It is business as usual for now for Fonterra in the important butter market of Russia as the country launched a full-scale invasion of Ukraine.
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Fonterra’s director for global stakeholder affairs Simon Tucker said the cooperative would be careful to adhere to any sanctions imposed by our government.

Western countries started rolling out sanctions after Russian President Vladimir Putin earlier recognised eastern parts of Ukraine as independent in a move seen in the West as a prelude to war.

Russian banks, members of the country’s Parliament and a key gas pipeline to Europe were initially targeted, although tougher sanctions could yet follow.

Russia has historically been one of Fonterra’s top butter markets and the cooperative has a Moscow office, as well as jointly owning a St Petersburg dairy factory with its Russian distributor since 2017.

Last year New Zealand sold $132 million of dairy products to the Russian Federation, down from $195m in 2020 and $201m in 2019.

Fonterra’s director for global stakeholder affairs Simon Tucker said the cooperative would be careful to adhere to any sanctions imposed by the NZ Government, although these were likely to be limited.

“It is hard to speculate what will happen next in terms of a sanctions response,” Tucker said.

“In some sanctions situations food is excluded so we have to be very careful we get that right.

“We will follow any United Nations sanctions, but Russia as a permanent member of the (UN) Security Council is unlikely to make any move to put UN sanctions on themselves.”

The Government has copped flak from the National Party for blocking legislation drafted by its Foreign Affairs spokesperson Gerry Brownlee, which would allow NZ to bypass the UN and impose its own sanctions as many Western countries are now doing.

Following Thursday’s invasion, Foreign Minister Nanaia Mahuta issued a statement saying NZ was prohibiting the export of goods to Russian military and security forces.

The Dairy Companies Association executive director Kimberly Crewther said in the unlikely event of the UN agreeing on sanctions against Russia, it was likely that food and pharmaceuticals would be excluded on humanitarian grounds.

A bigger challenge for the dairy industry could present itself, however, should Western countries impose their own bans on food exports to Russia.

In the wake of Russia’s invasion of Crimea in 2014, the Kremlin ordered a ban on food imports from the West following financial and travel sanctions against some of the invasion’s ring-leaders.

While NZ food exports were not banned from entering Russia, the then Trade Minister Tim Groser phoned NZ exporters urging them to consider the country’s broader trade interests and not to take advantage of the situation by filling demand previously met by Western food exporters.

The ban arrived at the same time as European dairy production was exploding in response to the lifting of production quota caps by the European Union and was a factor in a reasonably prolonged slump in prices.

Tucker was not expecting that scenario to be repeated this time around.

“Russia is a relatively large dairy fat market, so disruptions to that market are relevant to global trade, although given the strong demand dynamic out there at the moment, any shocks will be relatively easier to absorb at this stage than it might have the last time that Russia sanctions became a real issue when they invaded Crimea,” Tucker said.

All cows must stand now and then to restore normal blood flow in their leg muscles.

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