M Business 5th Edition by Ferrell,Geoffrey Hirt,Linda Ferrell

Exercise 4

Conflicts with other countries can impact the equilibrium price of certain products, which in turn can lead to changes in the economic cycle. Many Western powers-including the United States and the European Union(EU)-placed economic sanctions on Russia due to the conflicts in the Ukraine. Russia struck back, imposing a one-year embargo on a number of agricultural imports from any country sanctioning Russia. This had an immediate impact on the EU, where exports to Russia comprise a significant portion of the fruit, vegetable, dairy, and meat markets. Suddenly, a $6.5 billion export market halted.
A visible effect of the embargo included lower food prices across Europe. Considering the perishable nature of agricultural products, many producers have been forced to immediately switch to selling their surplus within the EU. This influx of supply, without any corresponding increase in consumer demand, provided a real-world demonstration of the classic supply and demand chart-prices plummeted. For example, in 2014 the cost of Dutch cucumbers and tomatoes had dropped 80 percent; in the Czech Republic, apple prices were down 70 percent; and Spanish, Italian, and Greek peaches and nectarines were selling at 30-50 percent cheaper.
While these price drops seem wonderful for consumers, producers facing lower prices were unable to turn a profit, which harmed their future viability and the long term health of major European industries. The EU acknowledged this and called special meetings and provided emergency support measures for the worst-affected markets. This situation demonstrates how major changes in supply and demand brought about by trading conflicts can have an immediate impact on a nation's (or trade bloc's)economy.
How important to business is the surrounding political and regulatory environment? How can businesses best deal with volatile political situations that might end up affecting them?