Would New Silk Road cargo flows significantly increase if Russia lifted the embargo and result in less traffic between Europe and China? It depends.
In August 2014, Russia introduced a ban on the import of food from the European Union, the USA, Albania, Australia, Montenegro, Liechtenstein, Iceland, Norway, and Ukraine. According to Polish newspaper Rzeczpospolita, the Kremlin has now extended the embargo on Western food for another year. What will happen when the embargo ends? The effects of potentially lifting the embargo and the resulting impact on rail transport are discussed by the Head of the European Department of Rail Transport at AsstrA-Associated Traffic AG, Ewa Trochimiuk.
If Russia were to lift the embargo on the carriage of food in transit, would it significantly increase cargo flows on the New Silk Road?
I think so. Railway is still an attractive alternative to faster, more expensive air transport and cheaper, slower sea transport.
The Chinese have been interested in importing food products from Europe for a long time. European products are very popular in the Middle Kingdom and are considered "luxury goods." The local market is increasingly open to imports from abroad, and EU companies are eager to enter the market. The average Chinese consumer is a member of a constantly growing middle class that will soon number almost half a billion people. He prefers to buy imported food because it seems safer than domestically produced alternatives. The Chinese want to eat healthy, ecological foods that are fresh and quickly available at favorable prices.
Over the last few years, after the embargo was introduced, new players have appeared on the Chinese market. Among these players are Belarus, which exports milk products like milk powder, full fat milk, ice cream, and cheese as well as poultry and beef to China. Russia is also one of China’s most important partners whose food exports to China grow every year.
Can European food exports to China balance rail transport flows of goods from China to Europe?
It is difficult to give a decisive answer here. The chances are good, but in light of recent events, especially the trade war between China and the United States, it may take additional time to balance rail transport flows from Europe to China.
We are currently observing small signals that Chinese partners are looking for delivery solutions to bypass Poland. It should be remembered that any disturbances that take place in the political arena are most quickly reflected in the transport industry. EU regulations have closed the market to certain goods from China, but it also works the other way round. Many factors influence the way railroads will develop. Railway container shipping is currently subsidized by the Chinese government, who observers predict will cut off this funding in the near future.
At present, we cannot predict what the consequences will be. Probably the EU countries that are interested in entering the Chinese market will pay extra to ship their products there, as Russian exporters have been doing for a few years. In order to support them, the Russian government compensates half of the costs of transporting the food products by rail to China.
Secondly, we do not know how the Chinese economy will develop further. The fact that today China is the largest importer of food does not mean that in a few years China will not be a country that will feed Europe. The Middle Kingdom is one of the largest global investors in the agricultural sector. Chinese companies have purchased millions of hectares of African farmland and have been actively developing agribusiness there.
Let us hope that in the coming years, after the lifting of the Russian embargo and with Chinese consumers’ continued interest in European food, the number of trains returning to China with European food production will increase and the costs of transporting goods will reflect that.
When will rail transport flows from Europe to China even out?
We have been observing an increase in the rail transport of goods from Europe to China for several years. When it comes to food, the connections that interest us the most are still blocked by the embargo imposed by Russia. In this case, sea routes are still the most attractive. Some predictions can be made, but as I mentioned above, the geopolitical situation is still unstable, ranging from the Russian embargo to the trade war between China and the United States. These factors all have a significant impact on rail transport.