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By John Helmer, Moscow

This is not the time of year when there’s much sympathy for the plagues in Egypt.

If you are Jewish, there’s the lot the Pharaoh richly deserved — the gnats, flies, frogs, locusts, boils, etc.

If you are Russian, there’s pseudomonas solanacearum Smith, the potato brown rot. This Egyptian plague is a nasty one, not because it’s Egyptian, but because once established in potato cropping areas, the bacterium is resistant to chemical treatments. It can ruin the farmer whose fields are afflicted, and everyone else the poxy spuds come into contact with. Growers who want to export to regulated areas like the European Union and Russia must invest in new areas of cultivation, and take special quarantine measures to keep the plague away. And if the Egyptian growers succeed at that, and manage to lift import barriers and also earn higher prices, there’s the risk that local potato growers will combine to protect their own prices from the import competition.

When a group of several dozen Egyptian protesters assembled outside the Russian Embassy in Cairo this week, the flash mob wasn’t there to demand regime change in Moscow. If they had, they might have gathered worldwide coverage on CNN and Sky News. Instead, the protesters wanted the Kremlin to lift the latest in Egyptian potato import bans, which began in June of 2011.

The Egyptian problem mightn’t be as pressing right now, if not for the continuing political and economic deterioration in that country, which has been taking local potato prices down with it. About 40% of the Egyptian crop is aimed at the Russian market, especially during the Russian winter and spring, before local potatoes can be harvested. And at rock-bottom Egyptian prices of around 80 piastres per kilogramme, equivalent to less than 4 roubles, this compares with wholesale prices around Moscow at the moment of Rb5 to Rb6. Russian potatoes at Moscow city supermarkets this week are retailing for almost Rb16 per kilo.

There’s one big Russian consumer of potatoes who wants the cheapest supplies he can get hold of, even if they may be blighted for retail sale – but Pepsico isn’t Russian at all. The American corporation, which also dominates the dairy product market in Russia, is the maker of Lay’s Chips, investing $110 million in a factory in Azov, Rostov region, to produce bagged chips in various Russian flavours. The plant opened in December 2010. It is now in the middle of a capacity expansion plan aimed at doubling the annual volume of potatoes to be turned into chips from 25,000 tonnes to 50,000 tonnes by the end of next year. According to market sources, Pepsico is the single largest buyer of potatoes in the country.

The campaigns for increasing competitiveness in the Russian market which have been spearheaded by President Dmitry Medvedev and Deputy Prime Minister Igor Shuvalov haven’t speared the domestically produced potato chip market: it’s a near-monopoly for Pepsico.

Rosselkhoznadzor (RSN) is the federal government’s watchdog for imported meat and vegetable safety. It is also in charge of making sure that Russian food exports abroad are safe. RSN, which is headed by Sergei Dankvert, became more than normally famous last year when it joined Gennady Onishchenko, the chief of the consumer products watchdog Rospotrebnadzor, to ban cucumbers from Germany, then all vegetables from Spain and several other European sources.

Between RSN and Egypt there’s as much goodwill as there was between the ancient Israelites and the Pharaoh. That’s primarily because of the weevil the Egyptians find from time to time in Russian wheat exports. This time the boot, I mean the bacterium, is on the other foot.

Egypt’s trade statistics show that Russia is the second most important destination for Egyptian agricultural exports (excluding cotton); only Saudi Arabia is bigger as a consumer. Russia is also the third most important source of agricultural exports to the Egyptian market (after the US and Argentina). But the balance of this trade is decidedly to Russia’s advantage. Last year, according to the statistics released by the Egyptian Ministry of Industry and Foreign Trade, Russia shipped $956.3 million worth of foodstuffs to Egypt; Egypt sent back $314.3 million in equivalent food value. So long as the export of potatoes is curtailed, the Egyptian agricultural exports to Russia are restricted to fruits, nuts and vegetables like onions. This 3-to-1 imbalance is what is encouraging Egyptian officials to hint that they might hold Russian wheat hostage to the future of their spuds.

Russian exports to Egypt of wheat amounted to 4.8 million tonnes in 2009, the last year before Russia’s drought of mid-2010. In 2009 Egyptian exports of potatoes to Russia came to 58,767 tonnes, worth $34.1 million; in 2010 the volume was 75,664 tonnes at $41.4 million.

The Russian drought of 2010 caused a sharp drop in the domestic potato harvest, and lifted demand for imports. Since then the domestic harvest has recovered. The 2010 Russian potato harvest came in at 21.1 million tonnes; in 2011 domestic production was 32.7 million tonnes, up 55%. According to Russian Customs, in the first quarter of 2011, Egyptian potato exports landed at 64,617 tonnes, worth $37.4 million. In the second quarter, the volume rocketed to 193,432 tonnes, worth just under $110 million. Then the rot set in. Following RSN’s ban, the third quarter volume of Egyptian imports totalled just 4,988 tonnes for less than $3 million.

As an emergency measure to offset the domestic harvest losses in potato supply for consumers, the Russian government suspended the regular 15% import duty on table potatoes, commencing on November 1, 2010. This was planned to end on June 1, 2011. The effect was dramatic. In the first quarter of 2011, potato imports jumped eightfold to hit a grand total of 612,000 tonnes (not counting supplies from Belarus, which is within the Russian customs zone). As can already be counted from the Russian Customs figures, Egyptian supplies accelerated in the first quarter, and hit peak in the second quarter. Moscow industry reports claim that the demand proved so tempting that some Egyptian suppliers broke the quarantine and started filling their shipments with potatoes from the bug-infested areas.

Egyptians stuffing spud sacks with rot was one problem. Another, viewed from Pepsico headquarters, was that as soon as the duty-free period expired, it would have to pay more for its supplies. So Pepsico tried lobbying the Kremlin to prevent the domestic potato price from rising until the Russian harvest could reach the market. The company requested extension of the zero duty regime from June 1 to August.

The government turned down the request. The recovery in the southwestern potato fields then led to a large surplus of Russian potatoes in the market, forcing prices to fall to the level at which Pepsico was again comfortable filling its bags. It may have been a coincidence that, at the same time, RSN was imposing its ban on the Egyptian potato imports because of Pseudomonas solanacearum Smith.

This wasn’t unprecedented. The European Union had imposed selective bans on Egyptian potato shipments from identified suppliers during the 2008-2009 season, then a total embargo in August of 2009. That was lifted in December of 2009, after the Egyptian authorities agreed to enforce a sanitary quarantine against growers in certain areas.

RSN followed the European Union, and in June 2011, the Egyptians announced they and RSN had agreed to a quarantine regime, subjecting exports to a joint Russian-Egyptian panel of inspectors at Alexandria, the port of loading.

The Egyptians are now claiming the Russian measures are being applied against safe potato cargoes, from growers and fields that are shipping without restriction to the EU. The Egyptian protest is that RSN is implementing domestic protectionism in disguise. If this doesn’t stop, the Egyptians warn of tit for tat, meaning they will start rediscovering the weevil in Russian shipments of wheat. The weevil war between Egypt and Russia has unleashed almost as much sanctimony as infestation in the two years before the drought of 2010 and Russia’s wheat export embargo suspended the trade altogether until July of 2011.

RSN declined to answer questions about the current restrictions. The agency website reports that a month ago, it sent a delegation to Egypt. The Russian communique was non-committal: “during the visit of specialists of the Russian Federation and the Arab Republic of Egypt discussed the problematic issues of pest management in respect of regulated products exported from Egypt to Russia, and also visited the place of manufacture, storage, sorting and packing potatoes, familiarizing themselves with the process of admission of potatoes at the port of Alexandria for further shipment to the importing countries.

To date, [RSN will] continue to apply temporary restrictions on imports of potatoes from Egypt to Russia, the abolition of which will be considered after consultation with the Egyptian side of the order of entry of these products.”

Yesterday RSN claimed in an official statement posted on its website that the problems of infestation of Egyptian food exports is systemic, and that it’s the Egyptian bugs, not Russian pockets which have required the defensive trade action. “Just in the period from 2010 to the first quarter of 2012 in 61 cases of spices, flowers, citrus fruits and potatoes originating in Egypt, there have been found six species of quarantineable [infestations]… Mediterranean fruit fly, potato brown rot, dodder, potato moth, golden potato cyst nematode…

Rosselkhoznadzor has repeatedly said the Egyptian side of the potato business should be conducted in areas free of disease, with a clear system of traceability of the movement of potatoes from field to hold the ship. At the same time, Russian experts should have the right to verify the potato during cultivation in the areas of production, warehousing, shipping ports in order to avoid accidental or intentional errors in the origin of certain lots.”

How widespread is the brown in the Russian potato crop, and how much of the RSN embargo against Egyptian imports is price protection were the two questions asked of the trade experts.

Alexei Kraslikov, Executive Director of the Russian Potato Union, acknowledges that the domestic market is glutted with domestic spuds, much of it of poor quality — “Zero duties were due to the deficit [in the 2010 harvest], but in terms of the crop of 2011/2012 such a requirement is absurd. Wholesale prices are falling in the central region to as little as 3 rubles. Today there is a deficiency in the quality potatoes. Now there’s a very large market saturation and competition is too high.”

As for motive for the Egyptian import ban, he conceded “a protectionist step here can only be implied. The formal answer can be given only by Rosselkhoznadzor.”

According to Kraslikov, potatoes have a relatively short life because of the price. Current standards provide for storage until about June 1. “After this what the [distribution, wholesale or retail companies] will do with the remaining potatoes is dependent on their strategy. This storage period may be extended if you use cooling systems, but in that case there are additional costs, and companies must consider the cost-effectiveness. The number of vitamins and nutrients in potatoes is reduced in this case.”

Vyacheslav Telegin is the Chairman of the Board of the Farmers Union of Russia (AKKOR), and thus the principal spokesman for the growers. He is categorical that behind the RSN ban on imported Egyptian potatoes “there is no protectionism — it’s just a matter of potato quality, as we are also importing potatoes from many other countries.”

As for the brown rot bacterium in the domestic crop, he said: “it’s a very common disease in our potatoes. If you use contaminated potatoes for planting it is absolutely certain that the harvest will be sick, too.” The Egyptian imports aren’t the only problem right now, Telegin added. “The purchase price [in the Russian market] is very low. I have talked with the producers of Smolensk. They complain that this month Belarus is dumping prices and all the warehouses are full. This year the prices are very low and there is no commercial viability [for farmers].”

Agrotrade, which is a leading agroindustry source and publisher of the industry bible in Russia, www.potatosystem.ru, acknowledges that brown potato rot is a problem in Russia. According to Chief Agronomist Dmitry Syrtsov, “Brown rot of potato is a dangerous disease which becomes more common in Russia, as are a number of other diseases which are imported into Russia with poor quality of seed.” That said, Syrtsov says there is no prospect that egyptian potatoes can pose a commercially competitive threat in the russian market. “I’m not inclined to consider measures to restrict the import of potatoes from Egypt into Russia as a protectionist measure. The volume of imports compared with the volume  of the domestic product is very small. Diseases do not bring significant damage in the dry climate of Egypt where microflora are minimally active,  but in our soil and climatic conditions these act more aggressively. Therefore, the [RSN] decision is justified.”

Pepsico’s spokesman Olga Zaika said she had referred questions about Pepsico’s interest in the current conditions of the potato trade to “persons who are responsible for it and that [we] should wait for reply.” We are still waiting.

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