Russian authorities are working hard to fill the gap left from the recent EU food ban. Local sources say Russian authorities are contacting and concluding contracts with suppliers in Belorussia, the Middle East, Egypt and South America to replace banned European products. Some sources say there is no way the Russians will be able to get all products back to the quantities that were available on shelves prior to the ban.

One Russian source said: “If 70 to 75% of the cheese volume required could be sourced, then that is as much as can be expected.”

More Belorussian product is available already in supermarkets as it’s the nearest large dairy market and there is a lot of Turkish and Serbian fruit and vegetables in supermarkets. Representatives of local Russian businesses have travelled to South America and people expect food to flow from there at a later stage, as well as from China.

Russian consumers still have access to a lot of European goods excluding fresh product, fruits and vegetables. Wholesalers and distributors that have product in stock are allowed to have European dairy product on sale and available until mid-September. This includes products like Kerrygold butter, which is still on sale in supermarkets in Moscow.

In restaurants around Moscow, European beef has been replaced with South American beef (Argentina, Brazil and Uruguay).

The price of locally produced products has reportedly increased significantly, which is making some Russian consumers very unhappy. However, when prices rise in supermarkets, it will be interesting to see the consumer reaction to the food ban. The same can be said for when supplies get tighter in the cold Russian winter, when it will be difficult to maintain continuity of supply.

European countries nearest to Russia that are large trading partners, such as Lithuania, Latvia and Poland, will suffer most in the short term.

Valio hit hard

Some food companies, such as Valio in Finland, which supplies a lot of dairy product such as butter and processed cheese into Russia will, also suffer considerably. The manufacture of all Valio products destined for Russian export was halted on Thursday 7 August 2014. Negotiations to scale down the 800-strong workforce and operations at Valio’s plants in Haapavesi, Seinäjoki and Vantaa, as well as at the Lappeenranta unit, is well under way.

Valio’s Russian subsidiary has also begun preparations for the gradual rundown of operations as the current inventory becomes exhausted and sales end. Valio has around 500 employees in Russia.

Valio says: “The fall in production may lead to unpaid layoffs and the non-renewal of fixed-term employment contracts once the co-operation negotiations have been completed.”

According to the Bank of Finland, the value of food exports from Finland to Russia subject to the embargo totalled €283.4m in 2013. Valio’s share was 85.4%, at €242m.

Russia has been Valio’s biggest and a continuously growing export market. It was responsible for almost 20% of the company’s net sales last year.