TOPIC OF THE WEEK: Armenia’s export stress test: shock, adaptation or diversion?
I had earlier poked fun at Nikol Pashinyan's statement that "If peppers are spoiling, I'll pay for those peppers. If roses are spoiling, I'll pay for them, too." It represented an emotionally-charged outburst that was tied to the restrictions imposed by Russia on a number of Armenian exports in May. With about three months since these sanctions were levied, we have some hard data to assess how effective they have been or, taking Yerevan's point of view, how successful Armenia has been in diverting agricultural trade to other destinations.
In short, my preliminary assessment argues that Armenia has shown good capacity to redirect fresh-produce exports. Incremental shipments to destinations other than Russia replaced 15.0% of the lost Russian volume in June, 48.5% in July, and anywhere between 36-47% in Aug (data for Aug is provisional and still incomplete). However, while adaptation has been material, it has been insufficient to restore the previous scale of business.
The aggregate numbers also conceal exceptional concentration. Apricots accounted for approximately 85% of the net June–July volume shortfall. Georgia and Uzbekistan absorbed 66.5% of the incremental non-Russia shipments, whereas, despite all the fanfare, the EU accounted for only 4.1%. The adjustment therefore remains heavily dependent on particular products and the regional CIS markets, and I don't think that it can be yet judged as evidence of a broad and commercially viable diversification into high-income markets. Moreover, and probably more relevant for producers themselves, selling additional tonnes does not establish that exporters recovered their earnings as prices, freight, spoilage, working capital and government compensation may all affect the commercial outcome.
Still, my conclusion is cautiously constructive on adaptation capacity, albeit less positive on exposed earnings. The data weaken a claim that Armenian exporters cannot find alternative outlets. They equally fail to support a claim that the Russian market has already been replaced or that Russia-related risk can be removed from valuations.
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