* Glut of fruit, vegetables, meat to drive down prices
* Competition set to rise in Middle East, Asia
* EU promising measures to deal with food surplus
By Michel Rose and Wiktor Szary
PARIS/WARSAW, Aug 18 Pascal Sauvetre, an apple
farmer in Poitou-Charentes on France's Atlantic coast, has a
headache beyond the usual concerns about weather and tree
fungus: Polish apples.
As the European Union's second biggest apple producer,
Poland has some 700,000 tonnes of the fruit it usually sells to
Russia but can't, because Moscow has a food embargo on many EU
and U.S. goods as part of tit-for-tat sanctions related to the
Many of those Polish apples will inevitably head for western
Europe, potentially displacing their more expensive European
rivals. Others will go to markets in Asia and the Middle East,
traditionally supplied by EU countries such as France.
"What's really sending shivers down my spine is the ricochet
effect," said Sauvetre, sales manager of Pom' Deux-Sevres
cooperative. "These apples from eastern Europe that can't be
sold to Russia and will be sent to western Europe - it's obvious
it's going to hurt, a lot."
Apples are just one element in an unfolding problem for
Europe's farmers and its central bank policymakers. From Polish
apples to French pork and Greek peaches, exporters to Russia may
either have to slash prices or destroy produce.
It is just about the last thing that the European Central
Bank wants to see as it struggles with a flatlining economy and
worries about deflation.
George Polychronakis of Greek fruit export association
Incofruit-Hellas, for example, watched as some 250 truckloads of
peaches and nectarines en route to Russia were halted when the
Greece exported 160,000 tonnes of fruit to Russia last year,
worth 180 million euros ($240 million) to the crisis-hit EU
"They'll either have to sell it at any price to countries
along the way or be forced to bring it back to Greece where it
will be destroyed," he said.
"Oversupply will drag down prices for other goods and that
will have a domino effect on the entire market. Even today, I
went to the supermarket to buy peaches for myself and they were
cheaper than three days ago."
It is also not just fruit.
"In total, a million tonnes of pork, poultry and beef from
the EU will remain on the market (rather than go to Russia).
It's a very big blow," said Paul Rouche, general manager in
charge of pork for the French meat trade union SNIV.
At the macroeconomic level, this threat of lower prices
might not matter in normal times.
Food accounts for about 14 percent of the basket of goods
used to calculate euro zone harmonised inflation. Alone, fruit
and vegetables account for just less than 3 percent the basket.
But these are not normal times as far as inflation is
Despite record low interest rates and money pumping
policies, euro zone inflation is running at only 0.4 percent
year-on-year, a number that is way below the ECB's close-to, but
below 2 percent level and also entrenched in what the central
bank considers "the danger zone" under 1 percent.
This is before any major impact from the sanctions.
Deutsche Bank analysts have lowered their euro zone 2015
inflation forecast to 1.1 percent from 1.2 percent on the basis
of western European food supplies being banned from Russia and
producers offloading capacity in the euro zone. They see the
impact taking effect from this autumn.
"I think it would have to start pervading core inflation
before they (the ECB) really freak out. But it doesn't help,"
Deutsche Bank economist Gilles Moec said.
The deflationary potential can already be seen in some
Total Dutch fruit and vegetable sales to Russia were about
600 million euros last year, according to Frugi Venta, a trade
association that represents 420 Dutch companies.
"Prices in some fruit and vegetables have fallen by as much
as 75 to 80 percent," said spokeswoman Inge Ribbens. "A lot of
trucks have been turned back at the border."
LEAVE IT ON THE TREE?
The closing off of a major export market, meanwhile,
threatens to hurt segments of the euro zone economy at a time
when growth is pretty poor anyway.
There was no economic growth between the first and second
quarters of this year in the euro zone and on a year-on-year
basis the growth rate is just 0.7 percent.
Scrambling to limit damage on their agricultural sector,
Poland and others have asked the EU to draw up plans to withdraw
the surplus from the market and compensate farmers.
European Agriculture Commissioner Dacian Ciolos has said he
would soon announce measures to help support producers of
perishable fruit and vegetables.
"We asked the Commission to help us avert the crisis this
season and allow us to deal with the surplus by distributing it
to charities, turning it into biofuel or simply using the apples
as organic fertiliser," Polish Agriculture Minister Marek
Poland is trying to tap markets in Algeria, Hong Kong,
Taiwan, Singapore and India.
"Realistically, we can place around 100,000 tonnes on new
markets in South America, North Africa and the Far East,"
Miroslaw Maliszewski, head of the Polish Fruit-growers'
Association, told Reuters.
Warsaw has also asked the United States to open up its
market to Polish apples, said Poland's ambassador to Washington,
He has dubbed them "Freedom Apples" in the hope of
persuading Americans it is a patriotic duty to tuck in.
(Additional reporting by Karolina Tagaris in Athens, Anthony
Deutsch in Amsterdam and Paul Carrel in Frankfurt; Writing by
Matt Robinson; Editing by Jeremy Gaunt)