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Kazakhs to Hoard Food as Putin Sanctions Rattle Alliance

By Nariman Gizitdinov, Aliaksandr Kudrytski and Olga Tanas
August 13, 2014 8:42 AM EDT 298 Comments
People travel by train from the Belarus city of Orsha to the Russian city of Smolensk with boxes of vegetables, milk and sausages, on August 9, 2014.
Photographer: Sergei Gapon/AFP via Getty Images
People travel by train from the Belarus city of Orsha to the Russian city of Smolensk with boxes of vegetables, milk and sausages, on August 9, 2014.

Russia’s trade bloc with Belarus and Kazakhstan is showing cracks in the aftermath of limits that President Vladimir Putin imposed on imports of U.S. and European agricultural goods in retaliation for sanctions over Ukraine.

Kazakhstan’s government has discussed replenishing stockpiles of food in state funds used to curtail inflation, while Belarus sent a delegation under Deputy Prime Minister Mikhail Rusyi for talks today in Moscow over food shipments to Russia. The leaders of the three free-trade zone members discussed the issue of preventing re-exports today.

Less than three months after inking a treaty with the two ex-Soviet republics to expand economic ties, Russia’s ban on food imports from the U.S. and other nations is testing the commitment of its western and southern neighbors to aligning policies. The countries’ shared border may also provide a conduit into Russia for products banned by Putin.

Waging Financial War

Russia’s countermeasures are “undesirable, they weaken the customs union,” said Alexei Portanskiy, a professor at the Higher School of Economics in Moscow and a specialist on trade policy. “Moscow will probably evaluate if it makes sense to pressure Belarus and Kazakhstan or to close its eyes to violations when European products transit through Belarus or Kazakhstan and flow into Russia.”

Preventing Re-Export

Putin today held separate calls with Belarusian President Aleksandr Lukashenko and Kazakh leader Nursultan Nazarbayev to discuss coordination on keeping banned foods from being re-exported to Russia, the Kremlin said on its website.

Both nations have pledged to prevent the transit of banned products to Russia without ending the import of an array of banned foodstuffs into their own countries. Russia is within its right to limit imports without violating the alliance rules, according to Portanskiy.

Putin, Lukashenko and Nazarbayev may meet with Ukrainian President Petro Poroshenko in the last 10 days of August, according to a statement issued today by the Kazakh president’s press office.

Already bound by joint customs rules, Russia, Belarus and Kazakhstan in May created the Eurasian Economic Union, a trading bloc of more than 170 million people designed to challenge the U.S. and the European Union. It marked the culmination of two decades of talks between the countries. The alliance will be effective from the start of 2015.

‘National Interests’

Russia, embroiled in the worst standoff with the U.S. and its allies since the Cold War over Ukraine, last week banned food and agricultural products for one year from the U.S., the EU, Norway, Canada and Australia. Food restrictions are intended “to protect the national interests” of Russia, according to a decree signed by Putin last week.

The restrictions leave a $9.5 billion hole for domestic companies and developing nations to fill. It may also benefit Kazakhstan and Belarus, which is already a top supplier of fresh beef and cheese to Russia and second to the U.S. in poultry exports.

Lukashenko and Nazarbayev both had told Putin they will keep their markets open to foods from countries that are under sanctions from Russia. The risk for Russia is that they will play a backdoor role by funneling banned foods across their territory.

A truck carrying more than 20 metric tons of U.S.-produced poultry meat was stopped Aug. 11 after crossing into Russia from Kazakhstan, according to a statement issued by local authorities.

No Party

The central Asian nation isn’t a party to Russia’s standoff against the U.S. and its allies and shouldn’t be drawn into any disputes, said Leila Muzaparova, deputy director of the Kazakh Institute for Strategic Research.

“The main and practically only threat for Kazakhstan is if it’s pulled into a conflict between Russia and western countries,” she said yesterday in the capital, Astana.

After Ukraine, Belarus and Kazakhstan were Russia’s biggest trading partners within the Commonwealth of Independent States, a loose grouping of former Soviet republics, in the first six months, according to the Federal Customs Service in Moscow. In June, Belarus and Kazakhstan accounted for 3.9 percent and 2.5 percent of Russia’s total trade turnover, respectively, according to data compiled by Bloomberg.

Pineapples, Avocados

Before Russia battened down the hatches, Belarus was boosting exports, including those of produce that the nation itself doesn’t grow. Last year it more than quadrupled shipments of bananas and pineapples to Russia, trade data show. After delivering 15 kilograms (33 pounds) of avocados two years ago, Belarus sent 53,355 kilograms of them in 2013.

Devoid of foreign competition, the market in Russia presents Belarus with a “Klondike-style” opportunity, Leonid Marinich, the country’s first deputy agriculture minister, told RIA Novosti.

Belarus may be able to shift to Russia some of the food it exports to Asia, Russian Deputy Prime Minister Arkady Dvorkovich said in televised comments today. Russia will substitute some lost imports with supplies from CIS countries as well as Latin America, Asia and New Zealand, he said.

In the case of Kazakhstan, its meat and dairy producers won’t “rush” into Russia, according to Ivan Sauer, head of the nation’s Meat and Dairy Union.

Buyer Connections

“One needs to understand that we have fine-tuned connections here” with buyers, Sauer told reporters in Astana.

The two countries are also bracing for fallout that may burden their economies. With the food ban set to fan prices in Russia, it will be easier for Russia to “export” faster price growth to its neighbors than for Kazakhstan to boost food shipments in the other direction, according to Aidan Karibzhanov, a former deputy chief executive at state wealth fund Samruk-Kazyna and a co-owner of Visor Capital.

“Despite cheerful ideas about indescribable opportunities for Kazakhstan, there is nothing good for us,” he said on Facebook. “It’s easier to export inflation than yogurt.”

To contact the reporters on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net; Aliaksandr Kudrytski in Minsk, Belarus at akudrytski@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Paul Abelsky, Torrey Clark

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