The food blockade of Crimea means that Russia will have to double down to find ways to compensate for potential food shortages. Meanwhile, the peninsula could see a major hike in food prices.
Ukrainian nationalists and Crimean Tatars block the movement of heavy trucks from mainland Ukraine to Crimea. Photo: Sergii Kharchenko / TASS
For a very different take read: "The food blockade of Crimea only hurts Ukraine, not Russia"
For more than a week now, Ukrainian (mostly Crimean Tatar) organizations have been enforcing a “food blockade of Crimea.”
On Sept. 20, for example, hundreds of activists blocked roads in the checkpoint areas of Kalanchak, Chaplinka and Chongar, thereby stopping the movement of heavy trucks from mainland Ukraine. Around 200 vehicles were blocked on the first day.
After four days being stuck in traffic, the trucks returned to Ukraine. The protest action has now moved from the administrative border with Crimea 10 km (6.2 miles) into Ukrainian territory. The initiators of the action have stated that the time frame is open-ended.
The reasons behind the Crimean food blockade
The main organizer of the “civil blockade of Crimea” (as it is known) is the Majlis of the Crimean Tatar People. Attempts by other (mostly right wing) social and political organizations in Ukraine to gain political capital from the protest have been unsuccessful.
It is symptomatic that the blockade was instigated by the Crimean Tatars. It seems that those who returned to their historical homeland with the blessing of the last Soviet President Mikhail Gorbachev, only to find themselves just a couple of decades later living like refugees on their own soil, are now entering the “Crimea debate.”
Their main objective, as they see it, is to raise public awareness, including international awareness, of issues such as the political prisoners in Crimea, the infringement of Crimean Tatar rights, the need for unfettered access to the region for international observers, and the hounding of independent media.
The list makes no mention of exerting direct pressure on Russia.
Moreover, the blockaders assert that Ukrainian companies should sever commercial ties with Crimea, because the territory is “occupied by the Russian Federation.”
That demand is largely the result of the adoption in September last year of what is officially called the “Law of Ukraine on the Creation of the Free Economic Zone of Crimea and on the Peculiarities of the Effectuation of Economic Activity on the Temporarily Occupied Territory of Ukraine” (a similar law was adopted in Russia and came into force on January 1, 2015, with a provisional and extendable time frame of 25 years).
The adoption of the law was driven by the need to ensure the legality of economic activity with Crimea in the new climate.
Above all, the law provides for the exemption of individuals and legal entities registered in the Autonomous Republic of Crimea and in Sevastopol from paying taxes to the state budget of Ukraine. This allows Ukraine’s major companies to reclaim a 20 percent VAT on goods delivered to Crimea, and to profit from the difference between mainland and Crimean prices, which went up after pensions and public sector salaries on the peninsula were increased.
One year on, the architects of the law acknowledge that it has “not worked as well as expected” — not only economically (the budget is losing revenue), but also politically.
Ksenia Lyapina, head of the State Regulatory Service and one of the coauthors of the law, notes that “Crimean Tatars correctly point out that Ukraine has economic relations with the territory, in which the authorities are openly destroying the native people.”
Therefore, “the law needs to be revised and a new philosophy of relations introduced, because we understand that there can be no economic relations with a territory that is sadly under occupation.”
According to recent reports, the Ukrainian president has initiated the drafting of a law to abolish the free economic zone of Crimea.
Crimean food blockade: Implications
How serious could the consequences of the embargo be for Crimea, Russia and Ukraine? Expert opinion differs except on one point: Crimean residents will not go hungry.
However, despite the optimistic statements by Crimean officials that Russian goods make up close to 80 percent of produce in the region, and that the peninsula is becoming less and less dependent on Ukraine, experts on both sides paint a murkier picture.
First of all, food products of local origin in Crimean stores must be labeled as Russian produce. But raw materials continue to be supplied from mainland Ukraine. This group of foodstuffs includes potatoes, meat, sugar and milk. As experts point out, it is one thing to stick on a new label, but something else entirely to create products “from scratch.”
Deliveries from Russia are severely limited by the low throughput capacity of the Kerch Strait, which is further impeded due to the unpredictable weather conditions in autumn and winter, making supplies unreliable. Experts say the situation will not change until late 2018, when the proposed new Kerch Bridge is due to open.
The most pressing concern is food products with a short shelf life, for which reason such goods can only be sold by large retail chains with proper refrigeration equipment and the ability to store large quantities of goods for long periods. But this automatically means higher prices for consumers, the vast majority of whom are accustomed to shopping around at the market.
The situation is worsened by the fact that it is precisely perishable Ukrainian goods that have been banned by Russia’s Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor). The black list includes confectionery, meat, raw milk and dairy products. As a result, the share of Ukrainian dairy products has fallen to 10 percent. This is despite the fact that the Dzhankoy dairy plant (the largest on the peninsula) relies on products imported from mainland Ukraine for 70 percent of its output.
Note also that for various reasons it costs more to produce agricultural crops domestically in Crimea than to import them. A striking example is that insufficient irrigation means that vegetables produced in Crimea are twice as expensive as those grown in mainland Ukraine. Therefore, import substitution is unlikely to succeed.
Another problem highlighted by experts and the blockaders is the oversupply of Ukrainian goods. According to some Ukrainian experts, following the adoption of the law on the free economic zone of Crimea, the supply of certain groceries from mainland Ukraine to the peninsula exceeded demand by nearly three times.
This could mean that, after crossing the administrative border, a substantial part of the flow of products is directed straight to Kerch — and from there on to the Russian mainland, but now under the guise of goods originating in one of the constituent entities of the Russian Federation.
It is doubtful that the ubiquitous Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing (Rosspotrebnadzor) and other Russian regulatory authorities that now find themselves in Crimea are unaware of such schemes. And if they do know, it can be assumed that this type of operation is beneficial to officials in both Crimea and Moscow. The reason is simple: the overarching need to provide the peninsula with food, which the federal government is unable to do.
According to the State Fiscal Service of Ukraine, throughout the 11-month existence of the law on the free economic zone of Crimea, more than $1 billion worth of goods have been imported to the peninsula from mainland Ukraine. At the same time, 2015 has seen a rise in deliveries of food products in such commodity groups as meat, sugar and vegetables. Supplies of dairy products and alcohol are down. These products have clearly been replaced by Russian counterparts.
While it is still too early to draw any far-reaching conclusions about what to expect from the blockade, it is obvious that the Ukrainian government will be forced to amend the law on the free economic zone of Crimea — up to and including its abolition.
In this situation Russia will have to double down to find ways to compensate for potential food shortages. Famine is not in the cards, but the peninsula cannot escape a major hike in food prices.
The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.