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EE Vignette 4: How Putin accidentally created a Russian cheese industry

In February 2014, soldiers without any insignia suddenly appeared on the Crimean Peninsula, which had until then been part of Ukraine, and started seizing strategic sites. Soon after, it became clear that the soldiers were Russian special forces who began to oust the existing government, install a new pro-Russian government, and make the Crimean Peninsula formally join Russia in March 2014. Under the eyes of the world, Russia had annexed parts of another sovereign state without any forewarning.
Western governments were not pleased and started to prohibit western-based companies from exporting to Russia and to impose sanctions against persons and businesses from Russia involved in the annexation. Russia retaliated shortly after by imposing import bans on many Western goods, including a total ban on foods from most Western countries. This led to the total stop of food trade between Western countries and Russia, including the 12 billion Euro worth of annual food exports from the European Union. As a result, essentially overnight, many products and foods from abroad that Russians had become accustomed to were not available anymore, including cheese.

Now, many people around the world love aged cheese such as Dutch Gouda, French Roquefort, and Italian Parmesan, and Russian’s were no exception. As a result, the vacuum created by then bans and sanctions led to a blooming shadow industry of cheese smugglers and black-market cheese dealers who tried to capitalize on the unsatisfied demand. For example, it was very common for the Russian police to seize hundreds of tons of smuggled cheese. In addition, Russia had no sophisticated cheese industry of its own that could come to the rescue since the two world wars and decades of the Soviet era had led to the loss of knowledge about how to produce aged cheese. Some resourceful entrepreneurs, however, realized that this was their moment. They went abroad to learn the craft of producing aged cheese in Western countries and then returned to launch their own cheese ventures in Russia, producing domestic variations of the well-known and beloved Western cheeses. Even though their imitations were not necessarily on par with the Western originals, they were still much better than not having any aged cheese or paying exorbitant prices on the black market. As such, the bans and sanctions intended as punitive measures against Russia by Western governments had created the foundation for a domestic cheese industry to emerge and thrive, overall turning agriculture and food production into some of Russia’s fastest-growing industry sectors.
As this example illustrates, even changes to the business environment that are negative for most actors—such as the large number of Western cheese makers and Russian consumers—can be positive for some—such as the Russian entrepreneurs who benefitted from demand substitution. Prior to the bans and sanctions, there was little incentive for Russian consumers to try domestic cheese since they had access to the leading products from across the globe. As such, producing aged cheese in Russia was not a viable endeavor. However, when international products suddenly became unavailable and the choice was between not having aged cheese at all or eating domestic cheese, consumers rapidly opened up to the idea of trying local cheese. This type of unintended enablement as a side-effect of changes—notably social movements and regulatory changes—that occur for other reasons is a recurring and interesting phenomenon (see, e.g., Gish et al., 2024; Hiatt et al., 2009).

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