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Russian food production BOOMING thanks to import substitutions, Western sanctions

Cheddar, Brie, Prosciutto, Blue Cheese, Bagels and Ciabatta are now all made in Russia

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A relatively recent phrase is now part of the lexicon of everyday life among Russians, it is “import substitution”, or if it were marketed in the USA, it would probably be packaged as “Made in Russia”.

Sanctions and similar geopolitical micro-management policies instituted by Western countries, and directed against Russia have added urgency to efforts in transferring key components of agricultural, consumer and industrial business to domestic producers. At the end of the day, it is hoped (by local companies) that Russian ones will replace the majority of foreign goods traditionally imported.

The import substitution projects are considered here to be a temporary phenomenon, a temporary tool for adjusting to the current situation.

According to President Putin. “The idea of import substitution itself is not universal and is not what we should strive for in the long run, because import substitution should not undermine competition. This is an extremely important thing. We should aim at producing products of such quality and price that it is competitive not just on our own, but on the world’s markets.”

He went on to say “In some cases we did it and are doing it to support domestic producers in difficult economic conditions, especially in situations when our partners violate and distort competition by imposing different sanctions, which are politically motivated, as they claim, but in fact are based on ambition’s to gain some advantage.”

Efforts to reduce imports began in 2014. By 2016, it was already possible to note the presence of impressive successes in many areas of the economy.

On New Year’s Day, January 1 2017 the purchase of Russian goods and services were legislated to have priority over those of foreign origin in accordance with Russian Government Decree No. 925 dated 16 September 2016. Sanctions were the stimulus, but common business sense was the driver. The new decree applies to all suppliers selling goods and services to state corporations, natural resource monopolies, as well as companies in which the Russian state has at least a 50% interest. All types of procurements are affected, as the Decree does not restrict its application to any specific goods or services.

The Decree has placed foreign goods and services suppliers at disadvantage when compared to Russian suppliers in several respects: Russian Local Suppliers will benefit from a 15% virtual discount from the prices specified in their ‘Made in Russia’ offers.

Goods are considered of Russian origin, if they are made or have been sufficiently processed in country according to customs regulations that are applicable in Russia. A supplier is Russian if it is a legal entity registered in Russia (which can be fully foreign-owned, except in cases of specifically regulated sectors, such as media) or a Russian citizen.

Introduction of these rules is to encourage foreign manufacturers to localize their production in Russia, take advantage of low ruble costs, enhance job creation, and provide needed competition between similar providers of goods and services both foreign and domestic.

Products labelled “Made in Russia” now (in 2018) appear frequently in all parts of the market.  This program of import substitution has taken on the force of a countrywide mobilization of domestic as well as non-Russian producers covering a very broad range of goods and services.

The program has one main goal – to reduce or completely stop the import of specific groups of goods, and instead establish Russian production of the same or similar products. For the past three years, this task is seen as one of the highest priorities for the government of the Russian Federation.

By 2015, approximately 20 programs were prioritized as needing assistance in non-governmentally controlled industry for the neediest sectors of private industry. To appreciate the scale of activity, as well as accountability for this challenge it is enough to see that the main players involved in supporting this effort are the Ministries of Transport, Energy, Industry & Trade, and Communications of the Russian Federation.

All have been deeply involved in this program, not to mention a raft of Russia’s analytical, research, banking and commercial associations. Fast forward to 2018, there are today just over 2,500 projects worth $38 billion in development with full completion targeted by latest 2020.

The import ban has of course affected the supply of many goods, but the boost in domestic production has taken up some of the slack. For many foodstuffs, the substitution effort has encouraged investment and development – today, according to the central bank many foodstuffs are more plentiful than they were before sanctions, and more affordable.

The areas prioritized today for Russian manufacturing are:

Machine-tool manufacture (as current imports are 90%)

Civil aviation manufacturing (as current imports are 80%)

Heavy engineering (as current imports are 70%)

Supplies of equipment for the oil and gas industry (as current imports are 60%)

Manufacture of power equipment (as current imports are 50%)

Agricultural machinery (as current imports range from 50-90% in various categories)

Many residents of Russia agree that sanctions were the long-awaited spark that has kick-started domestic producers. Almost immediately after the introduction of sanctions from the west, and reciprocal mirror responses from Russia, a number of experts have identified groups of products that can be easily replaced with domestic products on a countrywide scale without much effort.

These include Meats, Oils (several vegetable and animal varieties. At the beginning of import substitution, the share of imports was about 20%), Milk, including cheeses: by 2020, it is planned to completely “cheese independent”.

According to both international and local expertise, Russia is able to meet 90% of its food requirements, as well as providing some food support to its neighbors.

Financial support for the import substitution projects are implemented via:

  1. Government subsidies, and co-financing of research;
  2. Grants, with preference given to companies participating in government purchases.
  3. Increased lending to companies on preferential percentages and for long terms.

The proposals apply only to competitively demonstrated projects that have been approved by competent assessors. The selection is conducted among enterprises and holdings that are active in the following sectors: Agriculture; mechanical engineering; housing construction; manufacturing industry; chemical industry; power engineering; telecommunications; and transport.

The main requirement for obtaining financial support on favorable terms is the need to locate production in one of the regions of the Russian Federation.

The government has taken other measures to help support projects of import substitution. The government proposes: large targeted loans from the federal budget, financing of enterprises at the pre-production stage, special measures to stimulate import substitution through governmental or municipal procurement.

With the help of these steps, the Russian government can restrict the purchase of raw materials and finished products from foreign producers. The reflective of western embargoes also apply to the procurement of certain groups of essential goods. These include medicines, clothing, equipment manufactured by machine-building companies, technical equipment and components for the defense industry.

From the standpoint of foreign-owned companies, these measures have presented them a “fork in the road”. Either they just try to carry on, in which case eventually they will lose the Russia and associated markets, or they take the necessary steps to establish all or most of their manufacturing in Russia.

Apparently, since 2016 a great many European as well as US companies have managed to begin this process, either by setting up direct subsidiaries, or more often through imaginative origin masking methods to protect themselves against future amplified sanctions and/or other business restrictions from their own governments.

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Russia’s Lukoil Halts Oil Swaps In Venezuela After U.S. Sanctions

Under the new wide-ranging U.S. sanctions, Venezuela will not be able to import U.S. naphtha which it has typically used to dilute its heavy crude grades.

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Via Oilprice.com


Litasco, the international trading arm of Russia’s second-biggest oil producer Lukoil, stopped its oil swaps deals with Venezuela immediately after the U.S. imposed sanctions on Venezuela’s oil industry and state oil firm PDVSA, Lukoil’s chief executive Vagit Alekperov said at an investment forum in Russia.

Russia, which stands by Nicolas Maduro in the ongoing Venezuelan political crisis, has vowed to defend its interests in Venezuela—including oil interests—within the international law using “all mechanisms available to us.”

Because of Moscow’s support for Maduro, the international community and market analysts are closely watching the relationship of Russian oil companies with Venezuela.

“Litasco does not work with Venezuela. Before the restrictions were imposed, Litasco had operations to deliver oil products and to sell oil. There were swap operations. Today there are none, since the sanctions were imposed,” Lukoil’s Alekperov said at the Russian Investment Forum in the Black Sea resort of Sochi.

Another Russian oil producer, Gazprom Neft, however, does not see major risks for its oil business in Venezuela, the company’s chief executive officer Alexander Dyukov said at the same event.

Gazprom Neft has not supplied and does not supply oil products to Venezuela needed to dilute the thick heavy Venezuelan oil, Dyukov said, noting that the Latin American country hadn’t approached Gazprom Neft for possible supply of oil products for diluents.

Under the new wide-ranging U.S. sanctions, Venezuela will not be able to import U.S. naphtha which it has typically used to dilute its heavy crude grades. Analysts expect that a shortage of diluents could accelerate beginning this month the already steadily declining Venezuelan oil production and exports.

Venezuela’s crude oil production plunged by another 59,000 bpd from December 2018 to stand at just 1.106 million bpd in January 2019, OPEC’s secondary sources figures showed in the cartel’s closely watched Monthly Oil Market Report (MOMR) this week.

By Tsvetana Paraskova for Oilprice.com

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Germany Pulls Rank on Macron and American Energy Blackmail

Why France’s Macron, at the last minute, attempted to undermine the project by placing stiffer regulations is a curious question.

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Authored by Finian Cunningham via The Strategic Culture Foundation:


It was billed politely as a Franco-German “compromise” when the EU balked at adopting a Gas Directive which would have undermined the Nord Stream 2 project with Russia.

Nevertheless, diplomatic rhetoric aside, Berlin’s blocking last week of a bid by French President Emmanuel Macron to impose tougher regulations on the Nord Stream 2 gas project was without doubt a firm rebuff to Paris.

Macron wanted to give the EU administration in Brussels greater control over the new pipeline running from Russia to Germany. But in the end the so-called “compromise” was a rejection of Macron’s proposal, reaffirming Germany in the lead role of implementing the Nord Stream 2 route, along with Russia.

The $11-billion, 1,200 kilometer pipeline is due to become operational at the end of this year. Stretching from Russian mainland under the Baltic Sea, it will double the natural gas supply from Russia to Germany. The Berlin government and German industry view the project as a vital boost to the country’s ever-robust economy. Gas supplies will also be distributed from Germany to other European states. Consumers stand to gain from lower prices for heating homes and businesses.

Thus Macron’s belated bizarre meddling was rebuffed by Berlin. A rebuff was given too to the stepped-up pressure from Washington for the Nord Stream 2 project to be cancelled. Last week, US ambassador to Germany Richard Grenell and two other American envoys wrote an op-ed for Deutsche Welle in which they accused Russia of trying to use “energy blackmail” over Europe’s geopolitics.

Why France’s Macron, at the last minute, attempted to undermine the project by placing stiffer regulations is a curious question. Those extra regulations if they had been imposed would have potentially made the Russian gas supply more expensive. As it turns out, the project will now go-ahead without onerous restrictions.

In short, Macron and the spoiling tactics of Washington, along with EU states hostile to Russia, Poland and the Baltic countries, have been put in their place by Germany and its assertion of national interests of securing economical and abundant gas supply from Russia. Other EU member states that backed Berlin over Nord Stream 2 were Austria, Belgium, Cyprus, Greece and the Netherlands.

Washington’s claims that Nord Stream 2 would give Russia leverage of Europe’s security have been echoed by Poland and the Baltic states. Poland, and non-EU Ukraine, stand to lose out billions of dollars-worth of transit fees. Such a move, however, is the prerogative of Germany and Russia to find a more economical mode of supply. Besides, what right has Ukraine to make demands on a bilateral matter that is none of its business? Kiev’s previous bad faith over not paying gas bills to Russia disbars it from reasonable opinion.

Another factor is the inherent Russophobia of Polish and Baltic politicians who view everything concerning Russia through a prism of paranoia.

For the Americans, it is obviously a blatant case of seeking to sell their own much more expensive natural gas to Europe’s giant energy market – in place of Russia’s product. Based on objective market figures, Russia is the most competitive supplier to Europe. The Americans are therefore trying to snatch a strategic business through foul means of propaganda and political pressure. Ironically, the US German ambassador Richard Grenell and the other American envoys wrote in their recent oped: “Europe must retain control of its energy security.”

Last month, Grenell threatened German and European firms involved in the construction of Nord Stream 2 that they could face punitive American sanctions in the future. Evidently, it is the US side that is using “blackmail” to coerce others into submission, not Russia.

Back to Macron. What was he up to in his belated spoiling tactics over Nord Stream 2 and in particular the attempted problems being leveled for Germany if the extra regulations had been imposed?

It seems implausible that Macron was suddenly finding a concern for Poland and the Baltic states in their paranoia over alleged Russian invasion.

Was Macron trying to garner favors from the Trump administration? His initial obsequious rapport with Trump has since faded from the early days of Macron’s presidency in 2017. By doing Washington’s bidding to undermine the Nord Stream 2 project was Macron trying to ingratiate himself again?

The contradictions regarding Macron are replete. He is supposed to be a champion of “ecological causes”. A major factor in Germany’s desire for the Nord Stream 2 project is that the increased gas supply will reduce the European powerhouse’s dependence on dirty fuels of coal, oil and nuclear power. By throwing up regulatory barriers, Macron is making it harder for Germany and Europe to move to cleaner sources of energy that the Russian natural gas represents.

Also, if Macron had succeeded in imposing tougher regulations on the Nord Stream 2 project it would have inevitably increased the costs to consumers for gas bills. This is at a time when his government is being assailed by nationwide Yellow Vest protests over soaring living costs, in particular fuel-price hikes.

A possible factor in Macron’s sabotage bid in Germany’s Nord Stream 2 plans was his chagrin over Berlin’s rejection of his much-vaunted reform agenda for the Eurozone bloc within the EU. Despite Macron’s very public amity with Chancellor Angela Merkel, Berlin has continually knocked back the French leader’s ambitions for reform.

It’s hard to discern what are the real objectives of Macron’s reforms. But they seem to constitute a “banker’s charter”. Many eminent German economists have lambasted his plans, which they say will give more taxpayer-funded bailouts to insolvent banks. They say Macron is trying to move the EU further away from the social-market economy than the bloc already has moved.

What Macron, an ex-Rothschild banker, appears to be striving for is a replication of his pro-rich, anti-worker policies that he is imposing on France, and for these policies to be extended across the Eurozone. Berlin is not buying it, realizing such policies will further erode the social fabric. This could be the main reason why Macron tried to use the Nord Stream 2 project as leverage over Berlin.

In the end, Macron and Washington – albeit working for different objectives – were defeated in their attempts to sabotage the emerging energy trade between Germany, Europe and Russia. Nord Stream 2, as with Russia’s Turk Stream to the south of Europe, seems inevitable by sheer force of natural partnership.

On this note, the Hungarian government’s comments this week were apt. Budapest accused some European leaders and the US of “huge hypocrisy” in decrying association with Russia over energy trade. Macron has previously attended an economics forum in St Petersburg, and yet lately has sought to “blackmail” and disrupt Germany over its trade plans with Russia.

As for the Americans, their arrant hypocrisy is beyond words. As well as trying to dictate to Europe about “market principles” and “energy security”, it was reported this week that Washington is similarly demanding Iraq to end its import of natural gas from neighboring Iran.

Iraq is crippled by electricity and power shortages because of the criminal war that the US waged on that country from 2003-2011 which destroyed much of the country’s infrastructure. Iraq critically needs Iranian gas supplies to keep the lights and fans running. Yet, here we have the US now dictating to Iraq to end its lifeline import of Iranian fuel in order to comply with the Trump administration’s sanctions against Tehran. Iraq is furious at the latest bullying interference by Washington in its sovereign affairs.

The hypocrisy of Washington and elitist politicians like Emmanuel Macron has become too much to stomach. Maybe Germany and others are finally realizing who the charlatans are.

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Russia Readies Own Web To Survive Global Internet Shutdown

Russia is simultaneously building a mass censorship system similar to that seen in China.

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Via Zerohedge


Russian authorities and major telecom operators are preparing to disconnect the country from the world wide web as part of an exercise to prepare for future cyber attacks, Russian news agency RosBiznesKonsalting (RBK) reported last week.

The purpose of the exercise is to develop a threat analysis and provide feedback to a proposed law introduced in the Russian Parliament last December.

The draft law, called the Digital Economy National Program, requires Russian internet service providers (ISP) to guarantee the independence of the Russian Internet (Runet) in the event of a foreign attack to sever the country’s internet from the world wide web.

Telecom operators (MegaFon, VimpelCom (Beeline brand), MTS, Rostelecom and others) will have to introduce the “technical means” to re-route all Russian internet traffic to exchange points approved by the Federal Service for Supervision of Communications, Information Technology and Mass Media (Roskomnadzor), Russia’s federal executive body responsible for censorship in media and telecommunications.

Roskomnazor will observe all internet traffic and make sure data between Russian users stays within the country’s borders, and is not re-routed abroad.

The exercise is expected to occur before April 1, as Russian authorities have not given exact dates.

The measures described in the law include Russia constructing its internet system, known as Domain Name System (DNS), so it can operate independently from the rest of the world.

Across the world, 12 companies oversee the root servers for DNS and none are located in Russia. However, there are copies of Russia’s core internet address book inside the country suggesting its internet could keep operating if the US cut it off.

Ultimately, the Russian government will require all domestic traffic to pass through government-controlled routing points. These hubs will filter traffic so that data sent between Russians internet users work seamlessly, but any data to foreign computers would be rejected.

Besides protecting its internet, Russia is simultaneously building a mass censorship system similar to that seen in China.

“What Russia wants to do is to bring those router points that handle data entering or exiting the country within its borders and under its control- so that it can then pull up the drawbridge, as it were, to external traffic if it’s under threat – or if it decides to censor what outside information people can access.

China’s firewall is probably the world’s best known censorship tool and it has become a sophisticated operation. It also polices its router points, using filters and blocks on keywords and certain websites and redirecting web traffic so that computers cannot connect to sites the state does not wish Chinese citizens to see,” said BBC.

The Russian government started preparations for creating its internet several years ago. Russian officials expect 95% of all internet traffic locally by next year.

As for Russia unplugging its internet from the rest of the world for an upcoming training exercise, well, this could potentially anger Washington because it is one less sanction that can keep Moscow contained.

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