January 8, 2015

 

Eurasian Union won't be of any help to Russia's food problems

 

 

Russia, Belarus and Kazakhstan recently formed themselves into a regional bloc called the Eurasian Economic Union whose main goal is to exert influence on a world dominated by the US and its Western allies.

 

Critics are hardly impressed.

 

Designed to rival that of the more Western-inclined European Union (EU), the EEC may do little to improve Russia's food trade, according to observers, pointing out to the dying Russian currency as well as the perceived distrusts of Astana and Minsk towards Moscow, especially following Russia's intervention in the Ukrainian territorial conflict.

 

Russia, which has embargoed food products from the US and the EU, has strongly sought the help of its two allies not to allow their countries to be used as "middle men" or back channels with which banned Western products could sneak into Russia.

 

Both nations have pledged to prevent such things to happen, although they will continue to allow into their own territories food imports that are affected by Russian sanctions.

 

However, Kazakhstan may prove to be nowhere capable of helping to alleviate Russia of its food crunch. While the relationship between Moscow and Astana, according to the Diplomat, is declining, the collapsing ruble means that the Kazakh currency is about 50% more costly, making it harder for local companies to export to Russia.

 

So dire is the situation that it fits closely to an outlook made by Aidan Karibzhanov, a former deputy chief executive at state wealth fund, Samruk-Kazyna, when he remarked in August 2014 that it is more convenient for Russia to "export (food price) inflation" to Kazakhstan than for the latter to make any shipments to the federation.

 

As a matter of fact, the country's current agricultural resources may not be able to generate a remarkable boost in food exports to satisfy Russian demands.

 

Yerlen Badykhan, the chief analyst of Kazakhstan's Agency for Studying Profitability of Investments (ASPI), was just about as pessimistic about the Kazakh-Russian trade.

 

"…our capability to increase our presence on the Russian market is very dubious, even compared with Belarus, which already has serious manufacturing and export capacities in the fruit, vegetable and dairy sectors," he said, adding that Kazakhstan has problems meeting its domestic needs.

 

Perhaps there aren't even enthusiastic parties to begin with. Ivan Sauer, the head of Kazakhstan's Meat and Dairy Union, claims that local producers are not particularly excited about engaging the Russian market.

 

Over at Belarus, Minsk, still mired in customs disputes with Moscow, recently imposed a temporary suspension of exporting non-heat-treated pork products to Russia, citing veterinary safety concerns.

 

However, the bigger problem lies in getting the cash across: the falling ruble had prompted Belarus to levy 30% on foreign currency transactions. Belarussian President Alexander Lukashenko also burdened Moscow further, demanding that trade with Russia be conducted in US dollars or euros. 

Instead of relying on a shaky equivalent of the more advanced EU bloc, Russian President Vladimir Putin may have to put aside political rhetoric and consider the normalisation of trade with the EU and US.

Before trade sanctions stepped in following Russian's involvement in the Ukrainian region of Crimea, agricultural imports into the country recorded at US$43 million in 2013. Currently, about US$25 billion worth of products aren't being traded.

Collateral damage, caused by the sanctions, can also be felt among some European organisations including major food companies that have business relations with Russia.

While France and Italy are in favour of lifting sanctions, EU rules require that adjustment in sanctions must be backed by a unanimous decision from all its member states.

The problem is that Poland, Britain and the Baltic nations are not ready to change their stance against Moscow.