January 16, 2015 / 2:31 PM / 6 years ago

Dutch-Russian 'tulips-for-oil' trade suffers under crisis, sanctions

AMSTERDAM (Reuters) - With the Russia-Netherlands Year of Friendship a distant memory, Dutch exporters are trying to keep a “tulips-for-oil” special trade relationship alive under the weight of cultural, political and economic forces.

Shipments of flowers - the Netherlands’ most famous export if not its biggest - are diving as middle class Russians suffer the effects of their country’s economic crisis.

But some Dutch firms hope to salvage major industrial contracts by cutting their size and spreading deliveries over longer periods, aiming to help Russian clients whose ability to pay bills in euros has been badly hit by a plunging rouble.

Russian exports to the Netherlands totaled 29 billion euros ($35 billion) in 2013, the bulk of it petrochemicals traveling through Rotterdam, Europe’s largest port. The Dutch sold Russia 8 billion euros’ worth of products including agricultural equipment, machinery, meat and, of course, the flowers.

Now the tumbling price of oil, Russia’s main export earner, is putting new pressure on a relationship that had already hit a low point after the downing of Malaysia Airlines Flight MH17 over eastern Ukraine last July with the loss of 193 Dutch lives.

“The relationship has changed, and the effects will be felt for years to come,” said Jeroen Ketting, who runs the Lighthouse consultancy for Western companies operating in Russia. “The boom period, let’s call it 1999-2013, is never coming back.”

Exporters across Europe are struggling to sell to Russia due to the rouble and oil price, combined with Western sanctions imposed over Moscow’s role in the Ukraine crisis. The Kremlin has retaliated by banning many European Union food imports.

However, the Dutch trade relationship is special for its size - the Netherlands is Russia’s second-largest market after Germany - and for its problems.

(Graphic on Russian-Dutch trade:

link.reuters.com/buc83w )

DIPLOMATIC DISASTER

The Friendship Year was disastrous. It began with Amsterdam’s mayor snubbing a visit by President Vladimir Putin to protest against Russia’s policies on gay rights.

Later in the year, Russian forces seized the Dutch-flagged Greenpeace ship “Arctic Sunrise,” detaining 30 protesters. Then a Russian diplomat was arrested in The Hague, followed by an attack on a Dutch diplomat in Moscow by thugs who scrawled LGBT, the acronym for lesbians, gays, bisexuals and transgender people, in lipstick on a mirror at his home.

Then came the downing of MH17.

The disaster that befell the flight en route from Amsterdam to Kuala Lumpur provoked a wave of anti-Russian sentiment in the Netherlands. Many Dutch believe Putin did nothing to help speed up an operation to recover the victims’ remains from a war zone controlled by pro-Moscow rebels.

Now, with the rouble down 40 percent against the euro in the past six months, Dutch exporters face a particularly uncertain future. Overall trade with Russia shrank 20 percent in November from a year ago, figures from Eurostat show.

Russian counter-sanctions slashed an estimated 300 million euros off Dutch fruit exports in 2014. Some firms have scrapped plans to enter the Russian market due to the economic crisis, while others fear doing business there could hurt their image.

NOT GIVING UP

Some exporters are not giving up on Russia, such DAF Trucks, the Dutch subsidiary of U.S. firm PACCAR Inc. It announced in September a deal to sell 700 lorries to one of Russia’s largest food transport companies, Monopoly, for upward of 100 million euros but the devalued rouble is creating snags.

DAF spokesman Rob Appels said the contract is likely to be restructured due to possible payment problems, cutting the number of trucks or spreading delivery out.

Russian projects in the Netherlands, such as Summa Group’s plan to build a 1 billion euro oil storage terminal in Rotterdam, are also being delayed. Konstantin Panin, spokesman for the private investment firm, said the project that should have been ready next year would proceed in phases until completion in 2019.

At Lighthouse, Ketting said small and medium-sized firms, which account for half of sales by the roughly 4,000 Dutch exporters to Russia, were losing out particularly.

Anglo-Dutch multinationals such as Unilever PLC and Royal Dutch Shell PLC can sit out short-term shocks, but Ketting said things would remain difficult for years.

Shell had planned to cooperate with Gazprom on developing shale fields and exploring the Russian Arctic. Sanctions on oil industry technology exports and the low price of crude itself make those plans unfeasible for now.

Things are yet worse for the flower exporters who are highly exposed to Russia. “Their customers have just seen a 30-40 percent cut in purchasing power in a very short period of time,” said Robert Roodenburg, director of the Dutch Union of Flower Wholesalers. A 10 percent fall in sales in the autumn deepened to “more like 25 percent” in November and December, he said.

Wholesaler Flowerforce BV, which spent a decade building up its Russian business and generates half its sales there, fears the country’s middle-class market is evaporating.

Spokesman Sander van Veldhoven said no orders were being placed for the spring, when couples order roses and chrysanthemums for weddings and volumes usually jump 700 percent from levels during the rest of the year.

“Russians really are flower people,” he said. “But in the end, flowers are not one of life’s necessities. Bread goes before flowers.”

Editing by Anthony Deutsch and David Stamp

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