5. The leaders of the country say that the ban on food imports will lead to the revival of Russia's agriculture. It is not true! First, the state does not have such money now, which in such a case will be required for several agricultural sectors. Second, there is no one to give this money to, since there have been no farmers left and everyone who has been to Russia's countryside knows what has been going on there. Third, due to high corruption, a considerable part of the money will simply vanish. Fourth, the revival of Russia's agriculture is a long-term and serious project, and such a project is not in the interests of the present authorities and they won't manage it anyway.
6. Who is punished by the ban on food imports? Most likely, Russia in the first place will be the looser from the sanctions. As for foreign countries, only Poland and Lithuania will have problems, while for the EU the total negative effect from the sanctions will be microscopic. The aggregate volume of the EU food stuffs banned for exports to Russia amounts to approximately $7 billion which is a little less than 0.05 per cent of the GDP of the EU (or 0.1 per cent of the EU exports. And in Moscow food stuff prices will considerably grow by the end of the year or these food stuffs will disappear. It resembles the so-called orphans law (the law prohibiting the foreigners to adopt Russia's orphans which was passed by the Russian parliament in response to the Magnitsky bill) - "thrash your friends to scare your foes", as they say in Russia. It is such a strange logics: to punish one’s own citizens for one’s own foreign policy errors and failures.
7. In general, the situation is alarming: the economic potential of the present political system has been exhausted and there are no signs that the leaders of the country think about thorough economic reforms or at least steps towards them. Instead of this they adopt only "political" decisions targeted at one thing only: so that not to change anything, preserve the system of budget partitioning, kickbacks, budget stealing, TV lies and endless self-admiration. However, life and economics are not to be deceived: sooner or later the problems of price growth, low living standards, falling real incomes, poverty and lawlessness, both the hidden and the new ones, will stand out and one would have to bear responsibility.
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