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Putin, the Vegetable Lord of Europe

Putin, the Vegetable Lord of Europe
Article by: Alexey Dziskavytsky, Natalya Kanevska, Yaroslav Shymov
Translated by: Mariya Shcherbinina

How Russia’s embargo influences the fruit and vegetable market in EU countries

The entrance of a greengrocer’s shop in the tourist neighbor of Krakow, Kazimierz, is decorated with a big poster depicting a basket of beautiful red apples. The inscription says: Putinówki, and is followed by a short explanation why apples are extraordinarily cheap in Poland nowadays. The reason is the embargo Russia implemented on August 7 in response to US and EU sanctions, which have to do with the Ukrainian crisis, on importing a number of Wester agricultural products. After almost three months since the embargo was imposed, we can evaluate just how much the Kremlin’s actions influenced the European market. 

According to Eurostat as of the end of September, most EU countries have seen quite a significant price decrease on the vegetables and fruits that had been exported from the European Union to the Russian market before August. For example, for pears, this fall constituted almost fifty percent, forty percent for peaches, thirty-five for paprika, thirty for cauliflower, and about twenty percent for apples. The consumers are happy, the producers are not.

As such, the Polish farmers who cannot sell their products to Russia because of the embargo are forced to seek other export markets. According to the EU Commission, last year Poland exported 340 million Euros’ worth of fruit to Russia – and it is the Polish gardeners who are suffering from the Russian embargo the most. Vegetable producers have no reason for optimism either, as in 2013 Polish farmers exported 174 million Euros’ worth of vegetables to Russia. One-third of this sum are tomatoes, followed by various types of cabbage, paprika etc.

However, Polish apples have become a symbol of the embargo. A national campaign began in the country with the goal to increase consumption of local apples, both in their natural and processed shape: juice, cider or jam.

Taking into account that Poland is the biggest apple producer in Europe, naturally, this is not enough. However, what was also not enough was the compensation the EU Commission paid to the farmers to cover the losses they suffered from the embargo: 128 million Euro for 28 EU member states. This taking into account that just the Polish gardeners applied for compensation of 146 million Euros.

At first, the Polish actively signed such applications, which they were encouraged to do by Minister for Agriculture Marek Sawicki. However, when it turned out that these sums are small (no more than 7-8 Euro cents per kilo), and the terms of the payments were being delayed, the farmers started refusing compensation and are now trying to sell their product themselves.

Minister Sawicki first criticized the European Union for bureaucratic slowness and retardation, however later criticized the farmers themselves, calling them “foolish” for being unwilling to wait a little to take advantage of the compensations and instead selling their harvest for nought.

Taking into account that Poland is on the brink of local government elections, Minister for Agriculture, just like the new Polish Prime Minister Ewa Kopacz have ended up in a difficult situation. The opposition demanded the Minister’s retirement, the latter apologized for his criticism towards the farmers and employed support from the head of government:

“As far as I know, the Minister has already apologized. I would like to say to the Polish farmers that Marek Sawicki is really fighting in Brussels for you, there is no doubt about that. Maybe sometimes his nerves cannot take it, but the Minister, and the Polish members of the EU Parliament are lobbying vigorously for as much money as possible which was given as compensation for the lost harvest is given to Poland,” noted Ewa Kopacz.

Meanwhile, the second stage of compensation applications on part of the farmers began in the country. The farmers themselves are hesitant and, because of the lack of clear statements on part of the politicians regarding the terms of compensation payments, they are trying to see the fruit of their own labor themselves.

How realistic is it? According to the General Director of the Federation of Food Producers Andrzej Gantner, “What is happening is to a certain degree the result of an informational mess. The farmers, the gardeners did not know for a long time whether they would be compensated at all and to what extent, therefore some of them simply decided to sell their harvest on the market. As a result, the prices are falling. In any case, the current market price, and the EU Commission compensations are unable to cover the net value of these products. We are talking about losses, the only question is how significant they will me.”

Can we already make preliminary calculations of the damage that has been done to Polish food producers by the Russian embargo? 

“It is difficult to do it at the moment, the situation remains dynamic. We can try to calculate the losses for three months, August, September and October, but these data will be incomplete. In general terms, if all the products intended for export to Russia this year are not sold anywhere, we will be talking about a billion Euros. However, this will not happen, as they will manage to sell or process some of the products, therefore as of today it is difficult to name concrete numbers. I assume we will lost about half a billion Euros.”

What can help rectify the situation? Searching for new markets?

“Yes, searching for new markets or act more efficiently on the existing ones. This process is ongoing. Our apples are already being exported to China, India and the US Meat producers are also actively looking for new export markets. However, the situation is made more difficult by the fact that before, when the Russian embargo on Polish produce was implemented, and this happened several times for various reasons, we were able to sell our produce to EU countries. However, our colleagues in the EU are also now subject to sanctions, and everyone is trying to save their own markets. As a result, competition within Europe itself has seriously increased. The EU Commission’s inadequate and tardy reaction only makes the situation worse. And this leads to more losses,” says Andrzej Gantner.

Not only Warsaw, but Brussels as well, is pondering over how to support the farmers during the period while the Russian agricultural embargo remains in effect. For this purpose, a special crisis EU fund will be employed to theoretically aid the agricultural sector with 432 million Euros per year. However, Brussels warns that the money will be given no earlier than the end of the current year, when work over the 2015 budget is finalized. So far, every EU country is trying to find alternative markets for its agricultural produce.

In France, the news about the Russian response sanctions was received relatively calmly. If they last three to four months, we will not even feel them, say the representatives of the French National Federation of Agricultural Trade Unions (FNSEA), however, if they last a year, at least until August of 2015, as Moscow claims, the situation may become more difficult. In this case France, which is not the leading agricultural exporter to Russia, will suffer palpable damages, in light of the fact that it is part of the common EU market, says FNSEA Vice President Henri Brichart:

“The consequences of the Russian-European crisis did not forego France. Because Europe is a common market. All EU countries, first and foremost Poland, the Baltic states and Finland, which trade with Russia actively, are now forced to redirect the produce intended for Russia to the internal European market. This naturally reflects on other countries, including France.

France’s main agricultural and food export to Russia, alcoholic beverages and grain, have not yet been affected by the Kremlin embargo. However, indirectly, French farmers still suffer from this embargo, as it destabilizes the common European market. As such, Polish apples which were exported to Russia before are now being sent to French markets amongst others. Naturally, this lead to a significant price decrease, says Henri Brichart:

“The effect of Russian sanctions was immediately reflected on the apple and pear market. The prices were about 20 percent lower than the average EU level in September already. Next, dairy products. Here the market also demonstrates instability. The purchasers who expect price decrease started acting extremely cautiously and do not hasten to amen orders, which was immediately reflected on the prices, leading to their fall,” notes Hentri Brichart.

Of the rest of EU countries, economically vulnerable Greece is suffering form the Russian embargo. According to the representative of the Greek Association of Fruit Exporters Georgics Polihronakis, on the first days after the Kremlin ban was implemented, they had to return 250 trucks with peaches and nectarines which were already on their way to Russia.

Significantly better-off Belgium is worried as well, as they exported 100 million Euros’ worth of pears to Russia last year (according to the Belgian Farmers’ Association). “It is a serious problem,” thinks expert Peter Verhelst. “Europe demostrates solidarity with the Ukrainian people. But now we want for European taxpayers and consumers to show solidarity with us to help us cover at least part of our losses.”

The agrarian lobby is one of the most influential in European structures, which is evidenced by the colossal mechanism of the Common Agricultural policy (the CAP), which provides European farmers with solid subsidy support. Every year the agrarian sector receives 55 billion Euro, which constitutes almost 40% of the EU expense budget. Taking this into account, it is difficult to imagine that the Russian embargo will become a catastrophe for European agricultural producers. This is testified to by the scale of the problem: the export volume of European agricultural produce to Russia constituted about 11 billion Euro per year, which is about 10 percent of its overall volume. In other words, the embargo influences only a small part of the EU agricultural sector: some countries and companies suffered significantly, however the Russian restrictions did not touch on most at all. The Kremlin, as the majority of the experts we interviews think, landed a significant, but not a lethal blow to the European agricultural sector.

According to the head of the lobby union of European farmers and agricultural producers Copa-Cogeca Pekki Pesonen, the main consequence of these evince of the European and global agricultural markets in general will be the change in export-import routes: “Many European producers saw chances in, say, the rich Near Eastern and Southeast Asian countries.” There are other destinations: as such, many Norwegian seafood exporters quickly found alternatives to Russian consumers in North America. In sum, if the embargo regime lasts over all or a significant part of 2015, the shelves in food shops not only in Russia but in many countries should expect significant changes.

So far not only the buyers but health food experts are happy about lower prices on vegetables and fruit in Europe. The latter hope that thanks to the cheap prices, the Europeans’ diet will become healthier. Because now, the recommended norm of 400 grams of vegetables and fruit per day, is only consumed by four out of twenty-eight European countries: Germany, Poland, Italy and Austria. So, Vladimir Putin’s embargo may unwittingly improve the health of people in Europe.

Translated by: Mariya Shcherbinina
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