EMBARGO IS OF BENEFIT?

Russian embargo on the import of agricultural products from the European countries resolved the issue of direct access of Azerbaijani agricultural produce to the Russian market. Azerbaijan, along with several other countries, including Uzbekistan, Tajikistan and, to some extent Kyrgyzstan, is in the list of promising countries for the supply of fruits and vegetables to Russia. The Ministry of Agriculture of the Russian Federation drew up this list after vegetables, fruits, meat, fish, dairy products from the United States, European Union, Australia, Canada and Norway, ie countries that have adopted sanctions against it because of the situation around Ukraine came under a one-year ban. If we consider that in the last six months the volume of agricultural products exported from Azerbaijan to Russia doubled, in light of recent events we can expect a big breakthrough in bilateral economic relations. In short, Azerbaijan needs to consolidate its lost positions in the Russian market, and it has exactly a year to do so.

Beneficial sanctions

The Russian government has already recognized that Azerbaijan plays an important role in ensuring food security of the Russian Federation. Deputy Prime Minister Dmitriy Rogozin said this a few days ago, at a meeting with first Deputy Prime Minister of Azerbaijan Yaqub Eyyubov.

The desire of the northern neighbour to fill the shortage of foodstuffs is understandable. Firstly, the Russian market is traditional for Azerbaijan, and last year this country accounted for more than 32 percent of non-oil exports of Azerbaijan and more than 30 percent of exports of agricultural products. On the other hand, Russia understands that it is not ready for the full import substitution, since it requires a radical change of the government policy in relation to the agricultural sector. Since the sanctions are short-term, Russian farmers are unlikely to increase fruit and vegetable production in the absence of a stable market. They are well aware that after the lifting of the sanctions supplies of cheap apples from Poland and Moldova will begin, and after joining the WTO it is difficult for Russian apples to compete with these products in terms of price.

Naturally, against this background Russia will seek a way out of the situation in the framework of the CIS, the Azerbaijani government believes.

In general, if you look at the dynamics of the expansion of economic relations between official Baku and Moscow over the past year, we can note a marked increase in the interest of Russian regions to Azerbaijan. However, the government of the country considers it incorrect to attribute this fact (activation of the Azerbaijani-Russian economic relations) with the confrontation between Russia and the West.

"This is a natural process that occurs on the background of the conservation in Azerbaijan of a stable economic situation, despite some destabilization in neighbouring countries and the increase of contradictions, even in our region. Azerbaijan experiences steady growth, including in agriculture; this year received a good harvest, whereas many states went through a sharp fall. On the other hand, Azerbaijan has become a strong country in both economic and financial terms, stands on its feet confidently enough," people in the government of Azerbaijan believe.

The benefits of the current situation for Azerbaijani agricultural producers is obvious. The farmers, especially from the Quba-Xacmaz region nearby the Azerbaijani-Russian border have the chance to significantly increase the supply of their products to the markets of the Russian Federation. The desire of local farmers to learn new market manifested in the fact that they have already prepared a new packaging for products with Russian language indication of the variety and the manufacturer's telephone number.

The government is willing to grant a soft loan for the construction in the region of a logistics centre. Minister of Economy and Industry of Azerbaijan Sahin Mustafayev has already raised the issue of opening Azerbaijani logistics centres in Russia. Azerbaijan is ready to build more than one logistics centre in Moscow or St. Petersburg, and to expand their network in the regions of the Russian Federation. Azerbaijan businessmen are capable of filling this network.

For example, last year Azerbaijan produced about 250,000 tonnes of apples, of which only 37,000 went to the Russian market. Approximately the same proportions was observed in relation to other fruits. According to the President of the Azerbaijani Fund for Export and Investment Promotion (AZPROMO) Rufat Mammadov, Azerbaijan produces annually about 1m tonnes of potatoes and around 54,000 tonnes were delivered to Russia last year. When it comes to tomatoes, 467,000 tonnes were produced in 2013 and about 46,000 tonnes were exported to Russia. Azerbaijan has the means to sharply increase exports of agricultural products to the Russian Federation, and the harvest of 2014 allows to make it painless. It is a different matter that the real increase in exports depends on the mobility of the commercial organizations of the two countries, on how quickly they are able to organize additional supplies.

This said, this whole situation also brought to the surface a number of issues in bilateral economic relations to be addressed, such as simplification of Russian customs procedures. The government of Azerbaijan finds them to be a very difficult process. On the one hand, Russia is itself linked with the Eurasian Economic Community (EAEC), and on the other third countries, opposing Russia, at the same time try to take advantage of the rather unstable situation within the community and seek to confuse the situation. If in these conditions Russia softens the trade policy, it will all break. Tightening of customs procedures will create even greater problems, so what policies Russia will pursue in the future is still unknown.

In any case, Russia has yet to cancel the agreement on a free trade zone with Azerbaijan, in force since 1992, despite the appeal of Baku to revisit it, as some points of the agreement are currently unacceptable.

Demand leads to… higher prices

The logical result of the embargo imposed by the Russian authorities on goods from the EU was the change in the price parameters for these products. While in the EU they have become cheaper, in Azerbaijan the prices rose.

Thus, compared to the same period last year the prices for many types of vegetables in the Latvian market fell by 30-50 percent. The fall in prices is particularly big in the case of potatoes, carrots, onions, cabbage and beets. In turn, as a result of the Russian embargo food producers from the Netherlands may lose profit to the tune of no less than 300m euros. The Netherlands is the second largest exporter in the world of agricultural products. Russia still accounted for 2 percent of the Dutch exports.

The European Commission proposed a series of measures aimed at reducing the negative impact of the Russian embargo on the EU agriculture.

Azerbaijan, on the contrary, has seen in recent days a rise in the price of seasonal fruit and vegetables in particular. While last month a kilo of tomatoes sold for 30-40 cents, today the price rose to 80 cents - 1 manat.

Experts and farmers themselves concur that the growth of prices is the product of the access of Azerbaijani agricultural products to the Russian market. The local market suffered some shortages: small sellers complain that the farmers supply fewer agricultural products. In addition, they are now trying to export high-quality products to the market of the neighbouring country. 

Azerbaijani Agriculture Minister Heydar Asadov said on this matter that the growing prices for vegetables and fruits are an economic process, but its positive side is greater. Just a year ago local producers complained that they lacked markets for sale. "This issue must be treated comprehensively, since the Azerbaijani produce now has an excellent opportunity to gain positions in the Russian market as brands. Our products are well known in this market, but the existing situation gives additional advantages for the national producers," the minister said. He added that increased export of agricultural produce to the Russian Federation will also have an impact on the import of goods from foreign countries to Azerbaijan. 

Accordingly, the increase in imports of products is also one of the main factors affecting prices in the local market. Therefore, the agriculture minister urged people to buy local products, so as not to cause a demand for overseas produce.

In short, the opportunity to capitalize on the export of their products to increase and develop the business and other promising prospects that Russian economic sanctions open to Azerbaijani agricultural producers is a positive phenomenon, of course. But at the same time, to put it mildly, it is unfair that the local market and consumers may suffer, as we can openly observe today. So, before the problem becomes a serious threat to the inflationary situation in Azerbaijan, it is necessary to look for an acceptable solution and try to balance the interests of all parties.