Agri-Food Countersanctions and the Welfare of the Russian Population

Abstract

The article examines the impact of countersanctions (the agri-food embargo) on the welfare of the Russian population. It employs a multi-stage econometric analysis which addresses the practical difficulties in making quantitative estimates of the effects of the countersanctions. The population was divided into three groups according to whether their welfare ranked high, medium, or low in the statistics from the twenty-third Russian Longitudinal Monitoring Survey. Evaluation via a multiple-choice model for clustered data indicated how the probability of belonging to one of the three classes of welfare depended upon consumer spending for goods that are subject to countersanctions. The loss of purchasing power (change in real consumer spending) that the three population groups underwent as a result of the countersanctions was then calculated. In order to do this, estimates of elasticities in domestic production of basic foods were arrived at based on a structural demand supply system. How much the food embargo contributed to consumer price increases for individual food items in 2014 was also calculated. The conclusion was that the embargo resulted in incremental price increases from 1.5 to 22 percentage points for particular goods. The population’s loss of wealth was assessed by combining the estimates of decreasing purchasing power with the estimates from the multiple choice model. Russian countersanctions enlarged the group with low welfare by a relatively minor 1.52 percent or 2.223 million people. The wealth of the medium group decreased by 1.16 percent, while the corresponding decrease for the high wealth group was an insignificant 0.36 percent.