Export EU-Russia 3.5%. Lower than annual harvest fluctuations
EU warns candidate members Turkey and Serbia
Despite reports in the Russian media that fruit and vegetable prices would not increase as a result of the sanctions, more and more news appear as evidence of the opposite. In Moscow and Kaliningrad, prices are higher than before. Additionally, Russian agriculture needs a financial injection of 13.3 billion. Meanwhile, the EU is trying to prevent non-boycotted countries to become Russia's main suppliers. The Union threatens that this may have consequences for candidate EU states.
At sea, there are still many shipments on their way to Russia. Maersk reported in a newsletter that these shipments will have to turn back, as the sanctions came unannounced. It is not clear who will bear the expense and how much it will cost. Incidentally, the situation may also have a positive effect for Maersk, as extra imports by Russia from Brazil will likely mean more work.
The Netherlands: three lessons for the sector
On the newspaper Financieel Dagblad (Financial Times) Arjen Daane and Krijn Poppe, economists associated with the LEI, describe three insights in response to the crisis. Firstly, exporters must take geopolitics into account, not only in trade with Russia, but also other markets such as China and the Middle East, which can also be influential. A solution could be to produce in these markets and to export knowledge and technology rather than products from the Netherlands; this is also lucrative. Secondly, according to the economists, this is also a good time for reorganisation in horticulture to reduce overcapacity.
Thirdly, the pricing of the products needs to change. There are currently no fixed prices in the contracts, as these are based on auction prices at time of delivery. But auctions are becoming less representative, as evidenced, for example, by a comparison with Belgium. Furthermore, large parties have the power to set prices in the Netherlands under pressure by temporarily purchasing in Belgium, which improves their negotiating position in the Netherlands. The sector should adopt these initiatives in addition to looking for new markets.
EU showing its teeth
Several countries have seen new opportunities in the Russian market, including Serbia and Turkey, which announced that they want to increase their export volumes. The EU now wants to make this process more difficult. Europe calls for EU candidates not to make use of the new export opportunities that arise from the sanctions. In other words, those wishing to join the EU in the future had better not increase their trade volumes with Russia. Candidate countries include Serbia, Turkey, Macedonia, Montenegro and Iceland.
These countries export $ 2 billion worth of boycotted products. The majority, 1.6 billion, corresponds to Turkey. Iceland produces significant volumes of fish and Serbia sells lots of fruit.
Belarus; holes in closed border
Although the Belarusian authorities announced not to participate in bypassing Russia's boycott, traders are still managing to introduce their products in Russia via Belarus. The most notable case is that of Belarusian shrimp, from a country that has no access to the sea. Products that are processed (at least 50% of the costs) in Belarus are allowed to be labelled as Belorussian product. The Belarusian borders are still open to European products, where customs authorities are to prevent products ending up directly in Russia. Besides shrimp, there are also trucks with bananas and pineapples that have come under Russia's radar.
On average, Belarus exports 4,500 shipments to Russia per week, including 700 with fruits and vegetables. These figures have so far not experienced any major changes.
China stops open border test
The Chinese authorities have conducted a test by which border controls between Russia and China were relaxed. With this agreement, China could easily export fruits and vegetables to Russia, while the Russians were able to easily export timber. According to the Chinese authorities, in practice this entailed that the Russian trucks could enter China very easily, but the Chinese fruit was thoroughly inspected by the Russians. This has resulted in the test ending. It is expected that in the winter, when Russia will be more dependent on imported fruit and vegetables, that the test will be resumed.
Incidentally, China has similar agreements with neighbouring countries Kazakhstan, Mongolia and Kyrgyzstan.
Moldova develops due to boycott
Because of the embargo on Moldovan fruit, the authorities are looking to develop the country's storage facilities. Old facilities are being renovated and new sorting and packing machines are being set up with the support of the Government, which is covering up to 50% of the cost. Moldova harvests an average of 400,000 tonnes of fruit per year, enough to cover domestic demand and also to export, but it is unable to supply all year round due to insufficient storage capacity. The investments aim to improve this. At this time, there is storage room for 145,000 tonnes.
Kyrgyzstan invests in dried fruit
In the Issyk-Kul region, a major fruit-growing area in Kyrgyzstan, a new drying facility had been built. There is room for fruit, herbs and vegetables. Solar panels provide the energy. The region grows a lot of fruit, but it could not be processed. This new facility will offer growers an additional source of revenue.
Russian families see purchasing power reduced
Despite the promise of the Russian authorities that Russians would not be affected by the sanctions, it appears that both the economy and consumers are being hit. The Russian Minister of Economic Affairs says the government should be given the chance to stimulate the economy. Russia is on the brink of recession, but the ability of the government to pump money into the economy is limited. That can only happen with an increase in the oil revenue. According to the minister, it is important to stimulate the economy. He sees opportunities to stimulate and develop the sectors where imports have been prohibited, such as the fruit and vegetable cultivation.
The Minister of Agriculture supports his colleague. He asked the Government to invest 13.3 billion Euro in state aid for the agricultural sector. With that money, projects can be funded to help reduce the volume of imports, According to the Minister, it is possible to increase the domestic production, provided that aid is granted.
In the Kaliningrad region, prices for imported fruits and vegetables have increased by 10-20%. In the market there is also local produce available, as well as products from new suppliers, such as Chile, Macedonia and Serbia.
In Moscow, journalists from Fruit News investigated the market changes induced by the boycott. Conclusion: supply in supermarkets has dropped by 29.5% and average prices are 17.1% higher than in the summer of 2013; pear supplies have fallen by 36%, and those of kiwis, bananas and stonefruit are about 30% lower than last year.
The price for these fruits has also increased significantly. Kiwis are 42.3% more expensive, and in some shops, the price is even 93.4% higher. Stonefruit is on average 33.3% more expensive; the price of grapes is 28.5% higher. For citrus, the consumer has to pay 21.6% more and pears are 16.7% more expensive. Apples cost more, but the price has grown 3.1% slower than the rate of inflation, which equates to a price drop. Banana prices are 23.3% lower.
Publication date: 8/26/2014