Tag: Countersanctions

Russia’s Counter Sanctions: Forward to the Past!

Posted on May 12, 2025 | Policy Brief

Since February 2022, Russia has introduced a series of counter sanctions in response to the international sanctions introduced following the country’s full-scale invasion of Ukraine. These measures aimed to counteract external economic pressure while shielding the domestic economy from further destabilization. However, their broad implementation has led to mixed effects across various sectors while simultaneously increasing the administrative burden. This policy brief argues that Russia’s countersanctions reinforced state control over key industries, worsened market competition and fiscal sustainability, which contributed to a systematic move towards a planned economy.

Russia’s Counter Sanctions and the Expansion of State Control

Since February 2022, Russia has introduced a series of countersanctions in response to the international sanctions imposed following its invasion of Ukraine. A broad range of economic, financial, and trade restrictions have been implemented, including nationalization of foreign assets, price control, capital flow restrictions, export bans, and state-directed subsidies – all aimed at mitigating external economic pressure while reinforcing state control over key industries (Garant, 2025).

While it is widely accepted that, in times of crisis, governments may intervene in the economy to provide necessary support, such intervention should remain limited in scope and duration. Prolonged state involvement, particularly through subsidies and market controls, can distort price signals, crowd out private investment, and erode the foundations of competitive market dynamics (Friedman, 2020).

In the case of Russia, intensive government economic interventions, specifically after 2022, have led to mounting inefficiencies, increased inflationary pressures, and weakening long-term growth prospects (SITE, 2024; SITE, 2025). This policy brief discusses how the recent surge in presidential decrees, the sharp expansion of targeted subsidies across nearly all sectors, and the tightening of price regulations reflect the Kremlin’s strategic use of counter sanctions as a means of consolidating economic power and reinforcing centralized control.

An Expansion of Presidential Control

Since 2022, presidential decrees account for 25 percent of all anti-sanctions legislative measures, indicating a significant consolidation of executive control over economic policymaking.  The trend of expanding presidential control through issued decrees is illustrated in Figure 1. As shown in the figure, the total number of presidential decrees has nearly doubled since 2019, amounting to 1131 in 2024. The largest share of this decree increase, however, occurred post February 2022.

Figure 1. Number of Presidential Decrees in Russia

Source: ConsultantPlus, 2025.

Beyond the expansion in the number of decrees, what is particularly noteworthy is the breadth of topics they cover. They range from significant interventions on nationalization and economic control to quite detailed low-impact orders.

Among the highly impactful presidential decrees, Decree No. 79 (February 28, 2022) should be mentioned. The decree introduced a mandate that Russian residents engaged in foreign economic activities sell 80 percent of their foreign currency earnings. Further, Decree No. 302 (April 25, 2023), allowed the Russian state to seize foreign assets from “unfriendly states” if necessary for national security or in retaliation for asset confiscations abroad. Global companies from Germany (Uniper), Finland (Fortum), France (Danone), and Denmark (Carlsberg) are among those affected by these expropriations (Garant, 2025). Seized foreign assets were transferred to state-controlled entities, which drastically reduced competition and increased inefficiencies within key Russian industries.

Similarly, Decree No. 416 (June 30, 2022) on the Nationalization of Sakhalin-2, transferred oil and gas projects from foreign operators (Shell, Mitsubishi and Mitsui) to a Russian-controlled legal entity. Moreover, foreign companies from “unfriendly” countries were required to sell their Russian assets at a minimum 50 percent discount when exiting the market. Additionally, they were obliged to pay a “voluntary contribution” to the Russian federal budget at 15 percent of asset value (Garant, 2025).

At the same time, numerous presidential decrees have been adopted to address very specific low-level administrative issues. While their economic impact has been quite limited, they have largely contributed to a growing micromanagement and regulatory complexity (for instance, Decree No. 982 (December 22, 2023) on Temporary State Control Over a Car Dealership, Decree No. 1096 (June 17, 2022) on Transport Credit Holidays etc.).

Apart from the potential negative effects of direct government intervention in the economy, there are several issues with Presidential Decrees. Most importantly, presidential decrees, unlike statutes or other forms of legislation, are not subject to parliamentary approval. Thus, they are bypassing legislative debate and accountability, which makes them less transparent and balanced. Presidential decrees serve as tools to avoid legislative resistance since the Russian judiciary rarely challenges presidential authority, meaning decrees are difficult to contest or reverse through legal means. Further, they often overlap with other legislation, thus duplicating the functions of other legislative (and executive) authorities, leading to regulatory uncertainty. This, in turn, undermines implementation and expands bureaucratic oversight, further increasing inefficiencies and costs (see for instance, Remington, 2014; Pertsev, 2025).

Altogether, the surge in presidential decrees in Russia contributes to increasing institutional instability, an increasing administrative burden and a centralization of power. However, the full impact of these measures on the macro level is yet to unfold.

Targeted Subsidies and Industry Dependence

A key tool in Russia’s counter sanctions strategy is the expansion of state subsidies. Since 2022, substantial subsidies have been directed toward the energy sector; industrial and technological development – including aviation, pharmaceuticals, electronics, and shipbuilding; agriculture and food security; transportation and infrastructure; the banking sector; housing; and consumer lending. The scale of these subsidies indicates growing imbalances and escalating fiscal risks in the Russian economy (Garant, 2025).

However, estimating the total resources going to subsidies is quite challenging. Precise subsidy figures are only explicitly stated in few legislative acts. Most legislative documents mention the form of subsidy without specifying the amount or the source of financing. Nevertheless, some estimates have been made by both Russian and Western experts.

For instance, Russia spent approximately 12 RUB trillion (126 USD billion) on fossil fuel subsidies in 2023 (Gerasimchuk et al., 2024). Subsidies to the agricultural sector were estimated at 1 trillion RUB between 2022 and 2024 (Statista, 2025). Since 2022, Russia has allocated approximately 1.09 trillion RUB (12 billion USD) in subsidies to the aviation sector to maintain operations (Stolyarov, 2023; Garant, 2025). Around 100 billion RUB were allocated to support the tourism industry during 2023–2024 (Ministry of Economic Development of the Russian Federation, 2024; Garant, 2025).

To understand the order of magnitude, it’s worth noting that, for instance, budget revenues from oil and gas amounted to 8.8 trillion RUB in 2023 and 11.1 trillion RUB in 2024 (Figure 2).

Figure 2. Budget revenues and expenditures

Source: SITE, 2025.

In addition, state subsidies for mortgages nearly doubled since 2022, with the total amount reaching 1.7 trillion RUB between 2022 and 2024 (CBR, 2024). Thus, the Russian mortgage market has become heavily dependent on state support, with subsidized mortgage programs accounting for nearly 70 percent of the growth in mortgage lending in early 2024 (CBR, 2024). Although the so-called standard preferential mortgage program was terminated on July 1, 2024, its discontinuation does not remove the substantial fiscal burden created by earlier subsidy schemes.

Moreover, the Russian government has expanded subsidized lending programs to support both businesses and individuals. For instance, preferential loans and credit holidays have been granted to small, medium and large enterprises (see for instance, Presidential Decree: No. 121, March 2022, Federal Law 08.03.2022 No. 46-FZ, and others (Garant, 2025)), further straining the government’s finances.

In many cases, subsidies allocated to state-owned enterprises double as a mechanism for off-budget military financing. For instance, defense-industrial conglomerates like Rostec not only receive targeted support but play also a pivotal role in facilitating military acquisitions and production activities outside of the formal federal budget framework (Kennedy, 2025). This not only obscures the true scale of budget expenditures but again increases the long-term fiscal burden.

As such, these measures have fostered a heavy reliance on state funding, resulting in the accelerated depletion of financial reserves and contributing to increased fiscal risks.

Price Controls, State Regulation and Planned Procurement

As mentioned earlier, the set of countermeasures recently implemented by Russia also indicates a shift toward a planned economy, with hallmark features such as price controls gradually re-emerging as policy tools. As in Belarus, where state-led economic management has long been the norm, the Russian government’s direct intervention in price-setting mechanisms, particularly for essential goods, erodes market signals.

Since 2022, a series of decrees have introduced price controls on essential goods and services to cushion households against rising costs amid inflation. These measures include caps on fare increases for public transportation, limits on tariffs for heating, water supply, and wastewater services; price limits on essential medicines, and staple agricultural products (Garant, 2025).

By limiting the price growth of necessities, these interventions aim to support households in the short term. However, prolonged price controls may entail distorted market signals, increased subsidies dependency for producers, and higher administrative costs for control enforcement.

The deviation from market mechanisms has been even more amplified in procurement, through Federal Law No. 272-FZ (July 14, 2022), which compels businesses to accept government contracts if they receive state subsidies or operate in strategic sectors. In practice, companies cannot refuse government contracts if their products or services are required for so-called counterterrorism and military operations abroad. Refusal to comply with procurement orders may result in criminal liability, as non-performance can be interpreted as economic sabotage under this law.

In addition, the Russian government provides up to 90 percent of procurement contracts in advance (Government Decree No. 505, March 29, 2022). This arrangement weakens the role of contracts, prices, and competition, while increasing the fiscal risks. In effect, it reinforces a central planning logic and undermines competitive procurement, where outcomes should be driven by performance and value rather than access to state funding.

With Russian companies cut off from foreign investment and other external financing due to sanctions, large-scale government support has become even more critical – intensifying dependence on state subsidies and, by extension, state control. The legal changes outlined above have turned procurement into a key instrument of political control over businesses. The scale of these subsidies is contributing to a damaging shift toward a centrally planned system, restricting competition and undermining long-term growth potential.

Fiscal Sustainability at Risk

The extensive use of subsidies, preferential loans, and government-backed financial interventions has placed an increasing burden on Russia’s fiscal system. While these measures were introduced to mitigate the effects of international sanctions, stabilize key industries and support households, they have led to significant structural imbalances, growing budget deficits, and rising financial risks.

State-subsidized loans have surged across multiple sectors, including construction, IT, housing, energy, infrastructure, and agriculture. The result has been a sharp increase in corporate and consumer debt, with unsecured consumer loans growing at an annual rate of 17 percent as of April 2024. Overdue debt on loans to individuals reached 1.34 trillion RUB by February 2025, signaling mounting financial distress for households despite the support measures (CBR, 2025).

The high concentration of corporate debt has further destabilized the financial system. By early 2024, the debt of the five largest companies accounted for 56 percent of the banking sector’s capital, indicating systemic vulnerabilities (CBR, 2025). In addition, the government has implemented new policies that exacerbate the risks connected to state interventions in banking operations. For instance, in March 2022, it introduced a moratorium on bankruptcy proceedings, effectively delaying the official declaration of businesses as insolvent or financially distressed. At the same time, the Central Bank required commercial banks to restructure loans rather than classify them as defaults – masking financial distress and exacerbating long-term risks to the banking sector (Garant, 2025).

Moreover, a growing share of Russia’s war-related spending now flows through off-budget channels – such as state-owned enterprises and regional programs – rather than the federal budget. According to a recent analysis, as much as one-third of military and strategic expenditures bypass formal budget reporting altogether (Kennedy, 2025).

These hidden expenditures distort the actual fiscal position, reduce transparency, and increase the long-term burden on the public sector by masking the true scale of liabilities – raising further questions about the sustainability and accountability of Russia’s fiscal policy.

Conclusions

Since February 2022, Russia’s counter-sanctions measures have markedly shifted its economic governance toward greater state control and elements reminiscent of Soviet-era central planning. Large-scale subsidies, administrative pricing, and deep state involvement in production and procurement have suppressed market competition and efficiency. These interventions have distorted incentives and curtailed the role of market signals, contributing to growing inefficiency across key sectors.

Looking ahead, the long-term economic outlook for Russia is increasingly negative. While the counter-sanctions measures may have softened the initial blow of international sanctions, they have entrenched structural vulnerabilities, reduced fiscal flexibility, and amplified systemic risks, particularly in the financial and real estate sectors. Moreover, by undermining innovation and productivity, Russia’s counter sanctions are accelerating its trajectory toward deeper economic isolation and a centrally managed model, with severe implications for sustainable growth.

References

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.

The Russian Food Embargo: Five Years Later

Posted on October 14, 2019 | Policy Brief

20191014 The Russian Food Embargo FREE Network Policy Brief Image 01

In this brief, we report the results of a quantitative assessment of the consequences of counter-sanctions introduced by the Russian government in 2014 – Russian food embargo. We consider several affected commodity groups: meat, fish, dairy products, fruit and vegetables. Applying a partial equilibrium analysis to the data from several sources, including Rosstat, Euromonitor, UN Comtrade, industry reviews etc. as of 2018, we obtain that consumers’ total loss amounts to 445 bn Rub, or 3000 Rub per year for each Russian citizen. This is equivalent to a 4.8% increase in food expenditure for those who are close to the poverty line. Out of this amount, 84% is distributed towards producer gains, 3% to importers, while the deadweight loss amounts to 13%. Based on industry dynamics, we identify industries where import substitution policies led to positive developments, industries where these policies failed and group of industries where partial success of import substitution was very costly for consumers.

The full text of the underlying paper is forthcoming in the Journal of the New Economic Association in October 2019.

In August 2014, in response to sectoral sanctions against Russia, the national government issued resolution No. 778, which prohibited import of processed and raw agricultural products from the United States, the EU, Ukraine and a number of other countries (Norway, Canada, Australia, etc.).  The goal was to limit market access for countries, which supported sectoral sanctions. The other rhetoric of the counter-sanctions was to support domestic producers via trade restrictions, or by other words – import substitution.

This brief provides an update of welfare analysis of counter-sanctions based on partial equilibrium  model of domestic market. The initial estimations based on 2016 data can be found in another FREE Policy Brief here. This time we compare the consumption, outputs and prices of the counter sanctioned goods as of 2018 relative to 2013. The estimated consumer surplus changes, producer gains and prices are reported in Table 1.

Table 1. Welfare effects of counter-sanctions in 2018 relative to 2013.

Data sources: Rosstat, Euromonitor, UN COMTRADE
* Negative losses correspond to gains
** Negative gains correspond to losses
Green color was used to mark the commodity groups with a noticeable consumption growth in 2013-2018 and red color those with consumption decrease.

Effect on production

From the point of view of price dynamics, on the one hand, and consumption and output, on the other, the studied products can be divided into three groups.

The first group which we call “Success of import substitution”  includes goods for which real prices (in 2013 level) increased by 2016 but afterwards, the growing domestic production ensured that by 2018 prices fell below the level of 2013 with a corresponding increase in consumption. This group includes tomatoes, pork, poultry and, with some reservation, beef. For beef, growing domestic production pushed prices down after 2016, but the level of consumption and prices have not yet reached the pre-sanction level.

For the second group, import substitution has not resulted in a price decrease, we call this group “Failure of import substitution”. For products in this group, the initial increase in prices by 2016 was not reverted afterwards. Their consumption decreased significantly compared to 2013, and domestic production either continued to fall after 2016, or its growth turned out to be fragile. This group includes apples, cheese, fish, as well as condensed milk and processed meat.

We call the third group “Very expensive import substitution”. It includes fromage, sour milk, milk and (to a lesser extent) butter. This group is characterized by increase in consumption and output in the period 2016–2018, but real prices over this period still remain very high.

Effect on consumers

By comparing the losses and gains of consumers in different categories of goods due to changes in real prices and real consumption, our analysis provides the following monetary equivalents. For all considered counter-sanctioned product groups, with the exception of poultry, pork and tomatoes, consumer losses are around 520 billion rubles per year (in 2013 prices). In three product groups (poultry, pork, tomatoes), in which there was a decrease in prices and a significant increase in consumption, the consumer gains are equivalent to 75 billion rubles per year. Thus, the total negative effect from counter-sanctions for the consumers amounted to 445 billion rubles a year, or about 3000 rubles for a person per year.

Given the cost of the minimum food basket, defined in Russia as 50% of the subsistence level, the impact of counter-sanctions on the budgets of Russian consumers can be estimated as follows. 3000 rubles account for approximately 4.8% of the annual cost of the minimum food basket. The minimum food basket is a set of food products necessary to maintain human health and ensure its vital functions that is established by law. In other words, one can say that 3000 rubles a year are equivalent to a 4.8% increase in food expenditure for those who are close to the poverty line.

Consumer surplus losses were significantly redistributed in favor of domestic production, totaling 374 billion, or 2500 rubles per year per person. Another 56 billion rubles (or 390 rubles per person) correspond to the deadweight loss, i.e., reflect the inefficiency increase of the Russian economy, and 16 billion rubles (110 rubles per person) is the equivalent of redistribution in favor of foreign producers, who get access to Russian market with higher priced products than before counter-sanctions.

Effect on foreign partners

As a result of the selective embargo, the geography of Russian imports of the affected goods has changed. Traditional suppliers of these goods, primarily from Europe, were replaced by suppliers from other countries due to trade diversion. Given the changes in the composition of importers after the imposition of sanctions, we single out countries that have lost and countries that have gained access to the Russian market. We use the change in trade volumes from the respective countries as indicators of growth and decrease in share of these importers in the Russian market. Below we consider in detail the three groups of goods with the largest gains for importers in 2018 compared with 2013: cheese, apples, butter.

Cheese imports decreased significantly after the imposition of counter-sanctions, in 2018 accounting for only 42% of their dollar value in 2013. The total gain of importers due to the growth of domestic prices in 2013-2018 amounted to 17.3 billion rubles (Table 1) and was distributed among following importing countries: Belarus (78%), Argentina (6%), Switzerland (4%), Uruguay (3%), Chile (3%), other countries (6%). Countries that lost their shares of the Russian cheese market included Ukraine, Holland, Germany, Finland, Poland, Lithuania, France, Denmark, Italy and Estonia. As mentioned earlier, domestic production and Belarusian imports were not able to fully compensate for imports from countries on the counter-sanctions list, and in 2016-2018 cheese consumption in Russia decreased significantly.

Apple imports after the initial drop in 2016 partially recovered in 2018, amounting to 66% of their dollar volume in 2013. The total gain of importers in 2018 compared to 2013 amounted to 15.0 billion rubles (Table 1); it was distributed between Serbia (22%), Moldova (19%), China (13%), Turkey (10%), Iran (10%), Azerbaijan (7%), South Africa (4%), Chile (3%), Brazil (3%) and other countries (9%). Poland suffered the most from the ban on apple imports; it accounted for about 80% of all losses. Other losers from counter-sanctions include Italy, Belgium and France. The reorientation of trade flows did not completely replace Polish imports, so apple consumption in 2016-2018 was significantly lower than in 2013.

Imports of butter in 2018 was also below the level of 2013 (67% of dollar value). The gain of importers in 2018 compared to 2013 amounted to 11.2 billion rubles and was distributed among the following  trading partners: Belarus (90%), Kazakhstan (4%), Kyrgyzstan (3%) and other countries (3%). Among the countries bearing most of the negative burden of the diversion of trade, one should mention Finland and Australia.

Conclusions

Five year after counter-sanctions were put in place Russian consumers continue paying for them out of their pockets. While few industries have demonstrated a positive effect of import substitution policies, most are not effective enough to revert the price dynamics.

References

Losers and Winners of Russian Countersanctions: A welfare analysis

Posted on October 1, 2018 | Policy Brief

20181001 Losers and Winners of Russian Countersanctions Image 01

In this brief we provide a quantitative assessment of the consequences of countersanctions introduced by the Russian government in 2014 in response to sectoral restrictive measures initiated by a number of developed countries. Commodity groups that fell under countersanctions included meat, fish, dairy products, fruit and vegetables.  By applying a basic partial equilibrium analysis to data from several sources, including Rosstat, Euromonitor, UN Comtrade, industry reviews etc., we obtain that total consumers’ loss due to countersanctions amounts to 288 bn Rub or 2000 rubles per year for each Russian citizen. Producers capture 63% of this amount, importers 26%, while deadweight loss amounts to 10%. 30% of the transfer from Russian consumers toward importers was acquired by Belarus. The gain of Belarusian importers of cheese is especially impressive – 83% of total importer’s gains on the cheese market.

In August 2014, in response to sectoral sanctions initiated by some countries against Russia, the national government issued resolution No. 778, which prohibited import of processed and raw agricultural products from the United States, the EU, Ukraine and a number of other countries (Norway, Canada, Australia, etc.).

Russian countersanctions were, in particular, imposed on meat, fish, dairy products, fruit and vegetables. Later the list of counter sanctioned goods was edited: inputs for the production of baby food and medicines have been deleted from the ban list, while new items were added. Salt was added to the list in November 2016 and animal fats in October 2017.

The popular idea behind the countersanctions was to limit market access for countries, which supported sectoral sanctions. The other rhetoric of the countersanctions was to support domestic producers via trade restrictions, or by other words – import substitution.

We apply a basic partial equilibrium analysis in order to evaluate the effect of countersanctions on the welfare of main stakeholders – consumers, producers and importers. The overall results are in line with general microeconomic consequences of trade restrictions in a small open economy, that is, we observe a decline in consumer surplus, increase in producer surplus and redistribution across importers. Perhaps, even more interestingly, we are able to provide a numerical assessment of redistribution effects between Russian consumers and producers, on the one hand, and among importers from different countries, on the other.

Partial equilibrium welfare analysis

We apply a framework of the classical analysis of import tariff increases to Russian countersanctions. Countersanctions resulted in increased domestic prices, declining consumption and increased domestic production. Given the increase in prices and declined volumes of consumption, we evaluate the losses by consumers as a decline in consumer surplus. Respectively, given the increase in prices and increase in domestic output we identify the producers gains as an increase in producer surplus. The only difference with a classical analysis is the lack of increase in government revenues. In this case increases in domestic prices were driven by restrictions on trade with historical partners which were substituted by more costly producers. Given the changes in the composition of importers after sanctions, we identify countries which lost and gained access to the Russian market. We use changes in volumes of trade as a measure of respective gains and losses. Figure 1 presents all relevant concepts.

In order to measure all relevant welfare changes, we rely on consumption, production and price data from Rosstat and Euromonitor, trade data from the UN Comtrade database. We use data for 2013 as a benchmark before countersanctions and compare it to 2016. The measures of own price elasticities of Russian demand and supply were taken from the literature. We use real price (in terms of 2013 prices) and volume information for consumption and supply in 2016 as the resulting points on the supply (point C) and demand (point A) curves as shown on Figure 1. Then we restore the consumption and production points on these curves (points F and B) as they would have been in 2013 given the own price elasticities of demand and supply and price level as of 2013.

Figure 1. Visualization of deadweight losses, consumer and producer surplus changes

Welfare analysis

Data

We consider 12 commodity groups that were included in 2014 in the countersanctions list: pork, cheese, poultry, apples, beef, tomatoes, processed meat, fromage frais, butter, oranges, condensed milk, grapes, cream, sour milk products, milk, and bananas.

Prices and volumes information are taken from Rosstat official statistics, which in a few cases were adjusted by data from Euromonitor. Import values were obtained from the UN Comtrade database. The summary of the original data and results of welfare analyses are reported in table 1. Below we discuss in details the situation in three markets – beef, apples and cheese.

Table 1. Summary table of the welfare effects of countersanctions

Group Price (RUR per kg, 2013) Production (thous. tons) Consumption (thous. tons) Elasticity Consumer losses, RUR mn Producer surplus, RUR mn Deadweight loss, RUR mn Importer gains, RUR mn
2016 2013 2016 2013 2016 2013 demand supply
Beef 376 357 238 240 600 897 -0.78 0.1 11311 4388 234 6690
Poultry 109 108 4468 3610 4577 4084 -0.78 0.45 3263 3173 13 77
Pork 286 289 2042 1299 2282 1919 -0.78 0.2 -7167 -6447 38 -757
Milk 55 47 5540 5386 5704 5595 -0.93 0.3 48234 42507 4443 1284
Butter 343 271 251 225 340 340 -0.93 0.18 27468 17680 3370 6419
Cheese 358 283 605 435 748 764 -0.93 0.28 63493 44259 8437 10797
Fromage frais 233 190 407 371 456 457 -0.93 0.3 21803 17104 2600 2099
Apples 84 70 324 313 986 1665 -0.85 0.1 15225 4562 1238 9425
Bananas 61 47 0 0 1141 1165 -0.9 0.1 18967 0 2315 16652
Oranges 65 59 0 0 932 1059 -0.9 0.1 6054 0 272 5782
Grapes 175 131 174 101 366 459 -0.85 0.1 18312 7527 2351 8435
Tomatoes 82 65 1130 863 1583 1718 -0.97 0.1 28824 18177 3290 7357

Data sources: Rosstat, Euromonitor, UN COMTRADE

Bold figures were used to mark the commodity groups with a noticeable consumption growth in 2013-2016, italic figures – for those with consumption decrease, and underlined – for groups where consumption changed insignificantly during the period.

Beef

The Russian beef market experienced a drastic decrease in consumption during two years under countersanctions.  In 2013 constant prices, the average real of 1 kg of beef increased by 5.3% from 357 Rub/kg in 2013 up to 376 Rub/kg in 2016. Domestic output decreased by 0.8% and to 238 thousand tons in 2016 from 240 in 2013. Domestic consumption decreased by 33.1% to 600 thousand tons in 2016 from 897 in 2013. Our estimations indicate that  consumer losses amount to  11.3 bn Rub or 3.5% of beef consumption in 2013; producers’ gains are 4.4 bn Rub or 1.4%; deadweight losses are estimated at 0.2 bn Rub or 0.07%; and importers’ gains equal 6.7 bn Rub or 2.1%.

Out of total 6.7 bn Rub of importers’ gains, importers from Belarus acquire the major share (88%) – 5.9 bn Rub. Importers of beef from India and Colombia gained 0.4 bn Rub (6% of total) and 0.3 bn Rub (5%) respectively. Beef importers from Mongolia gained 0.03 bn Rub, from Kazakhstan – 0.01 bn Rub. Importers of beef from Brazil, Paraguay, Australia, Uruguay, Ukraine, Lithuania, Poland, and Argentina lost market shares in over the period 2013-2016.

Cheese

Average real price for 1 kg of cheese increased by 26.5% up to 358 Rub/kg in 2016 from 283 Rub/kg in 2013, both in constant 2013 prices. Domestic output increased by 39.1%  to 605 thousand tons in 2016 from 435 thous. tons in 2013. Domestic consumption decreased by 2.1% to 748 thous. tons in 2016 from 764 thous. tons in 2013. Our results indicate the following effects of countersanctions on cheese market: consumers’ losses amounted to 63.5 bn Rub or 29.4% of cheese consumption in 2013; producer’s gain is 44.3 bn Rub or 20.5%; deadweight loss is estimated at 8.4 bn Rub or 3.9%; importers’ gains equal 10.8 bn Rub or 5.0%.

Out of a total 10.8 bn Rub of importer’s gains on the cheese market, importers of cheese from Belarus acquired the major share (82.9%) – 9.0 bln Rub, importers of cheese from Argentina gained 0.5 bn Rub (4.8% of total importers’ gain), importers from Uruguay gained 0.4 bn Rub (3.9%), Swiss cheese importers gained 0.2 bn Rub, importers from Armenia – 0.2 bn Rub (1.8%). While importers of cheese from Ukraine, the Netherlands, Germany, Finland, Poland, Lithuania, France, Denmark, Italy, and Estonia lost market access over 2013-2016.

Apples

In 2013 constant prices, average real price for 1 kg of apples increased by 20.0%  up to  84 Rub/kg in 2016 from 70 Rub/kg in 2013. Domestic output increased by 3.5% to 324 thous. tons in 2016 from 313 thous. tons in 2013. Domestic consumption decreased by 40.8% to 986 thous. tons in 2016 from 1665 thous. tons in 2013. According to our analysis, the  effects of countersanctions on the apple market are the following: consumers’ losses amounted to 15.2 bn Rub or 13.1 of apple consumption in 2013; producer’s gain is 4.6 bn Rub or 3.0%; deadweight loss is estimated at  1.2  bn Rub or 1.1%; importers’ gains equal 9.4  bln Rub or 8.1%.

Out of a total 9.4 bn Rub of importer’s gains, importers from Serbia acquired the major share (49.7%) – 4,7 bn Rub, importers of apples from China gained 1.6 bn Rub (16.7% of total importers’ gains), those importing from Macedonia gained 0.8 bn Rub (8.4%), from Azerbaijan 0.6 bn Rub (6.0%), and from South Africa 0.4 bn Rub (4.5% of total importers’ gains). While importers of apples from Poland, Italy, Belgium, and France lost market access.

Overall effects for 12 commodity groups

We calculated the welfare effects for 12 commodity groups: beef, poultry, milk, cheese, cottage cheese, ton butter, dairy products, apples, bananas, oranges, grapes and tomatoes.

Total consumers’ loss due to countersanctions amounts to 288 bn Rub, producers gain 63% out of this amount (182 bn Rub), 26% of total consumers’ loss is redistributed to importers (75 bn Rub), deadweight losses amount to 10% (31 bn Rub).

Distribution of importers’ gains

Belarus is the major beneficiary of Russians countersanctions: its exporters gain 29.4 bn Rub (38%), Ecuador’s exporters are in the second place with 16.4 bln Rub (21). Exporters from Serbia gained 5.1 bn Rub (7%).

Conclusion

There is no doubt that countersanctions were paid out of the pockets of Russian consumers: our estimation of total consumer losses amounts to 288 billion rubles, i.e. each Russian citizen paid 2000 rubles per year.  Out of this sum, Russian producers received 144 billion rubles, i.e. transfer from Russian consumers to producers equals 1260 rubles per person per year. Among Russian sectors, major gains and associated increases in production happened in pork industries (50%), poultry (20%), dairy products (10-30%), fruit and vegetables (10-50%).

The transfer from Russian consumers toward importers from non-sanctioned countries equals 75 billion rubles a year (520 rubles per person per year), out of which 30% was acquired by Belarusian importers. Countersanctions lead to deadweight losses in the efficiency of Russian economy equal to 31 billion rubles or 215 rubles per person per year.

Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.