The effectiveness of economic sanctions has been contested by scholars for decades. Their implementation serves primarily to avoid war and human casualties. Canada used this approach with Russia, but in doing so made a mistake that ended up costing our own farmers millions of dollars.
Ottawa recently announced that tariff revenues collected from Canadian farmers who purchased Russian and Belarusian fertilizers this year will be funneled to Ukraine to rebuild infrastructure. In March, Canada was the only G7 country to impose tariffs on Russian and Belarusian fertilizers after Russia invaded Ukraine. Of the $115 million sent to Ukraine, $34 million came from our own farmers who bought Russian fertilizers, according to Statistics Canada. Ottawa hastily announced at the weekend that it would compensate farmers, but nothing is official yet.
Tariffs imposed on fertilizers associated with the Russian regime as part of a series of retaliatory sanctions against the Putin government have swelled coffers. Of course, we should all be happy that Ottawa is sending this money to Ukraine. The people need it badly. But within the farming community, learning that 34 million of those dollars came from our farmers is causing a stir. The pill goes very badly.
In March, the sanctions came in so quickly that farmers were unable to buy fertilizer from another source. They had to pay these customs duties.
Nitrogen, phosphorus and potassium are the three main nutrients in commercial fertilizers. Farmers often source their supplies differently for each of them. Most nitrogen fertilizer in Canada comes from Russia, which has always been the cheapest source for our farmers. Phosphate usually comes to us from the United States or Morocco. Potassium, derived from potash, comes from Western Canada. Given the tariffs, nitrogen will probably have to be purchased from another source next year.
Do these penalties really work? First, the sanctions must be punitive. For tariffs on Russian fertilizers, there is no evidence that Russian companies have been affected. In fact, Russian agriculture has barely suffered the repercussions of the conflict or the sanctions that followed. Besides, Russian agriculture had one of its best years. Russia is expected to be the world’s largest wheat exporter in 2022 and 2023.
For decades, economists have studied the effectiveness of economic sanctions. Over the years, theory and research on the subject has been a mere statistical exercise and has provided no insight to guide policymaking. The main finding to emerge from research on the effectiveness of sanctions is that success only becomes possible when expectations are modest at best. Sanctions mainly relate to politics.
When Ottawa implemented sanctions, it allowed Canadians to feel good without going to war. That is what sanctions are for, nothing more, nothing less.
Russia remains economically stable, whether we like it or not. The food inflation rate in Russia reached 20% in April 2022, for a month. Since then, both general inflation and food inflation rates have dropped dramatically to roughly match America’s rates. While Russia’s food inflation rate was 11.1% in November, that of the United States was 10.6%. France, the Netherlands, the UK and Germany all had higher food inflation rates. All of these countries have imposed sanctions on Russia. How ironic!
Ottawa did what was necessary to introduce sanctions against Russia, but the repercussions of some of these measures were only estimated to be half-term or very short-term. With the fertilizer tariffs, Ottawa stripped Pierre in an attempt to clothe Paul, as no damage affected Russia. Penalties send powerful messages, but forcing farmers to pay more for inputs will not only jeopardize the financial viability of small Canadian farms, but could also compromise our own food security.
This is what happens when a federal government lets itself be driven by urban policy and ignores agricultural issues. Despite its obsession with making political gains, Ottawa should never do so on the backs of its own farmers.