The unprecedented economic sanctions that have been levied against Russia for its invasion of Ukraine have started to disrupt South American dairy shipments to Russia. And it is unclear at this point, whether Belarus, Russia’s primary dairy supplier, will be able to fill the gap left by South American exporters who still want to trade with the country.
Russia is an important destination for South American dairy exports, and the trading relationship strengthened beginning in 2014 when Russia annexed Crimea and the United States, Europe, and others applied sanctions to Russia, according to Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aries.
The 2014 sanctions spurred Russia to ban imports of some products, including U.S. and EU dairy products, but did not apply to South America. Last year, Russia accounted for 11% and 7% of Argentina’s and Uruguay’s dairy exports in value terms, respectively, Ganley said, and Russia is a key destination for cheese, butter, and anhydrous milkfat exports from South America.
“The more stringent economic sanctions levied against Russia in recent weeks, however, have disrupted the flow of products from South America,” Ganley said. “Limitations on financial tools including access to the SWIFT banking system has left Russian buyers unable to pay for imported goods. The ruble’s deterioration has also rendered imported product relatively more expensive for Russia.”
In early April, some dairy exporters in Argentina and Uruguay reportedly had product en route to Russia. However, because of the issues resulting from Western sanctions, these exporters said they would delay future shipments until the current problems can be resolved, Ganley said. Thus, today’s battered supply chain, along with Western sanctions on Russia, will continue to disrupt the flow of dairy trade.
“With the loss of the Russian market, South American dairy exporters will search for alternative destinations,” she said. “While some of these exporters have already had success rehoming products in China, sellers will be keen to develop additional channels for distributing cheese and milkfat products that otherwise would have been bound for Russia.”
Whether Russia will be able to obtain the dairy products it needs is also in question. Since Russia implemented a ban on dairy imports from Western nations in 2015, ally Belarus, a country that has sent troops to aid Russia in its attack on Ukraine, has been supplying much of Russia’s dairy needs. But following last year’s drought, a shortage of soybean and other protein meals has developed in Belarus, and deliveries from neighboring Ukraine have been stopped.
Today’s geopolitical situation and the ongoing disruption in the flow of dairy products could put downward pressure on prices, but that would only slow the upward price trajectory, supported by concerns that global demand will continue to outpace supply, Ganley said.
