Employees work at the seafood department of an Auchan grocery store in Moscow, August 18, 2014.
Employees work at the seafood department of an Auchan grocery store in Moscow  Reuters

In a climb-down from its recent hard-line sanctions regime, Russia is to permit the importation of fresh western food products processed in Belarus.

Reuters reports that the government is seeking to arrest the soaring food inflation which has kicked in since a ban on food imports from the EU, US, Norway, Canada and Australia was launched on 7 August.

Fish prices have already risen by between 20% and 36%, according to the Russian business paper Kommersant. Other goods are expected to follow suit.

Russia imports some 43% of the food it consumes and while efforts are underway to source alternative supplies, with Moscow banking on the agricultural powerhouses of South America, the import ban is expected to have a greater impact on Russia's markets than those it has sanctioned.

The ban was supposed to last one year, already this week the Russian Prime Minister Dmitry Medvedev had said he hoped the ban would not last long.

With western companies already seeking ways to bypass the embargo, the decision to open the Belarusian channel will offer some respite for suppliers of unprocessed goods.

"Our Customs Union colleagues can win in this situation because some products, which were previously coming to us directly, will be processed there," Medvedev's deputy Arkady Dvorkovich is quoted as saying in Russian media.

However, analysts warn that the benefit to western producers may be small and will all depend on how much food Belarus can actually process.

"At present, its {Belarus] exports of processed foods are small, and these are mainly processed dairy products, which suggests that it doesn't have much capacity for processing foods," William Jackson, an emerging markets economist at Capital Economics tells IBTimes UK.

"Belarus would need to raise investment to expand its capacity to process foods. However, there are a number of constraints to doing so. One is that it would need to borrow from abroad to fund investment. Another is that – so far – Russia's food import ban will only last for one year, so it's not clear whether there would be long-term returns on the investment," he adds

The likes of Lithuania and Poland, which stand to lose the most from the ban on fresh produce exports to Russia, will be monitoring the Belarusian situation very closely. Up to 2.5% of Lithuania's GDP is dependent on the trade while Poland, the world's largest apple exporter, has significant agricultural business with Russia.

The EU had already announced a £100m emergency fund for European farmers that export to Russia but even with the full ban in place, analysts were dubious as to the overall impact on the Eurozone economy.

"Clearly there's a lot of uncertainty about how sanctions might evolve. But I think the key point is that Russia is a relatively small export market for most of Europe. Indeed, those countries for whom Russia is their single largest export destination tend to be former Soviet Union countries such as Belarus, where 50% of total exports are to Russia and Ukraine, where Russia has 25% of the total," Jackson said.

But despite the slight loosening of the ban on western food imports, the Kremlin spokesperson Dmitry Peskov said further sanctions were being considered.

"Different variants are being developed. We have said several times that Russia is not a fan of speaking in terms of sanctions and has not been an initiator. But if our partners continue their non-constructive and even destructive practices, then additional measures will be developed," he told Russian news agency Ria Novosti.

Yesterday (18 August) it was reported that Russia was considering banning the import of cars from the EU and US and that a list of goods which could be sanctioned in future had already been sent to President Vladimir Putin.

Ukraine-Belarus tensions eased

Meanwhile, Belarus could be set for a further boost in trade, after Ukraine cancelled the levies it had slapped on the import of a host of Belarusian imports in April, in an effort to support local production.

Belarus Ambassador to Kiev Valentin Velicho told a press conference that his government will also revoke duties on Ukrainian goods, as the pair return to the low-tariff trading relationship it had enjoyed since 2011.

The goods which will have duty removed on the Ukrainian side include beer, pasta, confectionary, cement and glass, reports the Ukrainian news agency Interfax.