Where Cutthroat Competition Means Exactly ThatIgor Reichlin
The magic of market pricing hasn't yet reached Vasileostrovsky Farmers' Market in St. Petersburg, where prices for king-size cucumbers and juicy pears aren't set by supply and demand. Instead, pricing is dictated by hard-nosed traders from Azerbaijan, a craggy southern republic of the former Soviet Union.
Dipping bread into chipped mugs full of sour yogurt, the Azeri traders, most about 30, are quick to abandon their meal when customers approach. But many are just looking. Prices are shockingly high--120 rubles, about 12% of the average monthly salary, just for a kilogram of tomatoes.
EXOTIC SPOTS. Nor can the prices be talked down much. They rarely vary from stall to stall--or even from market to market inside the city. "The Azeri rule like kings at the market," says a state food-trade official in St. Petersburg. "They tell everyone what to do, and I don't know anyone who has tried to cross them."
For years, traders from exotic spots such as Azerbaijan or Uzbekistan have hawked top-quality, though expensive, produce, meats, and spices at similar markets in big Russian cities such as St. Petersburg. They had little competition because state-owned food stores were mostly empty. But on Jan. 2, Boris Yeltsin freed most prices. State stores started to fill up as prices rose.
Traders in other countries might be tempted to cut their prices to make them competitive with the state ones. Not the Azeris, who can go to extremes to maintain their already fat margins. They are organized like U.S. mobsters. Some sell; others make potential competitors offers they had better not refuse. That poses a huge problem for Russia as it lurches to a market economy.
To keep out competitors, such as Uzbeks, the Azeri enforcers first offer to buy their inventory even before they start unloading it. Uzbeks are a major threat: They can charge less because of low farming costs. Should competitors refuse to sell, they are warned by the Azeris to sell at going prices, or else. Punishment, sometimes death, can come swiftly to the stubborn. Sources say retribution is often carried out at ramshackle hotels that cater to produce traders.
The situation isn't limited to St. Petersburg. Observers say many fruit stalls in Moscow markets are also controlled by the Azeri Mafia. Trading is expanding from sweet apples and pomegranates to weapons and drugs.
A CRACKDOWN FAILS. The Azeri stranglehold on farmers' markets could be cracked if enough competitors operated in cities such as St. Petersburg. But political turmoil in the wake of the Soviet breakup has prevented that. "We should be getting winter apples from Georgia, fruit from Ukraine and Moldova, and lots of cheeses and meat from the Baltics," says Vladimir Khurtsilava, general manager of the Vasileostrovsky market. "None of that is coming this year."
As food supplies get tighter, especially during the winter, law enforcement authorities are loath to push the Azeris too hard. A decade ago, city authorities attempted a sweep of the market Mafia. But it didn't work, and now the markets are the only reliable source of fresh fruits and vegetables in the winter. Market director Khurtsilava explains that the Azeris have put a lot of money into greenhouses and transport. "They are just protecting their investment," he says.
The final blow to the market Mafia will come when stores are privatized and new owners look for independent sources of supply. But selling off stores has been laboriously slow. And until then, the Azeris at Vasileostrovsky Market will operate as they please.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.
- ‘No Cash’ Signs Everywhere Has Sweden Worried It's Gone Too Far
- Boom Turns to Bust for Millennials Across Advanced Economies
- How One of the Most Profitable Trades of the Last Few Years Blew Up in a Single Day
- Dollar Steady, Oil Rises as European Stocks Falter: Markets Wrap
- Saudi Arabia Is Taking a Harder Line on Oil Prices