From The International Herald Tribune: Kremlin wages chocolate war in Ukraine BY ANDREW E. KRAMER | INTERNATIONAL NEW YORK TIMES KIEV, UKRAINE — The output of the sprawling brick factory formerly known as the Karl Marx chocolate works has never before been so hard to sell. Since July, when Russian regulators banned all chocolate, cake, cookie and candy imports from the factory’s Ukrainian parent company, Roshen, ostensibly because of health concerns, production at the plant here has plummeted 14 percent. ‘‘It’s not pleasant at all to be in this situation,’’ Viacheslav Moskalevskyi, the president of Roshen, Ukraine’s largest confectionery company, said in an interview. The Ukrainian chocolate factory shares a problem with many businesses in the countries that lie between the European Union and Russia. It is a no-man’s land for trade, increasingly precarious as each side tries to recruit countries into exclusive trade deals. The European Union wants Ukraine and Moldova to sign so-called Association Agreements while Russia wants these nations in its Customs Union. Ukraine and Moldova must decide by a Nov. 28-29 summit meeting in Vilnius, Lithuania, whether to sign the Association Agreement. And Russia is willing to play rough to make sure that doesn’t happen. It has banned wine from Moldova. This autumn, after Russia banned milk imports from Lithuania as part of a struggle for economic influence, yogurt and kefir piled up at checkpoints. It has even restricted dairy products from Lithuania, which is already in the European Union, because the Kremlin was angered that the former client state was a strong advocate of bringing in the other former Soviet states. When the Lithuanian authorities said that they might complain to the World Trade Organization, Russia’s former chief sanitary inspector, Gennady Onischenko, said that if that happened, the restrictions would remain in place ‘‘for an incredibly long time.’’ It was this same landscape that Winston Churchill was referring to in a 1946 speech to mark the start of the Cold War, saying, ‘‘from Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the Continent.’’ The line of contact in this trade war has taken a twist on that name: the Milk Curtain. Extending from the Black to the Baltic seas, the zone separating the European Union from the Russian-backed Customs Union, a smaller rival trade bloc, has become a hazard for businesses, as the case of Roshen indicates. With this new economic dividing line in Europe hardening, members of the European Parliament have expressed their solidarity with Lithuania by eating a type of Lithuanian sweetened cottage-cheese desert in front of photographers. The ban on Roshen chocolates is widely understood to have resulted from the support of its owner, Petro Poroshenko, for Ukraine’s integration with the European Union, rather than the Customs Union. The company had recently invested in a robotic assembly line for a crushed hazelnut and dark chocolate candy that is popular in Russia. But since the ruling, the line is underused, though still making reduced quantities of a sweet called Evening in Kiev — just not for the Russians. And all of Ukraine is stuck in the same sticky box. Moody’s, the bond rating agency, downgraded Ukraine’s sovereign debt rating last month, in part over concerns that the country will not obtain a gas price discount from Russia while this trade war persists. Ukraine’s economy contracted in the first half of 2013. Ukraine’s economic woes are deepening. On Tuesday, Aleksei B. Miller, the chief executive of the giant Russian energy company, Gazprom, appeared to escalate the standoff by threatening to invoke a clause in the Ukrainian gas contract demanding payment in advance for winter heating. ‘‘This is a dire state of affairs,’’ Mr. Miller said in a statement, the tone of which recalled warnings that Gazprom had issued before shutting off gas to Ukraine during energy embargoes in 2006 and 2009. The Customs Union of Russia, Belarus and Kazakhstan, a pet project of President Vladimir V. Putin of Russia, will struggle ever to match the European Union. The output of the Customs Union states was $2.3 trillion last year, compared to $16.6 trillion for the European Union, according to the International Monetary Fund. Ukraine’s economic output of $176 billion last year would only modestly bolster the Russian bloc. But bulking up with Ukraine’s 46 million consumers would narrow the population gap with the European Union. A Customs Union that included Ukraine would have a total population of about 215 million, compared to the total population of the 28 nations in the European Union of about 501 million. ‘‘Putin and his team are pressuring Ukraine because Eurasian integration cannot happen without Ukraine,’’ Mikhail Pogrebinsky, a political analyst in Kiev, said of the tactics such as those being brought to bear on Roshen. Russian officials have suggested that they are merely conveying to business owners in the region what loss of market access would result if their country’s officials choose to remain outside the Russian-backed trade group. With that sentiment conveyed, what is known here as the chocolate war began. The company, one of Eastern Europe’s largest candy makers, had sales of $1.2 billion in 2012, up from $1 billion the year before. The company exports 320 different types of candies to 30 countries, but specializes in treats preferred by residents of the former Soviet Union. Until the ban, Roshen exported 8,000 tons of sweets to Russia monthly, even during the world recession. ‘‘Recession affects real estate but not chocolate,’’ Mr. Moskalevskyi, the director, said. While the company has been able to redirect some chocolate to Ukraine, the drop in output shows that Ukrainians can’t eat it all. Ukrainian businesses are also squeezed from the other side. The European Union’s high tariffs on agricultural goods such as those contained in cakes and chocolate all but rules out sales to Western Europe, at least until any easing of tariffs takes place under the Association Agreement. Also, European confectionery companies and candy makers have themselves been investing in Russia, seen as having a higher potential for growth than Europe, which is saturated with sweets, Mr. Moskalevskyi said. Tastes for chocolate vary by region. Hershey’s, for example, had little success selling its Kisses in the former Soviet Union —they were too sweet and milky. Retooling for exports to Western Europe would be costly for even a company like Roshen. ‘‘The money I made in Russia cannot be made up somewhere else,’’ Mr. Moskalevskyi said. Roshen had 5 percent of the market in Russia, competing well with the likes of Kraft, Mars and the dominant Russian domestic candy maker, the United Confectioners, a sort of Gazprom of sweets. Roshen was doing so well in Russia partly because it came out with a Russian Classic line of chocolates, reviving 18 Soviet brands like the Seagull bar, a plain milk chocolate slab with a Socialist Realist style beach scene on the wrapper. But this year, Roshen has already missed Teacher’s Day in Russia, a big day for giving chocolate gift boxes. Mr. Moskalevskyi is hoping the dispute will resolve itself before the New Year holidays — payday for chocolate makers everywhere east of the Danube River. ‘‘All of this is leaving a very negative impression,’’ Anatoly Radchenko, a chocolate factory worker, said glumly of the Russian trade restriction. ‘‘It seems Russia is against us. I don’t want to think it, but I do. We are brother Slavs. They should never have started this chocolate war.’’ ◼ Get the best global news and analysis direct to your device – download the IHT apps for free today! For iPad: itunes.apple/us/app/international-herald-tribune/id404757420?mt=8 For iPhone: itunes.apple/us/app/international-herald-tribune/id404764212?mt=8
Posted on: Tue, 29 Oct 2013 20:09:21 +0000
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