TOMATO WARS

Tomato is an indispensable nutrition component used in a variety of salads and main courses, a yearlong snack be it fresh or marinated. Although the tomato is very widely distributed as a customary component of international cuisines, it is unlikely that anyone would think of listing tomatoes as a product of essential necessity.

Despite such an obvious truth, tomatoes can become a new subject of trade wars, which will put it on a par with grain, milk, steel and energy resources.

Stumbling tomatoes

The infamous incident with the Russian bomber shot down in November 2015 over the Turkish-Syrian border led to the freezing of trade relations between Russia and Turkey. Although later the parties were able to smooth out the sharp corners, tomatoes became a stumbling rock in bilateral relations. Moscow does not want to provide full access to its markets for Turkish tomatoes, the volume of deliveries of which before the introduction of mutual restrictions reached 300 thousand tons per year. This accounted for half of all imports of tomatoes to Russia.

The presidents of both countries, Recep Tayyip Erdogan and Vladimir Putin, addressed the problem at the last meeting in May 2017. The countries concluded a deal to eliminate virtually all trade and economic barriers. But the question with tomatoes did not find a solution. As V. Putin said, Russian manufacturers invested in the construction of greenhouses for growing tomatoes and they need time to recover costs. In fact, this option did not suit the Turkish side, which continued negotiations on the supply of tomatoes.

Finally, at the last meeting of the joint intergovernmental commission on trade and economic cooperation, an agreement was reached on the supply of 50,000 tons of Turkish tomatoes to Russia. This volume, of course, is not comparable to 300 thousand tons supplied before the deterioration of relations. However, the Russian side intends to follow strictly the policy of protecting domestic producers, which will not be able to withstand competition with the Turkish counterparts, given the harsher climatic conditions.

Rosselkhoznadzor is on duty

That is the reason of tightening the import terms for tomatoes from other countries. In particular, Rosselkhoznadzor suspects that Turkish tomatoes are being smuggled into the Russian market from the CIS countries, in particular from Azerbaijan, Armenia, and Belarus.

According to the Rosselkhoznadzor report issued on October 12, there has recently been a sharp increase in the volume of imports of vegetable products to Armenia, Azerbaijan and Belarus, banned from import into the Russian Federation. The banned products entering these countries try to be imported to Russia, claimed as goods produced in the territory of these states, declares Rosselkhoznadzor.

In order to exclude the possibility of import, the department requires to indicate the name of the manufacturer with the exact address on product labels.

The first victim of the new requirements of the Russian department were two parties of tomatoes from Azerbaijan, detained in Dagestan. However, in this case, the issue was solved in a couple of days and 33 tons of tomatoes were passed to consumers in Russia.

Taste of Baku tomatoes

The deficit of fruit and vegetable products in the Russian market, including tomatoes, is not a result of the 2016 embargo on Turkish deliveries.

The confrontation between Moscow and the West, particularly the United States, led to a sanctions war because of the annexation of Crimea to the Russian Federation. As a result, Russia banned the import of a large list of agricultural and food products in response to financial sanctions.

Azerbaijan and Turkey were among the countries that did not support anti-Russian sanctions. Accordingly, to prevent the deficit of fruit and vegetable products and a price increase, the Russian leadership negotiated in relatively short periods with countries that refused to support the Western sanctions, including with Azerbaijan.

Several Russian delegations have visited Baku so far. As a result, 48 memorandums of understanding were signed regarding the export of agricultural and processed products. According to Shahin Mustafayev, Minister of Economy of the Republic of Azerbaijan, both countries do a purposeful work to implement these memorandums.

"For our part, we regularly inform producers and farmers about additional opportunities created to access the Russian market; we apply various incentive mechanisms to increase production and export of products," said Mustafayev.

According to Mr. Mustafayev, in 2014-2016, the areas allocated for the production of tomatoes on closed grounds increased 1.6 times. Due to the construction of new greenhouses, the collection of tomatoes grew from 8.8 thousand tons in 2015 to 46.5 thousand tons in 2016 only on Absheron peninsula.

Of course, such a rapid growth in production requires significant investment. To stimulate entrepreneurs to produce export-oriented products, Azerbaijan is implementing a mechanism for encouraging sector investments. Of the 130 projects on investment promotion (₼1.25 billion), 26 projects concerned the construction of modern greenhouses (₼342 million).

The construction of modern greenhouses in Azerbaijan is growing rapidly this year. And the representatives of Rosselkhoznadzor can witness this process by visiting the farms in Azerbaijan.

No re-export

On the one hand, the Russian side's caution about the possibility of re-exporting tomatoes from Turkey is understandable. According to the State Customs Committee of Azerbaijan, in January-September 2017, the volume of exports of fruit and vegetable products amounted to 341.3 thousand tons, which is 64% higher than the indicators of 9 months in 2016. In terms of value, exports amounted to $306.5 million (an increase of 41.5%).

But the Azerbaijani Ministry of Economics unequivocally stated that it does not allow the re-export of tomatoes.

"Regarding the allegations of illegal export of Turkish tomatoes to Russia, I want to note that in accordance with the Rules for determining the country of origin of goods in the CIS, the certificates of origin are issued on the basis of expertise on the territory of the producer for the availability of land, greenhouse sites, etc. The lots of the goods are checked based on the documents presented, as well as packing and marking," said the minister.

In addition, given the increased volumes of tomato production in Azerbaijan, a specific duty of $0.4 per kilogram was introduced for the import of this product. As a result, in the nine months of 2017, compared with the same period last year, tomato imports from Turkey decreased in by 81%, and in value terms - by 76%. Since May 2017, tomatoes from Turkey were not imported at all.

"After the introduction of the duty, the average import price for each kilogram of tomatoes was $1.15, and the average export price to Russia is $0.97, which indicates the ineffectiveness of the re-export of Turkish tomatoes to Russia," concluded Shahin Mustafayev.

According to the head of the State Customs Committee Aydin Aliyev, during 9 months of 2017, the export of tomatoes to Russia exceeded 132 thousand tons, while the same indicator for 2016 was only 100 thousand tons. At the same time, the import of tomatoes from Turkey decreased from 17 thousand tons to 3.5 thousand tons.

On the brink of tomato wars

It is noteworthy that by the end of 2016, tomatoes were the second exported agricultural product, bringing to Azerbaijan $94 million. This year tomato can outstrip its main rival, hazelnut, which last year brought in $105 million. Taking into account new greenhouses, the export of tomatoes can bring an overall income of $180 million.

Of course, this is very much exasperating tomato producers in Russia itself, where greenhouses for vegetable production were also actively developing, and it will be difficult for them to compete with imported tomatoes.

The situation is aggravated by the growth in exports of tomatoes from Armenia and Belarus. Russian business circles are reasonably concerned that entrepreneurs from Belarus and Armenia, buying tomatoes in the EU and Turkey, are trying to sell them on the Russian market, issuing for their own production. These two countries have special privileges for the supply of products to the Russian Federation, as they are part of the Eurasian Economic Union. If we add to the above the start of deliveries of 50 thousand tons of Turkish tomatoes since November 1, it becomes clear that it will not be possible to avoid unleashing a tomato wars.

Currently, the greatest concern is that, like in any war of goods, this can lead to a price collapse. This trend is already obvious: if the volume of tomatoes exported from Azerbaijan increased by 64%, then in value terms the increase was only 41%.

Azerbaijani entrepreneurs can solve the problem through the search of new markets for tomatoes. On the other hand, it is also possible to develop the industries of tomato processing and the sale of canned products.