Friday, March 29, 2024

The effects of Russian sanctions as portrayed in YouTube videos

Last month American provocateur Tucker Carlson visited a Russian grocery store. Because it was filled to the brim with food, Carlson claims that western sanctions placed on Russia aren't having an effect. "We've been told sanctions on Russia have had a devastating effect on its economy," writes Carlson. "We visited a grocery store in Moscow and found a very different situation."

Carlson's video is just one of many in a strange genre of "sanctions aren't working" videos produced by Westerners visiting or living in Russia. (Here is a good rebuttal to Carlson's video by Russian YouTuber NFKRZ.) In another video, Dutch-Canadian farmer Arend Feenstra, who has recently moved to Russia with his wife and nine children, walks through a hardware store full of tools. "Sanctions???" he quips.

Don't let the videos fool you. Sanctions have had a big effect on Russia. And by sanctions I'm referring not only to the official sanctions levied by coalition governments, but also self-sanctions imposed by Western companies. Self-sanctioning occurs when companies like Lego, Coke, or McDonald's choose to leave Russia, not because their government says they must, but because their customers and employees have pressured them to leave, or out of a general sense of solidarity with Ukraine. (Here is a list of companies that have left.)

While Carlson and Feenstra's videos of store shelves suggest prosperity, what they don't show is how many resources Russian businesses have been forced to sacrifice in order to re-order their affairs so as to provide Russians with full shelves. These businesses have had to go out and build new relationships with manufacturers in places like China or Turkey. The alternative products that have been introduced often aren't as good, or as familiar, or as useful to customers. 

Many of the "sanctions don't work" videos spotlight the contraband Western goods that are often found on Russian store shelves. This video, for instance, shows Coke being sold at Spar, a grocery store. Coke is banned in Russia, so the message here is presumably that the sanctions are a waste of time. But what they don't show is that the prices for these contraband goods will be higher than before. The Coke products in the video are no longer made in Russia but must be smuggled in via third-parties such as Poland, Afghanistan, and Kazakhstan, the extra shipping and handling costs being incorporated into their final price. Think of this as a sanctions-induced smuggling tax.

Put differently, coping with sanctions and self-sanctions is costly for Russia; in Carlson's videos we only see the final product, full shelves, but not all the hassle and resources that have gone into producing that state of affairs. Nor is the set of full shelves on display in his video necessarily as desirable as the set of full shelves that existed prior to sanctions.

A much more realistic illustration of the effect of sanction is provided in a recent video by Arend Feenstra, the Dutch-Canadian farmer, of a visit he makes to a Russian tractor dealership.


I watched it so you don't have to. What follows is a quick summary of the relevant bits. It starts out with an excited Feenstra driving out to is what he believes to be a Case/New Holland dealership. Since the Case and New Holland tractor brands are popular in Canada, Feenstra's previous home, he will get to see some brands that he is familiar with. Ah, nostalgia.

(A side note: As a Dutch-Canadian myself, I find it jarring that someone of my ilk has decided to emigrate to Vladimir Putin's Russia. But digging deeper, we learn that Feenstra is a bigot: he doesn't like the LGTBQ community. Given that Russia's regime considers the "international LGBT movement" to be a terrorist organization, I suppose there's a natural fit for folks like him in Russia.)

Unfortunately for Feenstra, when he arrives at the dealership he discovers that it no longer sells Case or New Holland tractors. Both brands of farm equipment are built by CNH, a UK-headquartered equipment manufacturer, and along with most other Western farm companies CNH pulled out of Russia in 2022, effectively ending all its Russian dealership relationships. 

The only new tractors that the dealership has available are Chinese-built YTOs, which the dealership was forced to turn to in 2022 to fill the sudden gap in its show room.We learn in the video that YTOs are a regression in terms of technology. Feenstra points out throughout that the Chinese tractors have less electronics than their western equivalents and more mechanical parts. Instead of electronic shifting, for instance, the YTOs use mechanical shifting. The fuel pumps are mechanical too. It's like stepping back in time.

A regression to mechanical components is a nuissance, but it's not awful. However, things get worse. Enter the triple mower problem.

A tractor with a triple mower

Prior to the sanctions, we learn that the dealership's most popular tractors were larger horsepower products like the New Holland 210. These larger tractors are particularly desired by farmers in the region for their ability to accept an attachment known as a triple mower, says the employee. A triple mower is designed to cut a wider swath of grass or crops compared to a single mower. This allows farmers to cover more ground in less time, improving overall efficiency during harvesting or haymaking operations.

Alas, the Chinese-made YTOs can't use a triple mower, the employee tells us. The dealer is in talks with the manufacturer to make changes to the frame to accommodate them, but there's no indication when this will occur. Feenstra is not impressed by any of this.

Feenstra checking out a YTO tractor

In the meantime, the dealer tells Feenstra that if he needs a new tractor with triple mower compatibility, he will have to import a Western one via the parallel market. This will involve buying a tractor in Europe and sending it through a third-party transit country, like Turkey, then moving it to Russia. But the whole process will be expensive, warns the employee, including paying VAT three times.

Russian farmers who bought New Holland or Case tractors prior to the sanctions are no better off, we learn, because they now face hurdles getting spare parts for their tractors. Prior to the self-sanctions they could rely on the Case/New Holland dealership for a steady supply of Case and New Holland parts, but with the dealer having lost its relationship with CNH, the only way to get parts is by smuggling them in. Alas, smuggling adds uncertainty and a higher price tag.

Another conversation between Feenstra and the employee centres around a piece of machinery known as a baler, which can be attached to the back of a tractor in order to convert a row of hay into a convenient bale. According to the employee there are a number of Russian companies that make balers, but they are "not very good". The video reveals that one Western-made baler brand is available for purchase, a German-made Kuhn. (Is Kuhn one of those rare European farm companies that has chosen not to self sanction?) But the Kuhn baler it is quite expensive, more than the cost of an entire tractor.

Stepping back, Feenstra's video is great illustration of the costs imposed on Russia by sanctions and self-sanctions. The dealership is struggling to fill the void left by departing Western brands. Its customers, Russian farmers, are stuck with the option of an inferior replacement for Western-made tractors, like the YTO, or a more expensive smuggled products. The dealership and its customers seem to be getting by, but they are clearly worse off than before.

Feenstra isn't the only western farmer in Russia to be producing "sanctions don't work" videos. An Australian family that has moved to Russia in order to start a farm also makes YouTube videos on the topic. "So, the sanctions really haven't been bad for Russia," says the family patriarch, John, standing in a Russian mall. "If they have done anything, they have been great for Russia."

But another video (see below) suggests the opposite. In it the Australians are paying a visit to a nearby John Deere tractor dealership. We learn from an employee that this particular dealership is part of a Russian dealership network that, prior to the sanctions, was the largest John Deere distributor in all of Europe. John Deere is a U.S. equipment manufacturer.


Near the start, John optimistically films a large sign boasting the dealership's many relationships with western manufacturers, including JCB, Pottinger, Väderstad and Haybuster. But as he learns later on, the sign is no longer meaningful. Along with most other farm product companies, John Deere and JCB exited Russia in 2022. The dealership has lost its dealer status and can no longer sell either John Deere or JCB products, nor most of the other brands that are advertised on its sign.

To fill the void, the dealership now offers Turkish-made Basak tractors and Chinese-made Noma tractors. An employee who shows the family around the dealership grouses to John about the quality of the Chinese tractors that he stocks, saying: "I don't know what we will do with it, because if I sit inside of the cabin and look down I can see the ground because there in a gap in the floor." The tractor is the technological equivalent of a first generation John Deere, he complains.

Interestingly, the owner of this particular network of Russian dealers, known as EkoNiva-Technika, is based in Germany and produces public financial statements. I dug through the numbers to get a better feel for how the dealership is doing. 

In 2021, prior to self-sanctions, the EkoNiva-Technika dealership network sold 403 tractors. Then Russia invaded Ukraine, and the dealership's sales fell to 263 tractors in 2022. In 2023 it sold just 131 tractors. That's a big fall.

The German parent blames the decline in tractor sales on a "significant drop in demand" for new agricultural machinery by Russian farmers, as well as the loss of its main suppliers, which were replaced by alternatives from China and Turkey whose "products fell far short of the previous sales figures." Meanwhile, the dealer's spare parts business saw a big jump in revenue thanks to an intensification in demand for Western parts and higher parts prices, no doubt due to having to resort to costly transshipment routes. Spare parts have gone from 24% of the dealership network's revenues prior to sanctions to 49% of revenues in 2023.

Back to John, the Australian farmer. When he does eventually buy a tractor, we find out that it's a used Japanese-made Yanmar tractor. All the controls are written in Japanese and he can't read the manual. Compounding matters, Yanmar has officially left Russia, so John will likely find that getting parts is a pain. Again, that's the nuissance of sanctions. Rather than getting the first-best, the only option is often second- or third-best.

John and his new Japanese tractor

Given all the anecdotes I've assembled, what is the bigger picture?

Prior to being sanctioned, Russia's farming sector had evolved towards a particular pattern of specialization and trade comprised of middlemen dealerships, their relationships with Western manufacturers, and the farmers they served. The sanctions (and self-sanctions) immediately upended that pattern, forcing dealers and farmers to undergo a massive and costly recalculation event.

The new pattern of specialization and trade that the Russian farm sector has arrived at doesn't appear to be as good as the initial pattern. 

To begin with, the alternative brands that have filled the void seem to be a downgrade. The Chinese YTOs that the first dealer is selling won't accept a triple mower while the tractors the second dealer stocks have holes in the floors. Spare parts that were once widely available thanks to dealerships' stable relationships with their western suppliers are harder to come by. Dealership resources are now being diverted to smuggling in contraband parts, which means higher prices for farmers. Finally, as suggested by the dealership's financials, farmers are refurbishing old tractors rather than investing in new tractors. This slowdown in capital investment will presumably hurt crop yields in the long term.

In sum, contrary to Tucker's video and many other "sanctions aren't working" videos on YouTube, the videos made by expatriate Canadian and Australian farmers suggest that the opposite: sanction are having an effect. And it isn't a good one.

10 comments:

  1. Great article JP. I do have an example of a scenario where sanctions might backfire from the strict standpoint of the US. Let's take the scenario where because of all the political tensions between Russia/China and the West over time the main financial center of Asia migrates from Hong Kong to Tokyo. This might be seen as a win for the cause of liberal democracy especially given the way Mainland China has destroyed much of Hong Kong's small l liberal autonomy but Hong Kong's economy is heavily intertwined with the US dollar. The Hong Kong dollar is pegged to the US dollar and the USD is heavily used in Hong Kong finance. In Tokyo this is far less so. The Japanese Yen is a free floating currency and most transactions in Tokyo are conducted in Yen not US dollar. Thus from a pure American standpoint one might say a migration of financial activities from Hong Kong to Tokyo would be a net loss for US financial power and prestige.

    **Some might argue as Hong Kong declines as a financial center activities are more like to shift to Singapore(which is also a US dollar based center) instead of Tokyo. This might be true although I have some arguments as to why Tokyo is a stronger financial center than Singapore(including the fact that Singapore has a very neutralist position on China and Taiwan compared to Japan).

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    1. Thanks, Tim. Good points about Hong Kong.

      To add to your list of sanctions backfiring, I'd also include Russia's decision to cut off natural gas to Europe in 2022. Europe managed to find alternatives, and now much of Russia's natural gas is shut-in with no outlet.

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    2. It is obvious that sanctions will increase the cost of doing business for the sectors/countries affected. That‘s not contiversial. Ask anyone in central Europe (heavily affected) where deindustrialzation looms (certain industries need cheap AND stable natgas supplies).

      Sanctions don‘t work because they do not affect the military outcome of the war. Military production in Russia has exceeded all expectations and it is outproducing NATO countries where it matters (tanks, shells, etc.) as even western publications start to admit. Nor will there be a revolution that displaces Putin as Russians are firmly united behind their leadership (when talking to my Russian business aquaintances I get the impression tha sanctions and the hysteria in the west have indeed helped unite the Russians)

      Gas demand in Europe is down because of 1.) deindustrialzation (just google BASF) 2.) substitution for coal (especially in eastern Europe 3.) two consecutive mild winters
      gas supply is down mainly because someone decided to blow up Nordstream, dont you think?
      Btw. I have a hard time believing the Chinese cannot build tractors, does this sound plausible to you?

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    3. "Military production in Russia has exceeded all expectations..."

      Compared to a counterfactual situation in which sanctions haven't been levied at all? I don't think so. A world with sanctions will always be more difficult for Russia than one without sanctions. Surely you wouldn't take the next step in your argument and say that sanctions have actually helped Russia?

      " I have a hard time believing the Chinese cannot build tractors, does this sound plausible to you?"

      Find me a Russia farmer on YouTube who likes the quality of his Russian tractor relative to his pre-sanctions set of options.

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    4. "...Surely you wouldn't take the next step in your argument and say that sanctions have actually helped Russia?..."
      They have definitely helped garner popular support where previously was scepticism. My hunch is they have helped politically (see above) and the political factor is very important in wartime.

      Yes, military production would presumably be higher without sanctions - I do agree. But it is also irrelevant: productions is more than sufficient beating expectations.
      My point: sanctions impose costs on Russians AND us Europeans. You casually omitt this second aspect which has to be included in a proper cost/benefit analysis (as Canadadian you are affected less.)

      The farmer in the Video is a Canadian expat, not a Russian. He naturally sticks to the brands he knows. Russian farmers have predominantly used Belarus or local brands (see this interesting website, unfortunately without market share data)
      https://russian-farmland.com/tractor-made-in-russia.html

      It might well be that tractors with less gadgets are preferred to the alternative given the cost.
      Impossible?
      The Dacia Duster SUV has been a bestseller a few years back even in rich Switzerland precisely for this reason.
      I will ask my Russian business contacts about the (obscure) tractor thing. I do know that agricultural activities (wine, cheeses,) have become fashionable, so they might have heard something.

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    5. "...sanctions impose costs on Russians AND us Europeans."

      I don't dispute that the sanctions impose costs on western countries, too. Because the coalition is so much larger and technologically advanced than Russia, I suspect that the costs borne by the coalition will generally be lower and more diffuse than the costs borne by Russia.

      "Russian farmers have predominantly used Belarus or local brands (see this interesting website, unfortunately without market share data)"

      I don't know what the market share is, but yes, Belarus is probably dominant. If you look at that list of tractors, many of them have western components made by companies like Cummins and Mercedes. Those components will no longer be available.

      More generally, less choice and competition imposes a cost on Russian farmers.

      "It might well be that tractors with less gadgets are preferred to the alternative given the cost. Impossible?"

      That's possible. When they reintroduced Belarus to Canada, their "simplicity" was part of the marketing pitch. (https://www.country-guide.ca/columns/machinery-guide/mtz-equipment-offers-up-a-new-tier-3-tractor/)

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    6. (...Because the coalition is so much larger and technologically advanced than Russia, I suspect that the costs borne by the coalition will generally be lower and more diffuse than the costs borne by Russia...)
      Disagree. The costs are not borne by the "coalition", they are disproportionately borne by those countries closest in trade to Russia, whereby geographical proximity determines trade intensity (Krugman's Nobel) whereas other countries like the US and, Canada, Norway, etc. even profit by a large mile (so far at least).
      Russia is definitely not technologically backward where it matters: in missile tech (no Hypersonics for NATO so far), EW and drone warfare (here it is also mostly about experience) the superiority to Western weapon system is even acknowledged by Western military publications. Further, the war has shown that in a war of attrition, simple trumps high tech - things need to be produced at mass scale, quick and at acceptable cost.
      It is questionable whether the "there are foreign parts, hence backwards" argument in a globalized world even makes sense: very few of the Iphone parts are produced in the US and according to Tim Cook it would be even impossible (qualified labor in numbers) to produce exclusively in the US, but you wouldn't qualify the US as backward. Just because some tractor part has been imported so far, doesn't mean the russians can't produce them, if push comes to shove (apart from the fact that not to bulky parts can always be smuggled for cash or even gold bars)

      I heard the same argument about Russian agriculture some 15 years ago when most of its produce was bulky commodities (not irrelevant in a crisis situation, wheat being the "currency of currencies" after all as Lenin observed). Back then the Ruble was overvalued due to high oil prices and Russia experienced symptons of "Dutch disease". Then came 2014 and the first round of sanctions , the Ruble became undervalued and agricultural production has flourished to the extent that Russia has become one of the best eats, especially when price/quality is considered.
      I have personally witnessed an explosion of Angus steak availability in Russia (way cheaper than anywhere else) over the past decade. When I researched the topic, I Russia sports the bigget Angus herd in the World (where previously there were 0).
      See this company for instance:
      https://miratorg.ru/en/
      There are many such examples
      Main point: this is not the Soviet Union, but adapts the market signals in a very flexible way.

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  2. You know, I really appreciate your articles, I really do, but this time, in my opinion, you're starting from the wrong premise: many of us Westerners are convinced that the ultimate ambition for a Russian, just like for a Chinese or an Iranian, is to live "à l'occidentale": eat a McDonald's sandwich, watch political debates or Netflix or some sports event while sipping a Coke. That's far from truth.

    Relying on evidence and counter-evidence from YouTubers or various content creators is a habit we've picked up from social networks in the 2010s. Yet, reality has nothing to do with social media; the content creators want to polarize and attract viewers, but again that's not the truth.

    The point of the sanctions wasn't to stop the war but to provoke a regime change through an economic shock similar to the 1990s for the Russians, which would have incited today's "Westernized" Russians to rebel against their own regime. I mean, Biden even candidly admitted it, with the plausible desperation of his staff.

    Regime change and perhaps, as the English, Poles, and some other hoped, the balkanization of the Russian Federation (some of you have surely noticed the map of balkanized Russia behind the military commanders of Kiev) by plunging russians back into the nightmare of empty shelves of the 1990s.

    I also believe that another hidden objective of the sanctions was to impact the EU economy and make it more dependent from US energy supplies, particularly the German one, which was guilty of doing too much "unethical" business with Russia, but I'm just a conspiracy nut, so maybe I'm wrong. And anyway, then came the sabotaging of the North Stream gas pipeline, so that objective has been secured anyway.

    Sanctions have failed that main objective: the assumption that economic pressure would lead to a desired political outcome, that ignored the dynamics of Russian society.

    There's no doubt that the sanctions have caused a sense of frustration, but it's also true that Russians would not rebel against the Kremlin cause that trip to Paris or that pair of Gucci have become unaffordable.


    This calculation, like others, has failed, and there's no need for Tucker Carlson to prove it; food and basic necessities are still cheap and widely available.

    It's no coincidence that Putin is very popular. Russians are not fools; they know perfectly well that he's a corrupt dictator, but more than him, they fear instability and power vacuums they have experienced not so long ago, so they swallow that pill and move forward. And more or less the same can be said for other former imperial countries, like Iran and Turkey. There will never be sanctions that will change the anthropological makeup of peoples; that's the miscalculation.

    That's my "critic", you can't find on youtube the anthropological character of a people, that counts more than the economic leverage of sanctions.

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    1. "The point of the sanctions wasn't to stop the war but to provoke a regime change through an economic shock similar to the 1990s for the Russians, which would have incited today's "Westernized" Russians to rebel against their own regime."

      I disagree.

      To begin with, the Great Leaving of western companies isn't the same as sanctions. They were a spontaneous and uncoordinated exit carried about by civil society arising from a general revulsion to Putin's invasion. I don't think they had a broad goal apart from expressing anger and contempt.

      Secondly, the actual sanctions applied by Western governments have been very specifically targeted at Russia's military-industrial complex and a long list of powerful oligarchs and regime-connected individuals. Broad sectors like food, travel, and cultural products have been left alone. So the sanctions aren't designed to hurt regular Russians and affect their allegiances, as you suggest.

      Indeed, in their public pronouncements on sanctions, governments have generally said that their efforts are meant to reduce the ability of the Russian military to wage war, not regime change. If the US and EU wanted regime change, why is the set of sanctions they have chosen so targeted and generally underwhelming?

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  3. Wow, so sanctions really are hurting Russian...specifically Russian farmers. Western governments said it would hurt politicians and oligarchs, though.

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