Russian pork exports to China resort to barter trade

Barter trade is not the only option reportedly mulled by Russian pork exporters to keep the trade with China running. Among other things, Russian firms are considering using cryptocurrency. Photo: Canva
Barter trade is not the only option reportedly mulled by Russian pork exporters to keep the trade with China running. Among other things, Russian firms are considering using cryptocurrency. Photo: Canva

In the face of mounting difficulties in collecting payments for delivered goods, Russian exporters are reportedly considering switching to barter trade, even though this move may have several disadvantages.

Russian media have revealed that Russian agricultural firms consider barter trade with their Chinese partners to circumvent Western sanctions. Transferring and collecting payments in yuan has become increasingly difficult for Russian businesses in recent months, as Chinese banks and financial institutions are reluctant to do business with Russian clients due to fears over secondary US sanctions.

On August 12, Russian newspaper Izvestia reported that 98% of payments are blocked or returned to their senders by Chinese banks. In May, this figure was estimated to be close to 80%, as small agricultural banks in the bordering regions kept their relations with Russian businesses intact. However, in recent months, this channel has also become unreliable.

Not the best solution

Russian exporters may want to switch to barter trade out of despair, because it has multiple disadvantages, local analysts believe. “Barter trade is not the best solution from a market point of view”, Alexander Korbut, an independent analyst, told local publication Agroinvestor. He describes it as “a throwback to the 1990s” citing the early years after the Soviet Union collapse where barter trade was common because of the the underdeveloped Russian banking system.

“However, now this form of trade relations is really a forced decision because there is massive blocking of payments, and all banks – both Chinese and other friendly countries – are scared and do not want to take risks,” Korbut said.

Fair exchange rates needed

Yaroslav Kabakov, Strategy Director at Finam, a Moscow-based investment firm, said that barter trade between Russia and China could become an effective mechanism for bypassing sanctions. It could help Russia to export meat, among other agricultural commodities, he assumed. However, Kabakov admitted that using this channel requires setting some fair exchange rates, which might be challenging.

Pork in exchange for equipment and cars

Korbut also indicated that Russian firms must find a way to avoid exporting raw materials and import back products with high-added value, as this would hurt the Russian processing sector. He suggested that Russia could get equipment and machinery from China in exchange for agricultural commodities such as pork.

In fact, Korbut continued, the trade could become cross-sectoral, as in exchange for agricultural goods, China could deliver to Russia automotive products, for example.

Cryptocurrency in the spotlight

Barter trade is not the only option reportedly mulled by Russian pork exporters to keep the trade with China running. Among other things, Russian firms are considering using cryptocurrency. Russian lawmakers approved a new law in July that permitted international payments via cryptocurrencies. The law could be another option for local agricultural exporters.

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Vorotnikov
Vladislav Vorotnikov Eastern Europe correspondent
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