New restrictions threaten the Russian market for imports of Brazilian pork

On 18 June 2014, Rosselkhoznadzor (the Russian Federal Service for Veterinary and Phytosanitary Surveillance) implemented temporary restrictions on imports of pork from a Brazilian company owned by BRF SA, after tests of the company’s shipments detected the presence of the feed additive ractopamine, which is banned in Russia. If further tests confirm the initial findings, Rosselkhoznadzor is likely to impose broader restrictions, or even a complete ban, on imports of Brazilian pork.

Background

Brazil is Russia’s leading supplier of imported meat: in 2013, Brazil supplied 23% of all meat imports in Russia. In turn, Russia has historically been among Brazil’s two leading markets for meat exports.

Despite this lively trade relationship, imports from Brazil have faced a long series of regulatory hurdles, which began in 2004, when restrictions were imposed in response a foot-and-mouth epidemic. In 2007, Rosselkhoznadzor instituted a requirement that Brazilian meat exporters produce special documents to certify that their products comply with Russian veterinary and sanitary regulations. In 2010, Rosselkhoznadzor implemented temporary restrictions on meat imports from 27 Brazilian enterprises and entirely banned the imports of 14 other Brazilian companies. By April 2011, the repressive measures had led to a near-embargo. This was aggravated further by the 2013 discovery of traces of ractopamine in Brazilian beef. In response, Rosselkhoznadzor imposed several additional temporary restrictions on imports of Brazilian beef as well as new requirements for much closer inspection of all meat imports from specified regions of Brazil.

Currently, interim restrictions are in place for imports from over 150 Brazilian suppliers of meat, beef, pork, meat by-products, animal fat, and meat-based ready-made meals.

Import restrictions can cause significant market distortions. For example, recent restrictions on imports of Australian beef have led to a price jump of RUB 1600 (more than 30 euros) per kilo, and have resulted in Russian purchasers switching to imports of beef from Paraguay and Uruguay.

Brazilian exporters face a similar risk of major losses in their share of the Russian meat market, which could become permanent if they are replaced by other exporting countries.

How can Brazilian meat exporters manage these risks?

There are several ways in which Brazilian meat producers can manage the risks of further restrictions on their trade with Russia. Experience suggests that the following are effective tactics:

Probe for loopholes. Because of the great degree of discretion inherent in the inspection process, rules often are not clear. Importers should send reasoned inquiries to the Ministry of Agriculture of Russia and Rosselkhoznadzor, asking for interpretations of current legislation and policy on control procedures, such as sample collection. The responses or even a failure of the agency to respond, can substantively strengthen a company’s position if it needs to challenge the actions of the regulator in administrative proceedings or in court.

Get Russian allies. By developing close mutual relationships with Russian importers or wholesalers of meat products, a Brazilian company can take a potentially stronger joint position from which to contest regulatory actions in administrative proceedings or in court. Russian contractors, by virtue of their location, usually are better positioned to lead a challenge for themselves and on behalf of their foreign colleagues Submit inquiries about individual sample collections. Under current rules, there is a right to select the laboratory that conducts the analysis; and the law does not regulate its location.

Promote the creation of independent laboratories. By law, all laboratories must be accredited by the Russian regulator. Accredited laboratories are subject to government control and make up the structure of the Rosselkhoznadzor. Meat producers and suppliers should advocate for the creation of independent laboratories, which will help to ensure the integrity of the process.

Can anything be done if an outright ban is imposed on imports of Brazilian meat?

Even in the extreme case that Rosselkhoznadzor imposes an outright ban on imports of Brazilian meat, there are legal remedies available to Brazilian producers that may help Brazilian meat producers and exporters to preserve their business. For example, it may be possible to challenge the import restrictions before the Russian Federal Antimonopoly Service, which oversees compliance with observation of the Competition legislation by both private companies and public authorities, by questioning whether import restrictions violate Russian competition law.

A recent analogous case, in which a similar question was posed for restrictions imposed on imports of Norwegian salmon, resulted in a ruling by the Russian Federal Antimonopoly Service that the subject restrictions were illegal (ART DE LEX represented the Norwegian salmon suppliers in that case). The same rationale might be applicable to restrictions on imports of Brazilian meat.

We hope that this article can be of help to Brazilian exporters, for whom the Russian market continues to provide significant business opportunities. Taking advantage of these opportunities, however, will require that exporters conform to the Russian rules of the game while they manage the inherent risks and are proactive in protecting their rights. This will require support from the Brazilian Government, which can only be energized by the initiative and persistence of the meat producers and suppliers themselves.