**Fig. 1** Russia's total catch, trade, and domestic supply balance, 2000–2019 (1,000 Tonnes) (*Sources* Author's compilation based on data from *Rosrybolovstvo* and Rosstat)

as no less than 80 percent of domestic consumption should be supplied by Russian fishermen and the domestic seafood industry. The 2020 Food Security Doctrine and the State Programme for the Development of Fishing increased the threshold to 85 percent. The first point has concrete implications for the supply structure, that is, who may supply seafood to Russia's domestic market. The 2010 Food Security Doctrine gave power to *Rossel'khoznadzor*, the Russian food safety authority, along with three important power bases: legitimacy, expertise, and coercive power.29 *Rossel'khoznadzor* has formal independence as an executive expert and has control over the veterinary field, including over aquatic resources.30

*Rossel'khoznadzor* was established in 2004 and immediately started the process of looking into critical issues related to suppliers' (countries) structure and capacity. As the main foreign supplier of seafood to Russia, Norwegian authorities received a letter from *Rossel'khoznadzor* already in 2005, requesting a wide range of information about production systems, capacity, and technical food safety regimes in Norway. By the end of 2007, the number of approved Norwegian exporters was reduced significantly, even as the volume of seafood exports continued to rise. The 2010 Food Security Doctrine provided a formal instrument for Russian authorities to curtail the dominant position that several food exporting countries had in the Russian market, but more time to achieve actual results was evidently required. In 2012, for example, Norway alone had a 45 percent market share in seafood exports to Russia. According to the head of *Rossel'khoznadzor*, Sergei Dankvert, reliance on one supplier is an unacceptable situation for Russia.31

Subsequent to the 2010 food doctrine, Russia became a member of the World Trade Organization (WTO) on 22 August 2012. By taking this step, there was an expectation that Russia would join the liberal global trading order and that barriers to entry to the Russian food market would be lowered. In the run-up to formal acceptance into the WTO, Russia had modified its laws and customs policies, made promises about reducing tariffs and non-tariff barriers, agreed to limit its subsidies to agriculture, and indicated a willingness to open certain sectors of its economy to competition (banking, insurance, automobiles).

The expected trade liberalisation from Russia's accession to the WTO, however, had little chance to become reality. Almost exactly two years later, on 6 August 2014, Russia introduced an import ban on agri-food products from selected Western countries as a response to their sanctions which had targeted certain sectors of Russia's economy. Russia's food embargo (countersanctions) towards the EU did not include seafood but focused on agri-food. Prior to the food embargo, Russia had been the second most important destination for EU agricultural products, trailing only the United States. The main agricultural products from the EU that were affected by Russia's countersanctions were pork exports (58.9 percent of Russia's total imports); milk and milk products (37.4 percent of Russia's total imports); and vegetables and fruits (31.9 and 23.5 percent of Russia's total imports), respectively.32

Norway, however, was targeted by countersanctions even though it is not part of the EU, and as a consequence its seafood exports to Russia were affected. As shown in Table 2, Russia's import of seafood from Norway terminated almost instantly after countersanctions were introduced. Norway's drop from being the dominating supplier with around 45–50 percent market share in Russia's seafood imports to almost zero overnight was dramatic. To replace Norwegian seafood, Russia needed to find other suppliers. The decline in Russia's seafood imports in 2015 and 2016 reflects initial challenges securing alternative suppliers (as well as the devaluation of the ruble and an economic recession). Eventually, three smaller, but still substantial, producers of farmed Atlantic salmon and

**Table 2**

Market share by main suppliers

 of Russia's seafood imports,

2001–2019

 business

development,

https://www.trademap.org/

*Source* Trade statistics for international

152 F. NILSSEN

other farm-raised fish from Europe entered the Russian market: Greenland, Faroe Islands, and Turkey. In addition, Chile significantly increased its market share compared to the period before the sanctions. Greenland, Faroe Islands (EU), and Chile are suppliers of farmed Atlantic salmon, while Turkey is a new supplier of farmed whitefish such as sea bass and seabream. In addition, some Norwegian farmed salmon found its way to the Russian market through Belarus, although the volumes were marginal compared to previous direct exports to Russia. Norway was not the only country from which seafood transited through Belarus, which became a kind of trading hub for seafood from sanctioned countries. Table 2 indicates the country of origin for Russia's seafood imports from 2001 to 2019.

The table demonstrates three notable dimensions related to the change in seafood trade in the aftermath of the 2014 embargo. First, there was a change from one dominating supplier to Russia to a higher number of suppliers, each of which exported lower volumes of seafood to Russia than the one dominating supplier had in the pre-embargo period. In particular, Norway went from being the dominant supplier in 2013 to virtual irrelevance, with seafood exports to Russia falling to 1 percent of market share in 2019. Second, after countersanctions were introduced, the combination of main suppliers captured a much higher share of Russia's total seafood imports. Taken together, the group of main suppliers increased their market share from 72 percent in 2013 to 85 percent in 2019. Third, main seafood suppliers to Russia were distributed across a wider spectrum of geographical regions, including Asia, South America, and Europe. Chile in particular increased its market share from 10 percent in 2013 to almost 22 percent in 2019; China's share rose too, from 9 percent in 2013 to nearly 15 percent in 2019. That said, countersanctions contributed to a decline in the value of Russia's imported seafood, which dropped from \$2.8 billion USD in 2013 to around \$1.6 billion USD in 2018 (the value includes fresh and frozen fish and seafood).33 The reduction in seafood imports is explained by the combination of reduced import volumes and the purchase of less expensive seafood, i.e. the volume of farmed salmon declined.

In the aftermath of Russia's 2014 countersanctions, Russian seafood exports did not experience the same change as occurred with imports. On the contrary, the primary purchasers of Russia's seafood have remained stable, with the Asian countries by far representing the largest Russian export market. In particular, China, the Republic of Korea, and Japan have been quite stable markets, buying 70–80 percent of the total Russian seafood exports. The volume of seafood exports to Asia coincides with the Russia's seafood resource base, which is by far the largest in the Russian Far East. These three Asian countries buy large quantities of Alaska pollack, salmon, and pelagic species (mackerel and herring). In Europe, the classical customers (Norway, Germany, Denmark, and the UK) are purchasers of Northeast Atlantic cod. Compared to the seafood trade in the Russian Far East, the value is quite small, but is stable and did not change much as a result of countersanctions. Since 2013, the Netherlands has become a relatively large consumer for Russia's seafood, increasing its share from about 10 percent in 2013 to over 17 percent in 2019. In total, European markets received about 20 percent of Russia's seafood exports during 2017–2019. The distribution of Russia's seafood exports by main buyers is indicated in Table 3.

The Putin period of consolidation also brought attempts to establish an institutional setup for the governance of Russia's role in the global seafood trade. The federal government has tried to establish a system of incentives to provide control over seafood exports as a valuable asset. Russia's export of fish has been an important binder in relations with large trade partners in the Far East. Russia seems to have succeeded with the strategy of assuming some control of the export. It is evident that Russia's government intends to remain involved in seafood trade as part of its overall food security strategy. In January 2020, President Putin signed a new Food Security Doctrine to replace the 2010 version. Of note is the fact that the target for self-sufficiency in seafood was raised from 80 to 85 percent (in live weight). In the 2020 version, under the chapter of 'Strategic Goal and Key Objectives of Ensuring Food Security', the doctrine stated:

The strategic goal of ensuring food security is to provide the country's population with safe, quality and affordable farm products, raw materials and food in the quantities that satisfy balanced food consumption. Based on food independence requirements, the major sources of foodstuffs are products of agricultural, forestry, fishery and hunting sectors, as well as food industry products. The agricultural, fishery and food industries play central role in the food security assurance.34

EU countries and Norway (%)

Belarus (%) United States of America (%)

Sum (%)

 13

 0

 0.5

 88.3

 67.5

 63.1

 95.8

 95.4

 95.7

 96.0

 95.8

 92.5

 95.7

 95.3 95.9

 2.4

 0.7

 0.1

 0.1

 0.1

 0.1

 0.2

 0.2

 0

 0.4

 0.4

 0

 0

 0

 1.1

 1.9

 2.5

 1.7

 0.2

 1.6

 1.5

 1.4

 13

 2

 2

 2

 1

 1

 1

 1

 2

 2

 3

 17.1

 *2019*

 36.2

 3.8

 6.2

*Note* Percentage of exports based on dollar value of exports *Source* Trade statistics for international business development, https://www.trademap.org/ Not only does the new Food Security Doctrine provide more detail than the previous 2010 version, it also contains several strategic measures and directions for the desired future development in the food sector.

In addition, a governmental order (*razporiazhenie*) in April 2020 (No. 993-r) laid out a new 'Strategy for Development of the Agribusiness and Fishery Sectors of the Russian Federation to 2030'.35 The strategy considers economic models for development and is closely tied to the new Food Security Doctrine and other official programmes related to the strategic development of the food sector in general. Some of the goals are to increase the share of value-added products and make them available to Russian consumers, and to increase the exports of food products to at least \$45 billion USD annually, a goal that subsequently was modified to \$34 billion USD by 2024 instead. To increase exports, the order advocates the elimination of trade barriers, stimulation of exportoriented businesses, and to promote Russia's agriculture and fish products in export markets.36

### 4 Outlook

Russia's role in global seafood trade has changed over time. The first change is as a seafood importer. Russia has stabilised as a less prominent actor as an importer in the global seafood market. The overarching element in the Russia's seafood trade after 2000 has been self-sufficiency, that is, to produce enough to meet Russia's own needs. The early post-Soviet era was characterised by heavy importation of low-value seafood and export of high-value seafood. After 2010, Russia now has net production that exceeds domestic demand and consumption. Over the past decade and, in particular after the 2014 embargo, Russia decreased the value of food imports in general, with the dollar value of food imports falling from a post-Soviet high of \$43 billion USD in 2013 to less than \$25 billion USD in 2016.37 The dollar value of Russia's food imports has increased since 2016 but has not come close to the pre-2014 level. The dollar value of seafood imports also fell due to countersanctions, although since 2017 have stabilised (see Fig. 1). The 2020 food security doctrine prescribes more self-sufficiency in seafood.

Seafood imports from Europe fell dramatically as a consequence of the food embargo and has reinforced Russia's reduced role as a seafood importer. The major seafood trade inflows most affected by the ban are imports of Atlantic salmon, herring, and trout from Norway and cold water shrimp from Canada. Even if the import ban against the EU has been compensated somewhat with imports from other countries, the big picture is still a reduction in seafood imports.38 A parallel trend in Russia's seafood import is the gradual shift from European to Asian countries where China has maintained its position as the second largest foreign supplier of seafood to Russia, with the volume increasing by 23 percent during 2010–2016 (see Table 2). Other states that have appeared as newcomers among the top ten exporters of seafood to Russia are Vietnam, Peru, Morocco, Thailand, and India, thereby strengthening the trend for Russia to distance itself from trade with Western countries.39

Russian food security issue is clearly a political ambition strongly related to the independence of seafood imports in order to self-supply the domestic market. As indicated above, the Russian model of food security places emphasis on national vulnerability from foreign sources.40 On the other hand, the Russian economy benefits from a trade surplus in one sector in order to bolster sectors that have a negative trade surplus (such as the agriculture sector). Based on statements by government leaders, official documents and plans, institutional arrangements, and business interests within Russia, I expect that Russia's role as a seafood importer to remain stable and its global ranking as an importer not to change significantly.

The second change is as a seafood exporter. Russia's export of seafood has increased steadily. During the past 15 years, Russia's role as a dominant global seafood exporter has grown. In 2003, Russia ranked 35th globally in dollar value of seafood exports. In 2019, Russia advanced to 7th place as a seafood exporting country, exceeded only by traditionally large seafood exporting countries such as China, Norway, USA, Chile, and India. Russia's ranking as seafood importer and exporter during 2003–2019 is shown in Table 4.

There is an aspiration to further develop seafood exports. In October 2018, then-Russian Prime Minister Dmitrii Medvedev announced a goal of achieving \$8 billion USD in revenue from annual seafood exports by 2024. In 2018, Russia exported seafood valued at \$4 billion USD.41 The head of *Rosrybolovstvo*, Ilya Shestakov, indicated that Russia's fish catch is projected to rise by only 500,000 metric tonnes by 2030, so a rise in export value has to come from an increase in high-value fish.42 He suggested moving from supplying primarily whole fish to selling valueadded products such as fillets that come from processing. The move to exports of value-added products was reflected as well in governmental

**Table 4** Ranking of Russia's place in global seafood trade

*Note* Ranking is based on U.S. dollar value

*Sources* International Trade Statistics; Federal Customs Service, Russia; Rosstat; and UN Comtrade

order from November 2019 (No. 2798-r), also entitled 'Strategy for Development of the Fisheries Sector to 2030'. In this document, a clear ambition was expressed to strengthen the export of white fish and stimulate increased exports of processed fish.43 This order is specific to the fishing industry although it shares the same name with the April 2020 order that was mentioned above. According to order No. 2798-r from November 2019, to reach export goals Russia should focus on the export of large-volume, valuable white fish species.

Going forward, the room for manoeuvre for Russia as a global actor in seafood trade is affected by resource accessibility, organisational behaviour, and state political aims, goals, and institutional capabilities. Russia's government has made clear its intentions to play a direct role in seafood exports. Since 2000 a whole range of different economic and institutional measures have been implemented. Legal institutions, regulations, and various incentive measures have been introduced together with the transfer of power to various federal control organs such as the Federal Customs Service, *Rossel'khoznadzor*, and other more sector-specific organs that give the state the ability to move seafood exports in desired directions. With regard to seafood exports, there is little to suggest a pull back in Russia's export orientation. Stable and high levels of the fishing quotas will continue Russia's role as a prominent actor in global seafood trade.

Economies: Evidence from China'. *Management International Review* 49 (2009): 455–478.

Ianvieria 2010 goda, No. 210. https://www.prlib.ru/item/354145. Accessed 12 January 2021.

over time. That said, commercial aquaculture will continue to play an insignificant role in the production and economics of the fishery sector, even though its average annual production growth rate has been about 15 percent. Commercial aquaculture is a part of the total fish production that is possible to control and increase. Current output from this industry is, however, modest and not subject to export.

### Selected Bibliography

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/ by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

### Russia's Regional Agri-Food Trade

### Chapter 6: Russia's Regional Free Trade Agreements and Agri-Food Trade After 2014

*Christel Elvestad and Tatiana Isachenko*

### 1 Introduction

Recent years have witnessed the rise of populism and economic nationalism. International trade in general is attacked from the political left and political right. In the United States, the Trump administration has led the way in attacking free trade. The political left points to rising inequality, loss of jobs, and stagnant incomes for the working class. The political right points to high trade deficits. On the political left, critics argue that trade agreements favour the interests of corporations over workers. On the political right, critics maintain that agreements put international interests above national interests.1 Both sides blame trade. A contrary trend, however, has been an increase in the popularity of regional trade agreements, (RTAs).2 Some RTAs are narrow in range, focusing mainly on reducing tariffs for specific types of goods. However, modern RTAs often

C. Elvestad (B)

Nord University Business School, Bodø, Norway e-mail<EMAIL_ADDRESS>
T. Isachenko

© The Author(s) 2022

S. K. Wegren and F. Nilssen (eds.), *Russia's Role in the Contemporary International Agri-Food Trade System*, Palgrave Advances in Bioeconomy: Economics and Policies, https://doi.org/10.1007/978-3-030-77451-6\_7

167

Department of International Economic Relations and Foreign Economic Ties, MGIMO University of the Ministry of Foreign Affairs, Moscow, Russia

include a wider range of areas such as trade in goods, services, investments, public procurement, competition, and intellectual property rights. There are over 300 RTAs in force and there is an expanding worldwide RTA network.

Russia started to negotiate regional free agreements later than other countries, but since 2015 it has been an active player. This chapter is important because although Russia has pursued a specific variant of food security since the 2008–2010 period, a variant that emphasises trade protectionism, the story is more nuanced than commonly portrayed. While it is true that food self-sufficiency and import substitution have dominated Russia's food policies since 2014, trade patterns show not a withdrawal from international food markets but rather an adjustment and recalibration of partners. Thus, this chapter sheds light on how Russia's regional trade policies and agri-food trade patterns have changed after the introduction of countersanctions in 2014.

The purpose of this chapter is to: (1) examine Russia's regional trade strategies as the driving force of Eurasian regional trade integration, focusing on agri-food policies as a key component; (2) review Russia's free trade agreements through the Eurasian Economic Union; and (3) access the role of agri-food trade in signed and upcoming agreements, as well as how food trade relations have changed in the period after sanctions were introduced in 2014. The final section provides a look into the future of Russia's free trade agreements and agri-food trade.

## 2 International Context

Regional and preferential economic cooperation has attracted increasing attention as free trade agreements have expanded in number and scope and become an important part of the global trading system.3 The proliferation of RTAs is important for most countries regardless of their level of economic development. Because RTAs allow for more favourable terms of trade, the share of global trade between members of RTAs has been steadily growing in recent decades.

In addition to an increase in the number of RTAs, from about 50 agreements in the 1990s to over 300 agreements in 2020, RTAs are becoming more complex.4 Modern RTAs often go beyond tariff reduction in certain sectors and products, instead covering a wide range of policy areas. There have been a stronger emphasis on reducing and removing non-tariff barriers to trade such as unnecessary or overly bureaucratic technical regulations and procedures that can hinder or even stop trade completely.5 There is also a growing trend for RTAs to not just liberalise trade in goods, but also to liberalise services, investment, and areas such as intellectual property rights, government procurement, competition policy, and issues like environmental and labour standards.6

Furthermore, RTAs can be concluded between countries located within or across regions (inter- or intra-regional agreements). Bilateral agreements are still common, but RTAs can also include a multiple countries, for instance the Trans-Pacific Partnership (TPP 11) or the Regional Comprehensive Economic Partnership (RCEP).7 In some cases, the agreements are signed between regional trade blocks, for example between the European Union (EU) and the Southern Common Market encompassing Brazil, Argentina, Uruguay, and Paraguay (MERCOSUR**)**. 8 Furthermore, regional trade blocs often coordinate at the multilateral level to try to increase their influence in relevant international organisations. For instance, the EU has suggested a comprehensive approach to push forward modernisation of the Word Trade Organization (WTO).9

Why do countries sign RTAs? The classic answer from the economic literature is the benefit of net welfare gain that such trade agreements provide. By removing or reducing trade barriers, transaction costs are lowered and economic growth through internationalisation can be realised. The international political economy literature provides an analytical framework with four categories of motives behind RTAs, following a political–economical dimension and a domestic–international dimension.

The first category 'International Economic Motives' refers to the use of RTAs as a strategy to accommodate and shape the international environment, making it fit the country's economic ambitions in the international arena. Since RTAs provide for better terms of trade, it gives a competitive edge and potential 'first mover' advantages. Another important motive can be the need to cover a new issue that is missing in WTO/multilateral negotiations.10 A negative view is that it is a mistake to put all efforts on new free trade agreements instead of focusing on multilateralism and thus supporting the World Trade Organization.11 However, to negotiate RTAs can alternatively be viewed as a constructive response to the lack of progress at the multilateral level. RTAs may not pose a threat but may function as building blocks of trade liberalisation to be multilateralised at a later stage.12 The typical example of this is the desire to include investment in RTAs, since an agreement is still lacking in this area at the multilateral level. Another variant of international economic motives behind RTAs is the desire to extend domestic reforms to the international level using RTAs as reform anchors to test and benchmark reforms on a wider scale of economic integration.13

A second category, 'International Political Motives', refers to ambitions to create new coalitions or to strengthen existing ties between countries. Sometimes economic reasons are not decisive and regional agreements arise as a result of politically motivated efforts emphasising the geographical or historical characteristics of the relationship. For instance, the initial motivation of the United States under former President Obama was to make the Trans-Pacific-Partnership (TPP) the centrepiece of its strategic axis to the Asia–Pacific region.14 In other words, there can be a strong geopolitical motivation behind RTAs, emphasising and strengthening relationships between countries in and across regions. Furthermore, actors at the national level will try to influence RTA negotiations to fit their interests, and negotiators will try to absorb and take into consideration what outcomes can be accepted by domestic interest groups.15

A third category 'Domestic Economic Motives' refers to the quest for better market access for goods and services in order to satisfy the interests of national competitive industries. A classic motivation is to use RTAs as an instrument to promote its export-oriented sectors by opening relevant export markets. In other words, RTAs are used to liberalise trade in order to meet national trade interests.

The fourth category, 'Domestic Political Motives', on the other hand, refers to the use of RTAs in a way that is designed to maintain barriers or even put up new barriers to trade in order to defend national trade interests. A way to protect sectors that are not competitive is to treat the entire sector or specific goods as off-limits to liberalisation in RTAs. Typically, this type of protectionist strategy restricts agricultural concessions in RTAs. Agri-food is a so-called sensitive sector for many countries and as a result, trade liberalisation in the agricultural sector is more limited.16 Agriculture has only undergone one round of negotiations through the Uruguay Round the WTO. The Doha Round, started in 1997, was supposed to deal with agriculture but negotiations ended in 2008 and never restarted, thereby leaving agricultural tariffs generally high.17 The lack of agreement on agricultural goods is important because generally RTAs can help lower trade tariffs and barriers. We see that the share of global agri-food trade between countries with RTAs rose from about 20 percent in 1998 to nearly 40 percent in 2009.18

Thus, RTAs reflect both domestic and international interests, and for each of the countries involved economic and political interests can come into play. Furthermore, the interests between the negotiation parties may coincide or be contrary to each other, making negotiation of RTAs a complex balancing act. Regarding Russia, one may discern elements of each of the four categories of motives, although during 2014–2018 the primary impulses have been domestic economic and domestic political. Starting in 2019, however, international economic and political motives have gained in importance. The earliest international motivations, however, may be traced to the creation of the Eurasian Economic Union (EAEU) to which we turn below.

### 3 Russia and the EAEU

This section examines Russia's role as the dominant partner and driving force of Eurasian regional integration. Agri-food policies have been a key component of Russia's trade strategies. One of the most notable features of Russia's modern trade policy is the search for the best possible model of regional partnerships.19 During the last decade, Russia has tried to revive integration projects with the Commonwealth of Independent States (CIS), as well as to sign trade agreements by drawing from best practices in international trade relations.

In 1994, CIS countries took measures to transition to a common free trade regime to ensure stability in the region. However, the parties failed to agree on a general list of exemptions. Therefore, the 1999 'Protocol on Amendments and Additions to the Agreement on the Establishment of a Free Trade Area' allowed for temporary exemptions from the free trade regime on a bilateral basis. Starting from the early 2000s, Russia initiated negotiations on a new CIS free trade agreement which was finally ratified in 2012 by Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan, Tajikistan, Moldova, and Ukraine.20 This phase of post-Soviet integration has been labelled a case of 'holding-together regionalism' of countries originally forming a single political entity struggling to find an effective form of cooperation.21

The establishment of the Eurasian Economic Union in January 2015 brought together Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan (see Chapter 8 for more institutional detail). Prior to the establishment of the EAEU, Russia, Belarus, and Kazakhstan formed a Customs Union that existed during 2010–2011.22 A Single Economic Space replaced the Customs Union during 2012–2014. The Eurasian Economic Treaty was signed in May 2014 which became effective in January 2015, thereby bringing the EAEU into existence. By design, the EAEU is a type of regional integration, featuring free trade between the member states, a common external tariff and suppression of internal customs controls (Customs Union), and further integration into a single market for all the 'four freedoms', for goods, services, labour, and capital. In fact, however, the EAEU has some features of an FTA and some of a Custom's Union.23

That said, there are several shortcomings in the EAEU.24 One problem is that the Eurasian Economic Commission as the executive body and the Supreme Eurasian Council as a legislative body adopt and approve decisions, but both bodies have little power to regulate controversial situations or settle disagreements between members. This situation points to the fact that Russia wanted to form the Union in order to integrate post-Soviet states, but having done so, does not appear committed to making the organisation work and certainly is not willing to cede much sovereignty to the Union.25

A second problem is disagreement on several key issues which brings to light the limited ability to resolve intra-EAEU disputes among EAEU members. Armenia and Belarus disagreed with Russia about gas transportation prices within the EAEU.26 In 2014, Belarussian President Alexander Lukashenko did not support Russia's position during the Ukrainian crisis, for example, refusing to recognise Russia's annexation of Crimea, and for the next several years the two nations engaged in a socalled 'milk war'. The contested situation after the presidential election in Belarus in August 2020 also created tensions among EAEU members. Armenia's recent doubts about participation in the EAEU further complicate the integration process, despite the fact that the most of Armenian agricultural exports are directed to Russia.27

A third area of concern encompasses carry over effects from Russia's 2014 food embargo against the West. Several examples are discussed. First, during the formation of the Customs Union between Russia, Belarus, and Kazakhstan, negotiations on free trade agreements with foreign countries outside the CIS were subject to coordination with Customs Union partners. Since the creation of Eurasian Economic Union in 2015, all trade agreements are to be signed on behalf of the block. However, before 2014, Russia negotiated free trade agreements with a wide range of partners. But most of those negotiations were either frozen or suspended or did not enter an active phase, which means that they never rose to the level of including other EAEU members.

Second, the legal basis for economic relations between the EU and Russia is the Partnership and Cooperation Agreement (PCA), which was originally signed in 1997 and ran for ten years. It expired in 2007 and was renewed annually after then. In 2007 the EU and Russia entered into negotiations on a New Agreement. Russia proposed the creation of a free trade area but this idea was not embraced by the EU.28 The New Agreement was to provide a comprehensive framework for bilateral relations and would have been built on the basis of WTO rules and would have included stable, predictable, and balanced rules for bilateral trade and investment relations. Negotiations started in 2008, but they were stopped in 2010 because no progress was made in the Trade and Investment part.29 Following the 2014 Ukrainian crisis, the negotiations were suspended. Since 2014, the relationship between Russia and the EU are sporadic and fragmented. The contact between the parties should have be transferred to the EAEU level, but the EU has not been ready to accept this position and deals with EAEU member countries on a bilateral basis.30

Third, there were eleven rounds of negotiations between The European Free Trade Association (EFTA) and Russia, Belarus, and Kazakhstan since 2011, but these negotiations were suspended in March 2014 over the Ukrainian crisis.31 There have also been several attempts to negotiate preferential terms of trade with countries in the Asia-Pacific Economic Cooperation (APEC), like with New Zealand. The access to New Zealand as a part of the APEC market was very important for Russia, but the agreement faced opposition from Belarus who believed that free access for New Zealand products to the EAEU market and the Russian market would put its agricultural exports at risk. The negotiations with New Zealand started in 2013, but they were suspended in 2014 because of the West's sanctions and Russia's countersanctions.

Fourth, the Ukrainian crisis of 2014 and Russia's countersanctions led to the banning of food products from the United States, the EU, Canada, Australia, Norway, Iceland, Liechtenstein, Albania, and Montenegro, including meat, fish, milk, vegetables, fruits, and nuts. Russia's countersanctions have been extended several times and in late 2021 were extended through 2022. Russia's food embargo has led to a reduction in food imports in general as consumers buy more domestic food products; and agri-food trading partners have changed. Domestic food products now account for more than 80 percent of was is sold in retail outlets, compared to 60 percent before the sanctions regime was implemented in 2014.32 However, when countersanctions were introduced in August 2014, Belarus and Kazakhstan refused to join the ban against Western products.33 As a result, Russia's import substitution programmes were implemented exclusively in Russia, outside the Eurasian context, and without any use of the resources and capabilities of the EAEU countries. Belarus was, for instance, not in a position to participate in the import substitution programmes, even though Belarus products have traditionally had been approved for import substitution to Russia.34

The upshot is that at present, there is no comprehensive agricultural policy among EAEU members, although they do have a common agreement on tariff-rate quotas (TRQs) for meat imports into the EAEU.35 Further, there is evidence of movement towards greater cooperation and coordination. When speaking about agricultural policy among EAEU members, Russian President Vladimir Putin stated that, 'We foresee large reserves in expanding mutual supplies of food. It is hardly logical to import vegetables, fruit, milk, and meat products from distant countries, placing orders with foreign suppliers when our own producers are ready and willing to work and enter a common Eurasian market with products that are not inferior and, in fact, often superior in quality'.36

In August 2020, the Eurasian Economic Commission and Russia's Ministry of Agriculture discussed the creation of a single internal market for agricultural products. This integration project is in its infancy, aiming to foster cooperation in agricultural science, training of agricultural workforce, and exchange of experience and knowledge in agriculture. There is also in the works a treaty on creating a single market for organic agricultural products within the EAEU. The purpose of the proactive approach towards a common agricultural policy for organics is to maximise export potential to meet growing global demand.37 The heads of the EAEU states created 'The Council for EAEU Agro-Industrial Policy' to ensure effective interaction between the ministries of agriculture of the member countries and to coordinate their policies. In addition, the Council has discussed food security in response to the coronavirus pandemic. A comprehensive act is being drafted that will define general principles and approaches to ensuring food security for the EAEU countries. The minister in charge of the industry and agricultural sector in the Eurasian Economic Commission, Artak Kamalyan, noted that, 'in the context of the coronavirus pandemic, issues of stable saturation of the market with food products are becoming increasingly acute and urgent. In addition to maintaining the stable and uninterrupted functioning of the Union's internal agri-food market, we must join our efforts and take concerted action to find new export niches'.38

## 4 Trade Agreements

Within the framework of the EAEU, Russia has concluded free trade agreements with a number of countries: Vietnam, Serbia, Iran, and Singapore, with other negotiations ongoing. The first such agreement has been in effect since October 2016 between the EAEU and Vietnam, and in the first year about half of all import custom duties were set to zero. Within ten years, 90 percent of goods will be duty-free. For trade in general, Russia has not been able to increase its exports to Vietnam as much as Vietnam increased its exports to Russia, and thus Russia runs a trade deficit with Vietnam.39

The FTA between the EAEU and Serbia was originally signed in October 2019 and it was ratified by Russia's Federation Council in October 2020, with the agreement taking effect in November 2020.40 The FTA with Serbia fully harmonises trade terms with Russia, Belarus, and Kazakhstan and establishes the same terms of trade for agriculture with Armenia and Kyrgyzstan. However, Serbia excluded items like some sugar, tobacco, and undenatured alcohol items and some tariff quotas like for processed cheese and some spirits and tobacco products for the EAEU countries except Russia. The EAEU excluded some poultry items, processed cheese, sparkling wine, undenatured alcohol, and tobacco items. Furthermore, EAEU will apply tariff quotas for some cheese, spirits, and tobacco products, but will allow a limited amount of these goods to be imported duty-free from Serbia.

In October 2019 a Temporary Agreement on Free Trade between the EAEU and Iran was signed. The temporary agreement with Iran was expected to be replaced with a permanent free trade agreement by the end of 2020.41 The FTA with Iran includes reductions on import duties on 360 Iranian commodities and 502 commodities from the EAEU. Concerning agri-food trade, Iran will reduce import duties on commodities such as beef, mutton, legumes, and vegetable oils. The EAEU gives trade preferences to Iran on products such as cheese, plant items, nuts and fruits, fresh vegetables, processed vegetables and fruits, confectionary, and bakery items.42 The EAEU-Iran agreement has benefited Russia– Iran agri-food trade. In 2018, Iran was number eight on Russia's top list of export destinations for agricultural products. Unlike the United States and the European Union, Russia has not imposed sanctions on Iran and has aimed for buying up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.43

In addition, a Framework Agreement on Comprehensive Economic Partnership between the EAEU and Singapore was signed in October 2019.44 Press coverage of the agreement noted that agreement with Singapore 'provides for duty-free trade in almost all the types of goods except for the list of sensitive items from the EAEU member states….[and] will also regulate the existing trade ties and will expand the opportunities for cooperation'.45 The FTA with Singapore allows all goods from the EAEU countries to Singapore duty-free. After a transition period ranging from three to ten years depending on the product, 87 percent of goods from Singapore will be exempted from duties to the EAEU. Market access for food products is especially important to Singapore, as the country has no agricultural sector. But Singapore cannot supply the EAEU/Russian food market as it is fully dependent on food imports. It is interesting to note that Singapore has made substantial investments in the Russian agricultural sector by investing in grain manufacturing.46 A list of free trade agreements between the EAEU and other countries is presented in Table 1.

Generally, Russia is shifting its attention to the East in the search for new FTA partners.47 Negotiations are ongoing between the EAEU and India, Egypt, Indonesia, Brunei, and Cambodia (see Table 2).

In addition, FTA negotiations have been opened with Israel. The ability to increase its influence in the Middle East has been one of Russia's motives for starting FTA negotiations with Israel, from which Russia will be the main beneficiary. According to Israeli Charge d'Affaires in Russia, the deal could be completed by the end of 2020.48 Since the collapse of the USSR, Russia and Israel have developed closer relations and not only in trade, indicated by Putin's visit to Israel in January 2020 during which Israeli Prime Minister Netanyahu referred to Putin as a 'great friend' and said that he and his wife are 'pleased to host you again at our home here in Jerusalem'.49 Another country in North Africa that is a long-term trading partner for Russia is Egypt (see Chapter 9), with whom negotiations for a FTA started in 2017. Although there is no official information about the negotiations, it is assumed that a traditional FTA is on the table.

**Table 1** EAEU-third country free trade agreements

*Source* EAEU, http://www.eaeunion.org/

*Source* EAEU, http://www.eaeunion.org/

Even without a FTA, Egypt is a large purchaser of Russian wheat on an annual basis. In 2014 Egypt ranked third in dollar value for imports of Russian food exports, rising to second place in 2018 at more than \$2.1 billion USD. In November 2020, Russia received permission to export dairy and fish products to Egypt.50 Once a FTA is concluded it may be expected that the value of Russian agri-food exports will increase, perhaps challenging China for first place.

In addition to the ongoing negotiations with the aforementioned countries, there is a list of more than 20 Memoranda of Understanding (MoUs) with individual countries (see Table 2). The EAEU has also established MoUs with other trade blocks including ASEAN (2018), Mercosur (2018), the Andean Community (2019), the Pacific Alliance (2019), and the African Union (2019). MoUs are not binding international agreements, but declarations of intent to promote cooperation and increase trade and investment between the parties. A typical MoU includes areas of cooperation related to trade liberalisation and economic integration with specific chapters on issues like trade facilitation, customs, technical regulations, sanitary and phytosanitary measures, government procurement, and sector-specific provisions such as cooperation between the parties in the area of agriculture. All of the MoUs made publicly available by the Eurasian Economic Commission have specific sections on agriculture. Thus, liberalisation of agricultural trade is or will be an important part of the free trade agreements between the EAEU and these countries. We now assess the role of agri-food trade in current free trade agreements and how agri-food trade relations have changed after 2014.

#### *4.1 Agri-Food Trade*

Russia's list of top trading partners for agricultural imports and exports has changed considerably after 2014, a result of Russia turning away from the West.51 Regarding nations that exported agri-food products to Russia in 2014, the top ten list of countries included Belarus, Brazil, Ukraine, Germany, Turkey, China, Poland, United States, The Netherlands, and France. In 2018, Belarus was still number one, while China advanced from number six to number two on the list. The United States dropped out of the top ten between 2014 and 2018 (see Chapter 10). Ecuador, Indonesia, and Azerbaijan were newcomers to the 2018 list, but some European countries remained important agricultural suppliers despite Russia's countersanctions. For instance, even though the total value of Italy's agricultural exports to Russia has declined, Italy is still on the top ten list of countries supplying Russia with agricultural products. The reason is simply that there is a strong demand in Russia for Italian food products like wine, pasta, peeled and pulp tomatoes, and food oils, as well as other products not covered by Russia's countersanctions.52 The top ten agri-food exporting nations to Russia in 2014 and 2018 are shown in Table 3.

Belarus, being on Russia's border and a former Soviet republic, has a long-standing trade relationship with Russia. Belarus accounts for a large percentage of Russia's milk and dairy imports, as much as 80 percent according to some calculations. In 2014–2015, the press in Russia humorously noted that Belarus had become famous for its seafood exports to Russia, even though the country is landlocked. For the Russian government, however, the serious issue was that Belarus served as a transit country for banned food products from the West, a fact that has been a sore point in the relationship since 2014. Russia has also accused Belarus of exporting more apples to Russia than it grows, implying that banned apples from Poland are being re-exported. The food trade relationship between the two has turned quite contentious, with periodic Russian bans on Belarussian milk and dairy, as well as Russia's *Rossel'khoznadzor*

**Table 3** Top 10 countries of origin for export of agri-food products to Russia in 2014 and 2018 (million USD)

*Source* Author's calculations based on data from World Integrated Trade Solutions by the World Bank, https://wits.worldbank.org

essentially insisting on control over Belarussian dairy factories. The reexport of banned food, unsafe additives, and counterfeit labelling has been major drivers behind Russia's push for digital labelling, truth in content labelling, and the tracing of the origins of products, including for grain.53

Turning to Russia's agri-food exports, by 2018 China had become Russia's number one export market (see Table 4). The importance of China for Russian trade will most likely continue to grow, as the Chinese economy is growing and the conflict with the West continues.54 Russia's turn to the East also has clear geopolitical motivations. Considering first total bilateral trade between Russia and China, we can see that it has grown significantly since 2014. In 2014, gross bilateral trade turnover between Russia and China was \$90 billion USD, which fell to \$64 billion USD in 2015 as a result of the downturn in the Russian economy. In 2017 total trade turnover rose to \$87 billion USD. In 2018, Russia– China trade turnover exceeded \$108 billion USD, of which \$56 billion USD was Russian export. In 2019 Russia–China trade turnover surpassed \$110 billion USD, with Russia exporting nearly \$57 billion USD to China. In September 2019, the two countries signed agreements to increase bilateral trade to \$200 billion USD by 2024. The agreements

**Table 4** Top 10 destinations for Russian agri-food exports in 2014 and 2018 (million USD)

*Source* Author's calculations based on data from World Integrated Trade Solutions by the World Bank, https://wits.worldbank.org

encompass trade, economic cooperation, aviation, infrastructure, agriculture, and science and technology.55 For context, \$200 billion USD in trade turnover for these countries is not particularly large, but it does represent movement in the desired direction. In comparison, for example, American-Chinese trade turnover exceeded \$659.8 billion in 2018 and that was despite an ongoing trade war.

Russia's goal to increase its agri-food exports will be greatly enhanced if Russia continues to expand agricultural trade with China. Bilateral agricultural trade turnover between Russia and China has risen since 2014. Russian agri-food exports to China increased from less than \$500 million USD in 2000 to \$1.1 billion USD in 2014. An important milestone was reached in 2015 when the two sides signed an agreement that opened the Chinese market to Russian wheat and soybean.56 Agricultural trade began to increase steadily after 2015. By 2018, total bilateral agricultural trade turnover reached about \$4.5 billion USD, with Russian exports totaling \$2.5 billion USD. In 2019 bilateral agricultural trade turnover exceeded \$5 billion USD for the first time. During the first ten months of 2020, Russia exported 3.7 million metric tonnes of agri-food products to China, valued at \$3.2 billion USD.57 The top ten list of nations to which Russia exports agri-food products is shown in Table 4.

Going forward, from the Russian perspective there are several opportunities to increase agricultural trade with China even without a FTA between the EAEU and China (see also Chapter 7). One opportunity to increase agricultural trade is the general economic development of the Russian Far East (RFE). From the Russian side, the Director of the Institute of Agricultural Market Conditions, Dmitry Ryl'ko, is quite optimistic that RFE can increase its food exports to China. He indicated that 'theoretically' soybean exports could expand to 1.5–2 million metric tonnes, up from 1 million tonnes that are currently exported from the region. While admitting that climatic conditions in the Russian Far East make the expansion of crop products modest, Ryl'ko maintains that the export of poultry and pork to China has a 'large potential' and good growth prospects, particularly of chicken feet and wings that are highly valued by Chinese consumers and for which Russia does not face much competition from Brazil or the EU.58

A second opportunity for Russian exporters is the enormous demand for food from China's urban middle class. No one knows exactly the size of China's urban middle class other than it is large and growing. At the low end, the Economist Intelligence Unit estimates that 10 percent of the population is middle class, or about 132 million people.59 At the high end, a different set of authors estimate that 50 percent of all urban households may be in the middle class, or more than 500 million people.60 Whatever its size, the gradual lowering of trade barriers following China's accession to the WTO was accompanied by rising income and living standards as well as changes in consumption habits. By 2013, China was importing nearly \$26 billion USD in agricultural products from the United States alone.61 During 2016–2018, China averaged more than 15 percent of total U.S. agricultural exports, more than any single country.62 Since then, China has become the world's largest agricultural importer by dollar value, with total annual agricultural imports reaching almost \$140 billion USD in 2017 and 2018. Thus, there is an enormous opportunity for Russian food exporters to increase their market share.

As Chinese consumers' incomes rise, their preferences gravitate towards higher-cost animal husbandry products and it is for that reason that Russian animal husbandry exports will be more valuable than crop exports. Pork is traditionally one of the most popular sources of protein in the Chinese diet and China is the world's largest producer and consumer of pork. In 2019, China's pork imports are estimated to have ranged between 3.1 and 3.3 million metric tonnes in 2019 with projections to reach 4.6 million metric tonnes in 2020.63 Against this context, Russia's pork production has increased substantially in the past decade, rising from 2.6 million tonnes in 2008 to 4.7 million tonnes in 2018 (all categories of farms). Within this overall rise, the number of pigs and pork production from households declined while pork production on corporate farms rose and in 2018 comprised 61 percent of total production.64

The opportunity for Russian exporters to increase their share in China's pork market is supported not only by rising Russian output but also by outbreaks of swine flu in China since 2016. In 2019 alone, the number of pigs in China contracted by more than 50 percent, from nearly 5 million pigs in January 2019 to fewer than 2.5 million pigs by late 2019; and pork production plummeted from 60 million tonnes to less than 30 million tonnes during that same period.65 That said, the opportunity created by falling domestic pork production in China is offset by shifting consumer preferences away from pork due to health concerns and more towards poultry and eggs.66

A final opportunity for Russia's exporters grows out of the U.S.–China trade war that during 2019 and into 2020 decimated American exports of soybean to China. Although Russia will not be able to fill the void completely, the Foreign Agricultural Service forecasts total Russian soy exports rising from 930 thousand metric tonnes in 2019/2020 agricultural year to 1 million metric tonnes in the 2020/2021 agricultural year, of which somewhere between one-half to three-quarters will be sold to China.67

In addition to food trade with China, trade with Vietnam has also expanded significantly. Above we noted that for total trade Russia runs a deficit vis-à-vis Vietnam, but if agri-food trade is considered the picture is more positive. Data from the World Bank show that there has been a sharp increase in Russia's agricultural exports to Vietnam after the FTA entered into force.68 In 2018, Vietnam was number ten on Russia's top list of export destinations for its agricultural products, (see Table 4). Prior to the FTA between Russia and Vietnam, agri-food trade was minimal, less than \$1 million USD a year in 2000 and there was not much improvement over time. Once the FTA was signed in 2016, however, Russia's agri-food exports to Vietnam increased quickly to \$400 million USD in 2017, and since 2017 Russia's exports have surpassed the value of agri-food imports from Vietnam. Overall, Russia's agri-food exports grew from less than \$1 million USD in 2008 to almost \$600 million USD in 2018.69

### 5 Outlook

Taking a long view of Russia's agri-food trade policy and partners reveals a high degree of resilience on the part of Russia to changing geopolitical and geoeconomic conditions. Since the 1980s, Russia has gone through at least three iterations in trading partners since 1992. The first iteration was the change from a concentration on intra-bloc trade in the Soviet period—nations that would become CIS members in 1992—to the development of trading relations with the West, most notably the EU, although that relationship was based neither on RTAs nor FTAs. During the 1990s agri-food trade with the EU overtook that with CIS members despite the latter having integrative advantages that continued from the Soviet period. The EU in particular became Russia's most important trading partner by volume and value, including agricultural and non-agricultural goods. That trade relationship continued during the 1990s up to 2014.

The second iteration dates from the introduction of Russia's countersanctions against Western nations in August 2014. This period is marked by Russia's turn away from agri-food imports with the West and the EU, although Russia continues to export food to EU members. Flowing from the second iteration, a third iteration has been the expansion of trade partners and actual trade beyond the EAEU, beyond the EU, and encompassing new partners in the Middle East and Asia, especially China. This third iteration is characterised by RTAs and FTAs that were examined in this chapter. The composition of countries in the third iteration—non-Western, some developing economies—is important because it reflects new political alignments. The composition also reflects the consolidation of trade relations with non-Western nations, which raises the question of not just when but whether Russia-Western trade can ever be revitalised. Further, the composition of trade partners in the third iteration holds importance for Russia's food security in that imports from developing nations are cheaper, thus benefiting consumers, but also may raise food safety and phytosanitary concerns, which obviously is not good for Russian consumers.

Across all three iterations, Russia has been an active participant in the global agri-food trade system as both an importer and exporter. Going forward, we do not expect Russia's role in the international food trade system to decrease in the years ahead. Although Russia is a relative latecomer to RTAs and FTAs, it has been active since 2014. Russian officials claim that the EAEU has received more than 50 proposals from various countries to establish or expand trade and economic relations. With a large number of MoUs, plus ongoing negotiations with Egypt, Ecuador, and Indonesia, we expect Russia to continue to expand its RTA profile.

In essence, Russia's trade resilience entails a three-part strategy since 2014. First, Russia has not severed relations with the WTO and continues to make periodic reports about its phytosanitary standards and other information as required by WTO rules. But agri-food trade with the West has diminished considerably, even to the point of irrelevance in the case of the United States (see Chapter 10). Second, Russia has increased the number of RTAs and FTAs that it participates in, whether temporary or permanent, preferential or non-preferential, and we expect the number to continue to grow. Third, Russia is committed to using the EAEU as an instrument to increase trade and various agreements, although it also is trying to increase bilateral ties as well. In this regard, analysts claim that the EAEU as well as EAEU external trade agreements primarily serve Russia's geopolitical agenda.70

All of the above is notable because a decade ago one would have expected that if Russia increased its RTAs and FTAs, it would be with the Western nations. Today, we know that is no longer true and Russia is putting most of its energy in developing trade with non-Western nations. While it is true that the EU is still Russia's most important trade partner as a recipient of Russia's exports (mainly energy), a free trade agreement is unlikely in the foreseeable future. At the same time, Russia's turn to the East holds major implications for its trade relations, the volume and direction of its agri-food trade, and the overall global geostrategic balance.

derzhala-sozdanie-gossistemy-proslezhivaemosti-zerna/. Accessed 12 November 2020.

icle/us-china-swinefever-pork-imports/chinas-pork-imports-may-hit-rec ord-4-6-million-tonnes-in-2020-rabobank-idUSKBN1XI0ZI. Accessed 13 November 2020.

### Selected Bibliography

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/ by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

195

### Chapter 7: Prospects for Agri-Food Trade Between Russia and China

### *Jiayi Zhou*

### 1 Introduction

Amidst the backdrop of ever heightening tensions between the United States and China, a June 2019 meeting of the Russian and Chinese presidents witnessed their bilateral relationship upgraded to a 'comprehensive strategic partnership of coordination in a new era'. In the summit's joint statement, Russia and China agreed to expand bilateral agricultural cooperation, including for soybean trade. President Vladimir Putin later that year would remark that the U.S.–China dispute offered a window of opportunity for Russian producers to fill gaps in the Chinese market, a market from which he claimed the United States had 'voluntarily withdrawn'.1

The China–U.S. trade war paused in the beginning of 2020 with the signing of the Phase One economic and trade agreement. However, questions remain as to how the shifting geopolitical landscape is impacting trade in general, and food trade in particular. Indeed, the politicisation if not weaponisation of food trade among the great powers is

J. Zhou (B)

Stockholm International Peace Research Institute (SIPRI), Stockholm, Sweden e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

S. K. Wegren and F. Nilssen (eds.), *Russia's Role in the Contemporary International Agri-Food Trade System*, Palgrave Advances in Bioeconomy: Economics and Policies, https://doi.org/10.1007/978-3-030-77451-6\_8

evidenced not only by the China–U.S. soybean battle, but also by Russia's ongoing countersanctions against Western food imports. Unsurprisingly, Russia–China agricultural cooperation is framed and interpreted within the broader context of both countries' tensions with the West.2

This chapter explores Russia–China agri-food trade as part of that context, as part of a relationship marked by increasingly close rapprochement if not entente. However, in agricultural trade as in the broader political relationship, high-level declarative cooperation is tempered by the countries' respective national and domestic priorities, which are not always aligned. China is and will remain an important trade partner for Russia to reach its main export goals for 2024. However, the chapter thus cautions there are a number of technical as well as political hurdles to enhance trade cooperation.

The chapter proceeds with an overview of Russia–China economic relations, before turning to agri-food trade relations in particular—which has only recently begun to feature as a priority in that relationship. The chapter then turns to their respective national priorities in the agricultural trade sector. On the Russian side, priorities are marked by ambitious export-oriented targets as well as a broader economic turn to the (Far) East. On the Chinese side, authorities emphasise self-sufficiency and prioritise domestic production, particularly in terms of grain. However, China has also become irreversibly dependent on foreign markets, and is also interested in mitigating overseas supply chain risks through the diversification of its agricultural trade partners. The fourth section outlines the prospects and challenges of deepened trade cooperation in specific agricultural commodity and product groups, with an emphasis on Russian exporters' access to Chinese markets. The chapter finally turns to a number of broader structural barriers to deepened bilateral agri-food trade, before concluding with a medium-term outlook.

### 2 Bilateral Relations

In the more than three decades since the normalisation of diplomatic relations between the Soviet Union and the People's Republic of China, relations between the neighbouring powers have grown to become a constitutive feature of international relations.3 Long-standing territorial and border demarcation issues were worked out throughout the 1990s, and definitely resolved in 2005. Already by 1996, the relationship had formally become a 'strategic partnership', entailing the establishment of annual meetings of prime ministers with policy consultation along with a number of issue domains. And in 2001, at the beginning of Putin's first term, a Russia–China 'Treaty of Good Neighbourliness, Friendship and Cooperation' was signed, which also included a number of strategic provisions, including strengthened bilateral military cooperation as well mutual defence consultation.

The two powers have, over the past three decades, aligned in their criticism against Western military interventionism, and become outspoken proponents of a 'multipolar' world order. They often hold joint positions on key global issues—including as permanent members of the UN Security Council. The two also have common if not shared foreign policy emphases on state sovereignty and similar threat perceptions, as well as domestic political governance models antithetical to the Western liberal democratic norms. There is a considerable amount of speculation and analysis as to whether a formal alliance is in the cards for the future: though officials' statements suggest that it is not (indeed, this would violate basic tenets of China's non-alignment foreign policy).4 But there also remains a degree of ambivalence regarding the nature of the relationship. Throughout the early 2000s, Russian foreign and economic policy was oriented towards the West rather than East. Russia policymakers exhibited concerns over sensitive technology transfers, Chinese migration in the Russian Far East, as well as Chinese encroachment in the broader post-Soviet space. Meanwhile, China's own priorities centred around maintaining a stable external environment for domestic economic growth; its foreign policy attention was therefore primarily oriented towards its main trade and investment partners in the United States and other developed countries. Many aspects of the relationship thus remained declarative: high-level, but with limited operational substance.

By the late 2000s, however, it was increasingly clear that Russia's experiment with the Western integration had reached a limit. A pivot to the East took shape, one that coincided with the emergence of China as economic powerhouse. Since the 2014 crisis in Ukraine, Russia's drive to improve ties with China has intensified. Previous ideas that the relationship with China constituted an 'axis of convenience' rather than a strategic priority for Moscow, have become less relevant.5 Indeed, previous stumbling blocks in the bilateral relationship have since been resolved. In addition to the 2014 signing of a long-term gas deal, Russia has also begun selling its most advanced weapons systems the S-400 anti-aircraft system and its Su-35 fighter jets to China.6 Russia invited China to participate in Vostok-2018, held in the Russian Far East and its largest military exercise since 1981, and the two have conducted joint air patrols since.7 In 2015, their respective flagship foreign economic initiatives, the Russia-led Eurasian Economic Union (EAEU) and China's Belt and Road Initiative (BRI) also signed a cooperation agreement.

On the Chinese side, economic and political tensions with the United States have visibly worsened since 2018, which have likewise stimulated a desire for deepened cooperation with Russia. In declarative terms, the relationship between the two countries had by 2011 already been upgraded to a 'comprehensive strategic partnership of cooperation', a singular category in China's foreign relations that applies to Russia alone.8 President Xi Jinping, who came to power in 2012, has embarked on more state visits to Russia than any other country.9 On his state visit to Moscow in June 2019, Xi referred to Putin as 'my closest foreign colleague, and best friend', while Putin referred to the relationship as a 'truly comprehensive partnership and strategic interaction' and as having reached an 'unprecedentedly high level'.10

At the same time, however, the high-level pronouncements by Moscow and Beijing are belied by more anaemic cooperation on the ground. This is particularly the case in the economic realm where programmes and plans usually face disappointing follow-up and delivery in practice.11 Latent tensions remain, including Sinophobia and concerns over territorial sovereignty.12 Economic relations have long been asymmetric, with Russia frequently referred to as the 'junior partner' in the relationship: the Chinese economy has only grown and improved while Russia's is stagnant and remains largely based on extractive commodities. Indeed, while China has been the largest trade partner for Russia outside of the European Union (EU) since 2010, Russia ranked only 10th among China's trade partners in 2019, rising from just 0.8 percent in 2018 to just under 3 percent of China's overall trade turnover.13 Meanwhile, China accounted for about 15.8 percent of Russia's total trade turnover in 2018, at about \$108.2 billion USD. For comparison, U.S.–Chinese trade exceeded \$659.8 billion USD in 2018, over six times the Russia– China level. Russia, moreover, largely supplies the Chinese economy with raw materials, with Russia becoming China's largest supplier of crude oil in 2018.

Meanwhile, the extent and success of Putin's pivot eastwards have been debated, given unmet expectations that China would be able to fill the gap of Western investors and trade partners.14 Russian actors also tend to emphasise that their pivot eastwards is not limited to China, but is also oriented towards strengthening partnerships with Asian governments including South Korea and Japan. Concerns of overreliance and becoming outcompeted domestically, are present for both Russian policymakers and in EAEU-BRI negotiations regarding free trade.15 Nevertheless, enhancing trade is a policy goal on both sides. At the September 2019 Heads of Government meeting in St. Petersburg, the countries agreed to nearly double the current level of trade, to a targeted \$200 billion USD by 2024.

#### *2.1 Bilateral Agricultural Trade Relations*

During the first half of the 1990s, up to 1997, Russia was a net importer of agricultural goods from China. The agricultural trade balance began to even out in the rest of the decade, but the overall volume remained low, peaking at just over \$1 billion USD in 1993.16 From the 2000s onwards, however, the volumes of agri-food trade have seen steady growth in both directions, increasing approximately 16 percent annually between 2000 and 2014—when the bilateral agricultural trade volume reached \$3.85 billion USD. Prior to the Ukraine crisis, Russia counted as China's 15th largest agricultural trade partner, amounting to approximately 2 percent of China's agricultural trade.17 In terms of agricultural commodities, Russian trade with China has been relatively balanced (see Fig. 1).

Agri-food exports from Russia to China show a steady increase since 2014, and then a big jump in 2018 to just under \$3 billion USD, a result of Russian opportunism during the U.S.–China trade war (see Fig. 2). While China is the largest export market for Russian agri-food products, Russia accounted for only 2 percent of China's agricultural imports in 2018, reflecting the overall direction of economic dependency.18 Moreover, agriculture still represents a rather small proportion of Russian exports to China, amounting to only 4.5 percent of the total in 2018.19 In the first half of 2020, Russian exports increased to \$1.9 billion USD worth of agricultural products, a pace that would lead to a record level if maintained for the duration of 2020.20 Going forward, there is ambition by both sides to raise the level of agricultural trade and cooperation as part of the broader economic, political, and strategic relationship under a so-called 'new era' of bilateral cooperation between China and Russia. Given the attention of the highest political leadership, this means that

Russia's Agricultural Trade Balance with China

**Fig. 1** Russia-China agricultural trade balance (*Source* Author's rendition from data in Chatham House, 'Exploring Interdependencies in Global Resource Trade', 2018. http://resourcetrade.earth/, accessed 29 October 2020)

**Fig. 2** Russian agricultural exports to China (*Source* Author's rendition from data in Chatham House, 'Exploring Interdependencies in Global Resource Trade', 2018. http://resourcetrade.earth/, accessed 29 October 2020)

there is likely to be increased policy support for enhanced cooperation in agricultural trade.

The main Russian agricultural export to China during the past two decades has consistently been fish and seafood. Exported largely as raw materials for Chinese processing, these products consisted of up to over 90 percent of Russian agricultural exports to China up until the early 2010s.21 Since then, there has since then been some diversification in the structure of Russian agri-food exports to China, particularly in the direction of oilseeds and fat products as well as some processed foodstuffs. In 2018, fish and crustaceans accounted for 59 percent of agri-food exports to China; oilseed and oilseed products 15 percent; and highervalue-added processed food products at 13 percent.22 Russian imports of Chinese agricultural goods, on the other hand, have strongly reflected Chinese comparative strengths in labour-intensive goods such as vegetables and fruits. In 2018, those two categories accounted for nearly half of Chinese exports to Russia.

## 3 Respective National Priorities

There are important domestic drivers for agricultural cooperation on both sides. At the same time, however, those self-same national domestic priorities also create certain limiting conditions for the future. For example, it is important to note that both Russian and Chinese agri-food policies are marked by strategic considerations, in particular, national self-sufficiency. Since at least the early 2010s, the Russian state has embarked on an ambitious import substitution campaign, of which agriculture features prominently.23 Contours of this policy were outlined in the 2010 Food Security Doctrine, which set self-sufficiency targets in various agricultural product categories. These were made more stringent in a 2020 update. Russia's import ban against Western agricultural products in 2014 was also framed as contribution to those goals; the Russian Ministry of Agriculture has celebrated the reduction of agricultural imports by onethird since the ban was imposed.24 In short, Russian leadership, while reorienting its trade relations away from the West, has simultaneously endeavoured to limit imports more generally. At the same time, there are ambitious agri-export targets, as exemplified by Putin's statement in 2012, that 'in the next four to five years we must fully ensure our independence in all major types of food production, and Russia must then become the world's largest producer of food'.25

China has likewise held a long-standing policy of self-sufficiency in staple grain products, including wheat, corn, and rice, since the mid-1990s.26 These priorities limit the complementarily of the two markets, given that the current structure of Russian agricultural exports is concentrated in grain. However, Chinese remains a significant agricultural importer outside of the grain category, and demand is growing. China is actively seeking to diversify its suppliers for key agricultural commodities, as well as seeking further agricultural investment opportunities and markets abroad, not least due to the trade tensions with the West. The following subsection describes their respective policies and priorities in greater detail, focusing on Russia's export strategy as it relates to China as well as its vision for internal agricultural development, for which China is seen as a key partner. It also details Chinese policy priorities in this regard.

#### *3.1 Russian Export Targets and RFE Development Priorities*

Current Russian export goals are defined by the 2018 Executive Order 'On national goals and strategic objectives for the development of the Russian Federation for the period up to 2024'. This tasks the Russian government with increasing the volume of exports of non-primary nonenergy goods to \$250 billion USD by 2024. Specific sub-targets include increasing exports of agricultural products to \$45 billion USD, more than double the export value in 2017.27 In late 2020, Russia's Ministry of Agriculture acknowledged that the \$45 billion USD goal was unlikely to be reached and the deadline needed to be extended, although the general trend in agri-food exports was upwards. As defined by the Ministry of Agriculture's plan 'Exports of AIC [agro-industrial complex] Products (2018–2024)', agri-exports of all categories should grow, but with a reduction in the proportion of grain exports towards meat and dairy, oilseed products, and processed goods.28 The plan also sets a target for agricultural exports to China to increase to \$7.7 billion USD by 2024, and China also features as an explicit target market in individual product categories.29

Related to these ambitious export targets, a priority for the Russian state is agricultural development in the Russian Far East (RFE), which borders China. While the underdevelopment of the RFE has been a historic issue for authorities in Moscow, it began to receive more sustained attention alongside the broader pivot eastwards.30 A specialised Ministry for the Development of the Far East was established in 2012, and Putin would highlight the development of Siberia and the Russian Far East as a 'national priority for the entire twenty-first century'.31 This has been recently reconfirmed at, among other venues, the 2018 Eastern Economic Forum (EEF) during which Putin reiterated that 'the development of the Far East is an absolute priority' and part of a 'consistent, long-term policy for the country'. He also singled out agriculture as a particular sector for investment as well as part of the region's comparative advantage.32 A follow-up draft 'National programme for the development of the Far East for the period up to 2025 and to 2035' was developed in 2019.33 The Russian government plans to increase agricultural exports from the RFE from \$3.8 billion USD to \$5.9 billion USD by 2024.34 Much of that increase is expected to come from fish, seafood, and soybean, whose production is concentrated in the RFE. However, whether those goals will be reached substantially depends on whether promised levels of federal funding and support will be dispersed. RFE development programmes have a habitual tendency to be underfunded; during a 2019 Presidium, it was noted by RFE regional officials that such programmes very often do not have sufficient implementation mechanisms, and that sources of funding have in the past been dispersed only at the level of 10–20 percent level of original promises.35

To facilitate development, foreign direct investment into the RFE has long been sought, particularly from Northeast Asian partners and not limited to China.36 However, Chinese investment in the region is most notable, and still is considered critical. In 2016, for example, a Russia-Chinese Agro-Industrial Development Fund of \$10 billion USD was announced, of which nearly 90 percent of the capital was to be provided by Chinese investors.37 At the 2018 EEF—a forum set up to attract foreign investors—Putin estimated that the Chinese were involved in around 30 ongoing projects in the RFE, with an investment volume of approximately \$200 billion USD.38 However, it is important to note that data about foreign investments tend to be incomplete, with underreporting across both Russian and Chinese governmental departments and agencies.39

Agriculture has featured in bilateral regional development plans, including the Program of Cooperation between the Regions of the Far East and Eastern Siberia and the Northeast of the People's Republic of China (2009–2018), the first long-term regional cooperation plan to include agriculture.40 The Sino-Russian Cooperation and Development Plan in Russia's Far East Region (2018–2024) also contains provisions on agriculture. The document recognises that the lower food self-sufficiency of the RFE creates opportunities for increased Chinese investment, while also aimed at increasing RFE agricultural exports to China.41

In addition to providing investment, Chinese individuals and companies also farm a significant amount of RFE territory.42 Much of China's agricultural activity in Russia is concentrated along those border regions, and there are estimates that this constitutes anywhere from 350,000 hectares to 400,000 hectares of farmland. There is some uncertainty due to the informal nature of some leasing arrangements: the governor of the Jewish Autonomous Oblast, where Chinese presence is purported to be the largest, notes that official land titles do not reflect the reality of Chinese production, due to informal leasing practices.43

Thus, Russia's desire for development in the RFE for which both Chinese capital and labour are critical, juxtaposes with concerns about economic overreliance as well as the encroachment of Chinese nationals on domestic territory. Agriculture-specific concerns also include putative predative exploitation by Chinese farmers, and possible longer-term reduction of soil fertility due to intensive agricultural practices and use of chemical fertilisers.44 This leads to a fickle and uncertain policy environment for Chinese investors.45 For example, the aforementioned bilateral agreements to enhance imports from China contradict other domestic guidelines to make the region *less* reliant on imports from China.46

## 4 Prospects for Increasing Russian Exports

As noted in Fig. 2, since 2014 there has been significant growth in the volume of agricultural trade between Russia and China, and in particular in the volume of Russian agricultural exports to China. One important driver of the increase has been the devaluation of the ruble.47 But the increase also reflects that Russia has now gained access to the Chinese market in key product categories, with the clearing of important phytosanitary hurdles in the past five years when protocols for grain, soybeans, poultry, beef, and dairy, and other items have been signed. This certainly bodes well for the future of Russia–China agricultural trade. However, it is worth pointing out that the current increase is from a negligible baseline.

Separate from market access is a question of market competitiveness, for which according to Karlova and Serova Russia's advantages are 'fairly limited'.48 As officials in Russia's Ministry of Agriculture acknowledge, 'China is the country to which all export-oriented countries want to supply their products. We are no exception'.49 Rising living standards and changing dietary patterns in China will continue provide to Russia opportunities to increase food exports. But Russia faces competition against already-dominant exporters of soybeans, oilseeds, meat, and dairy, as well as from emerging markets with whom China has been concurrently cultivating closer agricultural trade ties in recent years. The westernisation of Chinese consumption entails greater demand for higher-value products with a commensurate focus on quality—which are not historically Russian strengths although that situation is changing.

In addition, the Chinese economy is not only marked by significant demand. China also dominates in the global production of many agricultural commodities. Besides being the world's largest single producer of grain, it is also one of the world's largest exporters of fruits and vegetables, and fish and seafood. The latter it exports at twice the level of Russia, even while serving as Russia's largest buyer. Further, for a number of sensitive commodities, including by not limited to wheat, corn, rice, sugar, and wool, China applies strict tariff-rate quotas (TRQs). In the long run, this puts an upper limit on what Russian producers can hope to export. Given these considerations, the following analysis discusses Russian prospects for increasing the presence of the Chinese market in a few important product categories. I then return to broader structure barriers to enhancing agri-food trade.

• Grain: The Chinese market was closed to Russian wheat export since 1997 due to discovery of karnal and dwarf bunt pathogens. However, phytosanitary barriers were resolved in 2015 after the two sides signed a protocol for wheat, corn, rice, soybeans, and rapeseed.50 As of 2020, wheat exports are allowed from seven Russian regions, including Chelyabinsk, Novosibirsk, Omsk, Amur, Krasnoyarsk, Altai, and Kurgan.51 Current volumes of export are limited. In 2018, Chinese imports amounted to a mere 86.7 thousand tonnes. Corn imports were equally limited at 40 thousand tonnes.52 However, in general more and more grain categories are open for Russian exporters. In 2018, a protocol on allowing Russian exports also of buckwheat, oats and oatmeal, millet, as well as other products including semolina and rye flour to China.53

China regulates grain trade through TRQs. Within quota tariffs for edible grains are set at a low 1 percent but outside the quota tariffs are a prohibitive 65 percent, and with limited licences that usually go to the major Chinese state-owned enterprises.54 What imports do arrive are usually of very high quality and for a niche market. There is little indication that Chinese authorities will loosen their food security principles. At the same time, basic staple commodities such as corn, rice, wheat, are also becoming less important for the Chinese diet. Thus, according to Arkady Zlochevsky, the president of the Russian Grain Union, 'there are no particular prospects for the growth of grain sales'.55

After being banned in 2005 due to outbreaks of avian influenza, the two countries signed a protocol for mutual trade of frozen poultry in November 2018. In February 2019, the first shipment of 54 tonnes came from the Russian company Miratorg.59 The company Cherkizovo, Russia's largest poultry producer, also began exporting chicken in May 2019.60 By the end of 2019, Russia had exported approximately 62 thousand tonnes, worth \$143.4 million USD, to China. Currently, chicken wings as well as chicken feet are primary parts being sold, in light of competition against dominant poultry exporters for parts for which Russia is not competitive. A number of requirements unique to the Chinese market, including on the processing side, however, remain to be met across the poultry industry.61 Despite being the second largest producer in the world, China's poultry consumption and its imports are also expected to continue to grow.62

In January 2020, Cherkizovo also began to export turkey meat to China with an initial volume of 27 tonnes. In terms of beef, China has become one of the world's fastest growing markets: from a low starting point of 20,000 tonnes of beef imports in 2011, China imported nearly 1.7 million tonnes in 2019 and is now the world's second largest importer behind the United States.63 In 2020, the companies Miratorg and Zarechnoe were provided licences to export beef to China, and a first shipment of 21.4 tonnes arrived in Shanghai in May.64 Chinese imports of Russian beef will certainly grow from such a small baseline. However, Russian beef production is currently not produced at a competitive price, and in scale it is unlikely to challenge Brazil, Argentina, Uruguay, and Australia for any significant share of the Chinese market.

Growth in Chinese demand for poultry and beef is partly due to a substitution effect. ASF had decimated China's pig stocks by at least half (one-quarter of the world's production) by the end of 2019.65 China's pork imports rose that year to 2.11 million metric tonnes and were expected to peak in 2020 before domestic production can recover.66 Whether and how much the crisis-induced diversification towards other meat products will continue long-term remains to be seen. However, it is notable that even in 2018, analysts were predicting that China had reached 'peak pork', due both to a switch to alternatives in beef and poultry, but also due to government emphasis and consumer interest in reducing meat intake in general.67

As of mid-2020, Russia does not export any pork to China; pork exports to China were banned in 2008 due to ASF concerns. Russia's comparative advantages against larger exporters like the EU, Brazil, and Canada that are interested to taking advantage of the increased demand are also not obvious.68 Nevertheless, projections by the Chinese Ministry of Agriculture are that meat imports will continue to increase during the next decade.69 To the extent that Russian meat production keeps pace, the Chinese market will continue to represent an opportunity for growth.

Five Russian provinces were allowed to export soybeans to China in 2015, after phytosanitary approval by Chinese authorities. That year was the first in which any meaningful volumes were exported by Russia to China; by 2018 the volume reached 817 thousand tonnes. During Xi's visit to Moscow in June 2019 the two sides signed a 'Plan for Deepening Cooperation between Russia and China in Soybeans' according to which the goal is for China to import 3.7 million metric tonnes of Russian soybean by 2024.75 This has since been connected to the larger project of reaching \$200 billion USD in total bilateral trade by 2024.76 In July 2019, the Chinese General Administration of Customs approved imports of soybeans from all territories of Russia, as well as expanding modes of transport to include sea shipping.77

China is the primary buyer of Russia's soybean crop. The volume, however, is notably small when compared to China's overall imports of 88 million metric tonnes. Russian targets are expected to more than double the value of soybean exports from 2018, to \$600 million USD by 2024.78 Estimates regarding the potential of soybean export vary, however. Some experts are sceptical that 3.7 million metric tonnes to China can even be reached considering climate, geographic factors, and the scarcity of available arable land.79 According to Dmitry Ryl'ko, head of the Institute for Agricultural Market Studies, the RFE's potential for soybean is already 'practically exhausted' and a maximum of 2 million metric tonnes is more likely.80 Finally, Russian soybeans are non-GMO. There are also advantages to this (see below), but among other issues, including pests and lower yields, Russian soybeans are not competitively priced against other major exporters.81 Thus, while there are prospects for growth, it is likely that Russian soybeans will remain a negligible part of China's overall demand.82

As for other oilseeds and oilseed products, sunflower oil has notably been competitive in the Chinese market. Sunflower oil is a relatively niche product, viewed as a healthier alternative to standard cooking oils. Different packaging standards and expectations—for example litre size however, can limit its appeal.83 Moreover, Russia faces high competition from Ukraine, including due to infrastructural issues and port capacity.84 Regarding other intermediary products, a 2019 protocol for Russian export of soybean, rapeseed, sunflower meal was also signed.85

• Ecological products: Genetically modified (GM) foods are seen in a negative light by a substantial proportion of Chinese consumers. Since GM production was banned in Russia in 2016, an opportunity exists for Russia to expand its non-GMO exports to China.86 For example, soybean imports are suitable for niche 'ecological' markets, in particular for non-animal feed uses of soybean.87 Other niche markets include processed products such as soy milk, soy sauce, tofu, and other seasonings. Non-GMO food presents an advantage for the marketing of healthy products for higher-end markets. Russian legislation including the 2020 federal law 'On Organic Products' on this should assist with labelling and quality standards in this regard.88 Notably, the development and marketing of ecological products is also a part of Russian export strategy.

• Higher value-added products: Russian leadership is quite clear about the need to move up the supply chain, towards processed and value-added products rather than raw agricultural materials and bulk commodities export. In this area, Russia's chocolate confectionary products have a strong showing on the Chinese market, comprising \$112.6 million USD of \$438 million USD total Chinese imports of chocolate products in 2019.89 Russian brands of beer and ice cream have also made inroads into the Chinese market.90

Overall, to reach its export targets for 2024, Russia's exports will need to move beyond bulk commodities and raw agricultural materials exports. This requires not only domestic processing, but also vertical integration both at industrial and regulatory levels, across the wider value chain. This includes quality control, monitoring, and inspection, but also packaging, product promotion, and retail, in order to raise the profile, reputation, and overall competitiveness of Russian products on the Chinese market.91

# 5 Agri-Food Trade in Context:

Remaining Obstacles It is clear that the agricultural trade relationship between the two countries is deepening. At the same time, however, declarative statements from officials, such as the putative bilateral 'soybean industry alliance', belie the fact that cooperation is proceeding from an extremely low starting point. The removal of phytosanitary barriers for a range of products is very recent. This might invite some speculation that the opening of the Chinese market is motivated by geopolitical factors. However, negotiations and groundwork for such agreements take place over several years, the fruits of which are only now starting to be realised. Russian producers and distributors themselves point to growth being driven by their better understanding of the 'rules of the game', and their adaptation to Chinese demands over a longer period of time.92 Finally, any increased accommodation and policy facilitation for Russian exporters should be placed also in the context of China's opening towards a broader range of countries. In 2019 alone, China expanded access to its market to meat imports for an additional 16 countries.93 Moreover, it is ironically under conditions of strained U.S.–China relations that China has been locked increased vastly increased purchases of U.S. agricultural products under the Phase One trade deal. However, Russian exporters will not be substantially affected due to dissimilar trade profiles vis-à-vis the United States.94

Indeed, Russia–China agri-food trade over the last several years has more been marked by the removal of existing political and technical bottlenecks to the point of more normalised market-based relations. Thus, while wider geopolitical dynamics and any broader Russia–China entente are not irrelevant to the agri-food trade, other factors loom larger. These include, for the medium if not long term, obstacles including broader policy misalignment, market dynamics, as well as operational barriers of both hard and soft infrastructure.

At a basic level, Russian export strengths are not necessarily well aligned with Chinese demand due to China's grain self-sufficiency policies. The 'Export of AIC Products (2018–2024)' plan also explicitly notes the difficulty of gaining access to the Chinese market due to domestic protectionism. But similar policies on the Russian side also limit the prospects for increasing Chinese exports to Russia, where there has been increasing focus on substituting imports of fruits and vegetables. And despite other Russian statements to the contrary, Chinese demand for unprocessed soybeans is also potentially misaligned with Russian goals to increase the export of higher-value products, as Russian Minister of Agriculture Dmitrii Patrushev has noted.95

Non-tariff barriers also hinder trade. According to a joint report by authors from the Russian International Affairs Council and Chinese Academy of Social Sciences, these 'have the greatest negative impact on mutual trade in agricultural products'.96 Sanitary and phytosanitary measures for export to China are extremely strict. Though new protocols have been signed, in many cases Russian companies still need to obtain individual export licences. China follows the principle of regionalisation for some product categories. While this is better than wholesale bans, it also means that individual Russian regions need to be cleared for export. Other categories are on the whole not allowed into the Chinese market. Russian exporters must also comply with tough technical regulations regarding quality certification, specific packaging and labelling requirements, as well as complicated customs formalities.97 This goes both ways: in 2019 and 2020 alone, there were a number of restriction imposed on Chinese agricultural exports to Russia, including a ban on stone fruits from China in August 2019, and in January 2020 restrictions on citrus fruits as well as certain fish and seafood products. During early 2020, many Russian food retailers also suspended Chinese agricultural supplies due to concerns over COVID-19.98

On the market side, China is often idealised as having unlimited absorptive capacity, but it is also among the 'most demanding' markets in the world not only to penetrate but also navigate.99 Understanding if not meeting specialised Chinese tastes and consumer preferences requires investment in baseline market analytics. As Patrushev has admitted, 'the Chinese are a difficult people, it takes a very long time to convince them that our products are better. They are picky and, of course, selfinterested'.100 In terms of competitiveness in higher-value products, particularly in the oilseeds, livestock, and dairy sectors, Russia lags well behind established players.101 Russia must also compete with as well as emergent agricultural players and fellow CIS countries such as Ukraine, Kazakhstan, as well as a range of other countries that are seeking to increase agricultural exports to China in areas where Russia has advantage. Meanwhile, growing consumer emphasis is on the quality of food, to include food safety, healthiness, as well as organic production.102 Quality control including resolving issues with counterfeit products for eco-brands or dairy will be important.103 How much Chinese consumption will continue to grow in volume is another question. Most recently, Xi Jinping's August 2020 directives which place responsibility on individual citizens to cut (wasteful) food consumption, may also soon be reflected in the market.104

Another important obstacle is infrastructure. The bulk of Russian agricultural production is currently concentrated in the European part of the country. Transport either proceeds via freight, which is quicker but more expensive, through the body of the continent, or via marine shipping from the West passing Europe, Africa, and the Indian Ocean. From the western part of Russia, it can take up to 60 days for products to reach their destination in China's eastern seaports.105 The Ministry of Agriculture's export plan entails an additional R30 billion of development of 'transportoriented agricultural logistics' by 2024. For the time being, however, even RFE's proximity to China does not necessarily translate to cheaper or more efficient logistics. Lack of, or underdeveloped infrastructure, including grain terminals and port facilities, makes a range of investment, development, storage as well transport activities more expensive.106 Current vehicle-based transport modalities, slow customs procedures, and outdated facilities in the RFE add to the inefficiency. Lengthy customs procedures can hinder the transport of perishable products.107

Finally, RFE agricultural development in general continues to face deep challenges, with or without Chinese capital.108 There has been a longterm shortage of local labour in the region, and although the region has depended on Chinese immigrants for labour, their contribution was waning even before the COVID pandemic.109 During the COVID-19 pandemic, the Minister of Agriculture for Primorskii krai, Andrei Bronz, reported that due to the lack of Chinese and other foreign migrants usually engaged in vegetable cultivation, alternative labour was found through the use of students and convicts.110 This practice also affects soy cultivation.111 Finally, extreme weather events, including massive floods in the RFE in 2013 and again in 2019, which took tens of thousands of hectares of farmland out of commission and decreased crop yields, may increase as consequences of climate change worsen.112

### 6 Outlook

While there are elements of market complementarity between the two markets, overall trade is strongly shaped by domestic political priorities on both sides, which are not always aligned. The evolution from adversaries to strategic partners in recent years means that politics continue to influence trade in general and agricultural trade, both directly and indirectly. Moreover, self-sufficiency policies are unlikely to change on either side. Russian officials are less interested in the level of bilateral trade than they are in increasing exports. And it means that there is limited scope for expanding grain (soy) exports to China. So far, Russia does not yet feature as a significant player in Chinese agri-food markets outside of fish, seafood, and chocolate confectionaries.

Nevertheless, with the recent opening of the Chinese market to a range of Russian products, prospects are certain that agri-food trade value will grow in long if not medium term, and in the export-oriented direction in which Russian policymakers are seeking. Whether the current trajectory is sufficient to help meet the 2024 export target of the Russian government remains to be seen. On the Chinese side, its demand for Russian soy will surely be influenced by trade relations with the United States and the fulfillment of the Phase One Trade Deal. On the Russian side, funding for overcoming the range of obstacles to enhance agri-food trade listed in this chapter, including infrastructure, will be necessary. Finally, beyond accessing the Chinese market, the broader competitiveness of Russian agri-food products on the Chinese market will also require substantial work by Russian industry players themselves.

11 August 2015. http://government.ru/en/news/19246/. Accessed 8 September 2020.

est-up-to-10-bln-usd-into-agricultural-projects-under-/. Accessed 28 September 2020.

Economic Information Bulletin 136, February 2015, p. 7. https://www. ers.usda.gov/webdocs/publications/43939/eib-136.pdf?v=0. Accessed 12 October 2020.

a-peak-shocking-producers-as-diets-get-healthier-idUSKBN19A31C. Accessed 4 August 2020.

### Selected Bibliography

**Open Access** This chapter is licensed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/ by/4.0/), which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

The images or other third party material in this chapter are included in the chapter's Creative Commons license, unless indicated otherwise in a credit line to the material. If material is not included in the chapter's Creative Commons license and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

### Chapter 8: Russia's Agri-Food Trade Within the Eurasian Economic Union

#### *Rilka Dragneva*

### 1 Introduction

The pursuit of economic integration has been a key dimension of Russia's policies in the post-Soviet region. After several failed initiatives, the first real achievement was the creation of a Customs Union (CU) with Belarus and Kazakhstan in 2010. It was followed by the launch of a Single Economic Space (SES) in 2012, ultimately culminating in the formation of the Eurasian Economic Union (EAEU) in 2015, to which Armenia and Kyrgyzstan also acceded.1 As its predecessor, the EAEU aims at 'deep' economic integration: one where not only mutual trade in goods is liberalised, but the formation of a common market is pursued through the harmonisation of domestic regulatory requirements and other nontariff barriers. In the external plane, the objective has been to exercise a common policy through the adoption of a Union external tariff, a common trade protection regime and the engagement in trade agreements with the rest of the world as a unified trading bloc. To achieve these goals, the EAEU member states have endowed the organisation

225

R. Dragneva (B)

University of Birmingham, Birmingham, UK e-mail<EMAIL_ADDRESS>
© The Author(s) 2022

S. K. Wegren and F. Nilssen (eds.), *Russia's Role in the Contemporary International Agri-Food Trade System*, Palgrave Advances in Bioeconomy: Economics and Policies, https://doi.org/10.1007/978-3-030-77451-6\_9

with a system of bodies with delegated powers and an international legal personality.

Such an ambitious project is bound to affect the economies of its member states, including the production and trade of food, in tangible and fundamental ways. Therefore, the understanding of Russia's role in the international food trade system will be incomplete without taking into account the agency of the EAEU and the opportunities created by it. Yet, while undoubtedly significant, this relationship is not straightforward. Firstly, despite some notable achievements, developments on the ground have been modest or outright disappointing. In mutual trade, in particular, the results have been described as erratic, with significant variations across sectors and member states.2 Notably, relations have been interlaced with high-profile trade conflicts and back-tracking from previous achievements. Secondly, while some of these dynamics can be explained by external conditions or natural 'growth pains', it is largely symptomatic of the structural problems of the EAEU as an integration project: its highly politicised and decentralised nature, the limitations of its legal regime and the weakness of its common bodies.3 This has allowed Russia to use its power preponderance in the region to assert its policy priorities and especially its geopolitical considerations *through* the EAEU, where possible, but also *despite* the EAEU*,* where necessary.

This chapter will unpack this dynamic by analysing the role of the CU and EAEU in Russia's agricultural food trade. In particular, the aim will be to discuss: (1) To what extent has the formation of the EAEU impacted on Russia's food trade with its neighbours, both in terms of the institutional regime set up and the resulting ability of the organisation to affect its members' trade practices? (2) In what ways has the EAEU affected Russia's options as a player in the international food system? Given that the birth of the EAEU coincided with a major reversal in Russia's trading behaviour as a result of the sanctions' war with the West,4 what role has the bloc performed in this process?

The chapter will begin by providing a background of the key relevant institutional features of the EAEU. It will then focus on some of the most important yet also problematic ways in which the EAEU affects agri-food trade and production, namely the EAEU's food safety regime, the effects of Russia's food import ban, the agenda for agricultural cooperation, including the coordination of food security policy, and the opportunities provided by concluding EAEU free trade agreements with third parties. In conclusion, the chapter will examine some of the changes in agri-food trade flows since the launch of the EAEU, before offering some thoughts on the outlook for the future.

### 2 The EAEU and Its Institutions

To understand the role of the EAEU in affecting Russia's role in regional and international agri-food trade, it is necessary to point out some of its general characteristics as an institutional regime. The EAEU was set up as an independent interstate actor operating through its bodies on the basis of the powers delegated by its member states. Of particular significance is the Eurasian Economic Commission (EEC), the Union's regulator tasked with the development of integration. The Commission is a two-tiered body consisting of a Council that is composed of the deputy heads of national governments, and a Collegium that is composed of Ministers nominated by the member states who head specialized departments.5 Despite the intention to model it on the European Union Commission, however, the EEC's autonomy and authority are highly limited.

The EEC has been endowed with significant powers in the area of tariff and customs regulation, technical regulation and the imposition of trade defence measures. Many other areas, such as transport or agricultural policy, are reserved for the member states. In relation to those, the Commission's role is to facilitate cooperation between the member states. Even within the area of delegated powers, however, there is complex mix between Union and national legislation and between Commission and national competences to navigate, as the area of food safety illustrates.

Furthermore, the decision-making process that the EEC follows even in such areas is deeply intergovernmental, putting member states firmly in control. The most important powers of the EEC are exercised by its Council by consensus. The Collegium is the permanent and most professional and independent body of the Union, consisting of departments dealing with day-to-day matters. Its decisions, however, can always be challenged by member states and escalated to the Council of the Commission or the higher bodies of the EAEU, the Inter-Governmental Council (heads of government), and the Supreme Eurasian Economic Council (heads of state), and revoked or reversed by them.

Notably, the powers of the Commission are particularly curtailed by its weak enforcement functions. It can, subject to capacity, monitor member states' practices and notify them of a lack of implementation or breach of Union requirements. Yet, in a reversal from the CU regime, it cannot bring them before the Court of the EAEU. It is notable that the EAEU Treaty asserted the primacy of the member states in several key ways, including by restricting the Court's powers and ensuring that its rulings do not become part of EAEU law.6

In this context, the Commission has acted cautiously and conservatively. Even when it demonstrates activism, the fate of its initiatives rests at the highest level of domestic power. Thus, politicised interstate bargaining is the main path to secure progress or resolve disagreements. This characteristic matters for a number of reasons.

Firstly, there is a mismatch between the institutional regime in place and the stated ambition of integration. There is an 'attainment gap' built into the system which is particularly critical in relation to the removal of non-tariff barriers and regulatory alignment. In part, this is connected to the preference for harmonisation similar to the European Union (EU), which is an inherently complex process.7

Secondly, it can be argued that the institutional set-up behind the mismatch was the result of the member states' deliberate preference. As the drafting of the EAEU Treaty coincided with the eruption of the Ukraine crisis in early 2014, Russia's partners were keen to limit the scope of integration and, particularly restrict the power of common bodies. With sovereignty sensitivities ignited, Belarus and Kazakhstan were concerned about Russia's ability to dominate the Union and develop a political dimension to economic integration.8

Finally, the functioning of the EAEU as well as any improvements of the regime depend on the engagement and continued commitment to the integration of its member states. This is particularly crucial given the large number of areas of cooperation, including the completion of the common market, which are 'in progress' and depend on future actions being taken. Indeed, despite the fact that it inherits developments set in motion with the 2010 Customs Union and 2012 Single Economic Space, the EAEU is best understood as a 'road map' for cooperation.

This links to another important point. In law, the EAEU operates on the basis of formal parity between its members reflected in their voting power and composition of common bodies. Nonetheless, Russia's leadership in the operation of the Union is hard to dispute. It is evident in the staffing of the Collegium of the EEC and Russia's superior ability to lead and participate in various working groups and joint missions, particularly in the area of food safety.9 It is also a result of its massive structural preponderance within the economy of the EAEU, which translates into a high degree of identification of the EAEU interest with Russia's interest.10 Ultimately, it represents the political reality behind the EAEU, which is largely based on bilateral, Russia-centred hub-and-spoke patterns of interactions, where the loyalty of members is procured by the provision of collateral benefits, including political support, cheap energy, or enhanced security.11

In this sense, it is of particular importance that Russia's key interest in the Eurasian project is primarily (geo-) political. The economic benefits of EAEU integration for Russia, even with the removal of non-tariff barriers, have been estimated as trivial.12 Russia certainly derives little economic advantage from the bloc above and beyond what it can achieve through bilateral dealings. It is not surprising that Russia has been prepared to let geopolitics trump the constraints of integration at the expense of the Union, but also that its interest in the technical minutiae of integration has not paralleled its enthusiasm for more symbolic wins, such as the launch and expansion of the bloc. It has certainly been selective in driving integration, investing primarily in areas where geopolitical considerations or other domestic priorities have been most prominent.

All this is aptly demonstrated by the case of agri-food trade. In terms of mutual trade in goods, the EAEU inherited the tariff-free trade arrangements already put in place between its members in a web of bilateral free trade agreements and related agreements facilitating trade cooperation. These arrangements were critical in eliminating the various annual exemptions to free trade, which created high uncertainty in bilateral dealings. They did not, however, tackle non-tariff barriers and particularly, the possibility to apply Sanitary and Phyto-Sanitary Measures (SPS) as barriers to trade. Despite Belarus's close alliance with Russia, for example, it periodically experienced food bans and customs restrictions, largely perceived as discriminatory and politically motivated.13 The launch of the Customs Union in 2010 consolidated the free trade arrangements already in place, brought about a common Customs Code and the highly symbolic removal of internal customs controls in 2011. It also created a new momentum for deeper integration, including the adoption of common technical requirements and other coordination measures. The EAEU inherited these developments with the idea to embed them in a more coherent legal and institutional framework and map out an ambitious agenda for achieving a genuine common market. Nonetheless, agri-food trade under the EAEU regime remains inhibited by several important obstacles linked to the nature of its institutional regime and its limited ability to constrain the diverging preferences of its members, Russia, in particular.

## 3 Food Safety Requirements

While food safety is fundamental to the functioning of the common market, it is one of the areas where the obstacles to internal trade are most pronounced with disputes between the EAEU members continuing to proliferate. This is largely attributed to the fact that, as aptly described, the EAEU regime does not amount to a workable single food safety system but rather a conglomeration of the national systems of its member states.14

To start with, it should be pointed out that at the level of the WTO and the practice of various countries, the regulation of technical barriers to trade and the use of SPS measures are clearly distinguished and defined. Russia, however, has followed an approach where in regulating food safety, the boundaries between the two have been blurred.15 This approach influenced the practice of the Customs Union,16 and was then inherited by the EAEU. Thus, food safety in the EAEU straddles issues related to the adoption of Union 'technical regulations', which have included sanitary requirements and procedures with regard to an agreed list of commodities as well as the framework for SPS control.

In this sense, the area of food safety presents some complications in the applicable regimes, particularly in relation to products of animal origin.17 With regard to technical requirements, the EAEU pursues maximum harmonisation. In law, regulations need to be applied directly in the member states, without the need of implementing legislation, thus aiming to reduce the possibility for divergence. In the area of SPS, however, member states are allowed to impose additional requirements and put in place additional processes for assessing conformity.18 Indeed, in terms of SPS controls, the EAEU operates an agreed (*soglasovannuiu*) policy,19 a term which was deliberately used in drafting the Treaty to designate the lowest level of interstate cooperation.

In principle, the EAEU Treaty lays down the fundamentals of food safety policies in line with WTO requirements, dealing with the purposes of food safety measures, scientific risk assessment, regionalisation of food safety risk, transparency and the importance of international standards.20 The EAEU system is based on the provision of common mandatory requirements and general procedures applying to an agreed list of goods placed under regulatory control. General sanitary requirements and procedures for sanitary control were agreed upon by the CU Commission in 2010.21 They were developed in a number of horizontal technical regulations, such as the 2011 Technical Regulations 'On Food Safety', 'On the safety of packaging', and 'On food products in relation to labelling'. More detailed mandatory requirements to the products subject to sanitary controls were envisaged in specific technical regulations dealing with certain types of food products, such as meat, milk, grains, fat and oil products, and fruits.22 These were accompanied by the provision of common rules on conformity assessment, standard forms of documents of compliance, and a register of certification bodies. Similarly, in the area of veterinary controls, there were adopted common requirements applicable to the commodities subject to veterinary control and agreed veterinary control procedure to be applied at the EAEU customs border and throughout its customs territory.23 This also involved the adoption of uniform veterinary certificates, as well as general rules applying to different aspects of the veterinary control process, such as laboratory controls and joint inspections.

These mandatory requirements and procedures have been developed and continue to be updated at the EAEU level by the EEC, as they were by its predecessor, the Commission of the CU. Nonetheless, the progress in adopting and upgrading technical regulations has been slow and complicated: in the Commission's own assessment, this is an area plagued by the delays and perfunctory attitudes of EAEU member states.24

Related to this is the problem of the control over the compliance with technical regulations. This is an area where discrepancies and inconsistencies are common. In a recent example, Russia adopted requirements regarding the marking and marketing of wine, in addition to the EAEU technical regulation 'On the safety of alcohol production', due to enter into force in 2021.25 However, the EEC has no powers in this regard: control is a prerogative of national authorities in accordance with national systems of food control.26 Inspection, enforcement, or indeed the pursuit of liability in the case of breaches takes place subject to domestic legislation and procedures, and is open to significant divergence. The EAEU Treaty provides that a future international agreement may harmonise domestic legislations dealing with control over compliance.27 This, however, has not materialised, nor is there an indication that such a harmonisation will result in more powers of the Commission. Instead, the Commission has sought to respond to problems in this field by issuing recommendations for improved cooperation between member states.28

Similarly, the exercise of sanitary and veterinary control is carried out by domestic authorities applying Union as well as national rules. The Commission does not participate in joint inspections nor has the authority to audit the national systems of control.29 Even more importantly, in contrast to the EU regime,30 the Commission does not have the right to adopt temporary SPS measures under any circumstances.

The imposition of temporary SPS measures is the exclusive right of the member states. It can be triggered by notification by another member state of problems or measures adopted on its territory, but also by the imposing state's own finding of a violation of technical regulations or a 'deterioration of the sanitary-epidemiological situation on the territory of member state'.31 This allows for a wide discretion in the imposition of temporary SPS measures, subject only to the requirement to follow a process for mutual notification and consultation, introduced in May 2016.32 This is especially problematic given the important gaps in the common SPS regime in key areas, such as the definition of deterioration or threat, or how a risk analysis should be conducted.33 Indeed, in the Commission's own assessment, 'Union law does not define the key terms related to temporary SPS measures, the justification for their introduction and contents, which can give rise to inappropriate use of such measures'.34

All this gives rise to two important problems. Firstly, food safety ultimately depends on the capacity and effectiveness of the domestic systems for inspection and enforcement. This underscores the importance of the quality of domestic institutions and the need for their modernisation. However, this conclusion jars against the fact that the EAEU project explicitly lacks a 'governance' dimension. Accession to the EAEU, for example, does not depend on preparedness to implement the various EAEU requirements, nor is support for developing domestic capacity a part of any EAEU equivalent of the EU structural and regional funds. The rudimentary state of SPS control facilities of Kyrgyzstan, for example, was well known to members of the EEC,35 yet Russia's geopolitical priorities prevailed in pressing for its fast accession. It is telling that Kazakhstan refused to remove its phytosanitary posts from the border with Kyrgyzstan until October 2016, following pressure at the EAEU level.

A closely related problem is that of the corrupt practices of the various national agencies for inspection and certification. Indeed, there have been abundant demonstrations that a domestic 'market for documents' has developed in several countries,36 undermining the integrity of the system. This is particularly problematic in areas, such as the issuance of veterinary certificates, which are subject to mutual recognition across the Union.37

Secondly, this decentralised nature of the SPS regime opens the possibility for arbitrary or opportunistic use of restrictions. The EAEU Treaty provides that SPS measures and import bans should not represent unjustifiable discrimination of a disguised restriction on trade and should only serve a list of agreed purposes.38 Yet, Russian SPS measures continue to be perceived by Belarus as driven by protectionist or political motivations. Russia's 2018 ban on dried milk, for example, was interpreted as an attempt to curtail the entry of the cheaper, subsidised Belarussian products.39

Both these problems culminated in the context of Russia's food embargo, as will be examined next.

### 4 Russia's Food Import Ban and Its Effects on EAEU Relations