Estonia: Doomed Without Russia

Estonia: Doomed Without Russia

The European economy is stagnant. Germany’s closely watched Ifo business confidence index continued its fall in September to its lowest level in nearly 18 months. The index, collated by Munich’s Ifo economic institute, registered its fifth consecutive fall in September to 104.7 points from 106.3 points in August - worse than economists’ forecasts. It has become a trend. The German economy, the European locomotive, goes into a spin. 

Europe faces stagnation according to the recent report by Markit, a leading global diversified provider of financial information services. Purchasing Managers' Indexes (PMI), economic indicators derived from monthly surveys of private sector companies, went down to the lowest level since December 2013. Carl Weinberg, chief economist at New York-based High Frequency Economics, is not optimistic: «Recovery will take years». The general exacerbation of international situation hits the European market. «The markets are feeling a bit skittish right now», said Shane Oliver, a Sydney-based global strategist at AMP Capital Investors Ltd. «The big impact globally is the intensifying conflict in the Middle East, and the softer data out of Europe. September is also a time when markets are seasonally weaker».

EU members assess the damage inflicted as a consequence of the Brussels’ anti-Russia steps taken against the background of gloomy economic forecasts. Estonia is to suffer most as a result of this dubious policy. The damage to agricultural sector hit by Russia’s retaliatory measures is significant enough for this small country. Complying with instructions received from Washington and Brussels the Estonian economy has lost 38,7% of cheese and curds market or $ 36,1 million of profits, 16, 7% of milk and sour milk ($19, 3 million), 21, 9% of frozen fish ($17, 7 million). The Estonian producers have lost 40, 1% ($7, 3million) of yogurt, kefir and other milk and fermented milk products’ market. The demand for lactoserum fell by 18, 4%, as a result the Estonian budget was deprived of $2, 5 million. Estonia has lost 13% of pork market ($5, 1 million)… 

All told Estonia has lost at least $100 million according to preliminary estimates. Before the «sanctions war» was unleashed Estonia was one of three major agricultural exporters to Russia after Lithuania and Finland and leaving behind Latvia, Norway and Poland. 13% of Estonian exports fall on Russia making it the third largest exporter after Sweden and Finland.

Russia consumes over 20% of Estonian agricultural production, with milk production accounting for a quarter of the whole export. 

Here are the figures. Economic expert, entrepreneur and former Minister Raivo Vare predicts that sanctions can cost us the loss of up to 3% of GDP, more than half a billion euros. It’s not agriculture only. It will also strike on transit that brings in significant income to Estonian budget. Dairy Association head Jaanus Murakas also said rapid intervention was necessary. «An intervention price hasn't been used for long years, as so the prices are out of date. The intervention price would guarantee farmers only half of the cost price of producing milk», Murakas said. According to him, the «sanctions war» leads to excessive offer resulting in abrupt prices fall while milk producers had received little profit in recent years even before the sanctions were introduced. If the milk produced in Estonia gets cheaper many farmers will go bankrupt. 

Estonians take a dim view of prospects for future. Estonian Delfi.Lt says the future is uncertain because of sanctions which hinder the development of economic ties with Russia. It’s hard to predict the effect on the Estonian economy. 

The Estonian Institute for Market Research has recently published a report saying the overall loss is may be 150 million euros. The direct loss is only 75 million euros, the sum of the banned products exported to Russia annually, while that figure doubles as many raw ingredients are exported to neighboring countries, which would have been processed and sent to Russia. Marje Josing, the head of the institute, said cheese manufacturers are suffering the most with their losses calculated at 27 million euros. Raw fish and fish products make up 15 million euros annually in exports to the eastern neighbor, with milk and dairy products in a similar bracket. Estonian producers are the bigger losers as the main branches of agriculture are hit. 

All these calculations are done having in mind that the Russian food embargo will last only one year. If the European Union continues to follow the Washington’s policy the embargo will be prolonged accompanied by other retaliatory measures.