Russians faced with declining income, must spend the bulk of the family budget on food expenditures, but here as well, they have been buffeted by price spikes that surpass the country's double-digit inflation rate. Two experts on the Russian food market, Dmitry Vostrikov representing producers and Dmitry Yanin representing consumers, were interviewed on the outlook for food prices. They believed that prices would stabilize by the summer but would remain higher than pre-crisis levels. They also claimed that part of the problem was ham handed government intervention and uncertainty over the ruble exchange rate.
The interview with the two Dmitrys follows below:[1]
Food bills are rising (Source: Oren.aif.ru)
The rise in food prices continues to shock Russians. According to Rosstat [the Federal State Statistics Service], while the country's average inflation rate country is 17%, the food inflation rate has already exceeded 20%. This is hard to get used to. Especially since, almost every week, [the shock from] one abnormally expensive product is replaced by another one. There are many reasons for the across-the-board increase in prices: there are logistical difficulties, [ruble] exchange rate fluctuations, greed of dishonest market players, and, of course, bumbling state regulation. What will happen to food prices in the near future? Are there ways to economize when you go to the store? What products are worth stocking up on? During an "MK" online conference, experts Dmitry Vostrikov, executive director of the Rusprodsoyuz association, and Dmitry Yanin, chairman of the Confederation of Consumer Societies (ConfCS), talked about this and cover other topics.
Despite the authorities’ promise to slow down inflation, food in Russia continues to rise in price. According to Rosstat, since the beginning of the year, sugar prices have risen by almost 50%, rice and salt - by almost 30%, and "borsch set" vegetables - by 35-60%. What caused the rise in the price of these products?
Yanin, "It seems to me that the most terrible thing is the increase in the price of cabbage, beets, and carrots [i.e. the "borsch set" vegetables]. For these products price increases of up to 60% were recorded. This is attributed to the violation of the usual laws of economics. Supply channels have changed. In spring this year, the ruble exchange rate was volatile. Consumer demand has risen: people have reasonably decided that it’s high time to stockpile some goods. By the way, sugar became radically more expensive precisely because of it. The price of other storable foods also went up. However, there are items that became cheaper or practically didn’t increase in price, which may calm the nerves of consumers: for example, chicken eggs.
In general, the situation is as follows: people are faced with growing prices and moved to "savings mode." But the last thing people save on is food, as it’s a matter of life and health. That is why the main declines are recorded in categories of non-food items. In April, the sales of clothing, shoes, furniture and building materials have dropped significantly. There was no decrease in spending on foodstuffs because the demand for food is not as elastic as for other goods. People understand "yes, we're going continue to wear old clothing, defer planned repairs, use the old furniture, but we’ll spend the last of what we got on food." Unfortunately, this is today’s reality."
Vostrikov, "I will address "the borsch set" issue in detail. The price rise of its components is, undoubtedly, a consequence of the February-March spike in the USD exchange rate. Because the farmers don’t have enough goods in their warehouses to make it to the new growing season. Therefore, in spring, retail chains will be switched to direct imports, purchases from abroad, which immediately affect the cost due to exchange rate differentials.
Now, thanks God, we record that the cost of the "borsch set" is slowly coming back to normal, while the lowest point still has to be reached. Traditionally, from the end of June to September we record a food deflation.
I also believe that state regulation definitely made a certain contribution to price fluctuations, to market anxiety, and to high buyer demand. People get the idea that an emergency situation is about to happen any minute with this product or another, when the authorities start to meddle via artificial price limitation. We said from the very beginning that we have more sugar reserves than our annual consumption.
It is simply impossible to eat so much [sugar]. The deficit was purely logistical. Transportation companies are now set up to minimize costs. But there was still a boom in demand, which was forced down by large stores displaying pallets in the middle of the hall to demonstrate that there was enough merchandise and it was unnecessary to buy five or ten packs at a time. One would then eat this volume of sugar it for six months. The identical situation occurred with vegetable oil. When regulation was introduced, the situation at the market was turned upside down. Wholesale prices were higher than shelf prices for the population. Naturally, after the restrictions were lifted, the situation levelled out a bit, but, as the statistics demonstrate, not for long."
Dmitry Yanin (Source: Newkaliningrad.ru)
Can you explain why salt price rose sharply, but eggs, for example, didn’t not?
Vostrikov, "Despite the fact that salt is listed as a socially important product in the Russian food doctrine, it failed to restrain the rise in prices. The average retail price of Russian salt is one of the lowest in the world. There is a global statistical web site where one can compare prices in 93 countries. Well, we are in 91st place.
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Salt per se is a very cheap commodity, so the logistics component and packaging are very crucial in production costs. But in spring salt prices in Europe rose (in Russia 1 kg. of salt costs only 0.15 USD, whereas in the EU the minimum price is twice as high). Thus, our Belarusian partners found that it was more profitable to sell salt to Europe. Previously, the entire territory of European Russia received Belarusian salt. So now this salt is going to Europe. So much for the secret of the price increase!
Regarding the [price of] chicken eggs, it is now summer –a very difficult time for poultry farmers. They are periodically forced to lower egg prices below production cost in order to minimize losses. There is no demand, and the shelf-life of eggs is short. Therefore, there will be some reduction in the cost of eggs now."
Are there categories of goods that are now at risk? What could become more expensive in the near future?
Yanin, "Let’s put it this way. The population, to put it mildly, is not getting any richer now, thus only a producer who occupies a fairly solid position at the market and in the food industry can afford to raise prices. There are few such companies, because the competition is quite serious. I don’t believe that in the near future there will be problematic categories and that some goods will become radically more expensive.
We see that the state, via direct price regulation, has actually managed to achieve low prices on bread and vegetable oil. However, it happened to the detriment of other products and food-processing companies, where no price regulation was introduced. Prices for the entire "green group" may drop because of the new harvest. The grain market will be very volatile. Accordingly, cereals can be named among the goods entering the risk zone [of inflation].
Much depends on the exchange rate policy of the Central Bank, which is difficult to understand. No one knows what the ruble exchange rate will be, 50 rubles per USD, or 130 rubles. Regarding such a category as fruits and vegetables, the exchange rate fluctuations are very sensitive for importers. No one will inport goods at a loss from Central Asia, Turkey (i.e. the traditional suppliers of the "green group"). Except for the aforementioned, I don’t see other problematic product groups, the prices of which can "soar into space."
But even though prices are stabilizing at current levels, 2022 will be a very difficult year for millions of Russian families, whose incomes are falling, or not rising but whose expenditures on basic food products has already risen sugnificantly and will continue to rise one way or another.
Recently, the Federal Antimonopoly Service has been actively inspecting the grocery retail sector, and the authorities periodically accuse retailers of being "greedy." The latter, in turn, are dissatisfied with the authorities’ actions regarding price regulation and their failure to maintain a stable ruble exchange rate. Who is more to blame for the rise in food prices?"
Vostrikov, "The reason is that people’s incomes are not growing. Accordingly, it’s practically impossible to raise prices, as there will be no demand. Most food enterprises claim that the main problem is low purchasing power. Another issue is [ruble] exchange rate fluctuations. Such a ruble instability facilitates is an unhealthy situation for producers. In order to plan the operations, we have to know what the exchange rate will be. Sanctions and restrictions hurt both the population and businesses, which are forced to deal with logistics and transportation issues in a new way. Consequently, this has an impact on tariffs too. It is of the utmost importance to keep in mind that the burden of rising production costs will be primarly borne by the food-processing companies. The retailer puts his markup rate on goods and sells them. Meanwhile, 95% of suppliers operate under an agreement drawn up by the retail chain.
We can’t even refuse an order, because the conditions are as follows: either do whatever you can and supply the products, or pay a fine. These are absolutely crushing conditions! Some suppliers have not been able to agree on an adjustment to the price list for years. Thus, some suppliers go bankrupt and leave the market, which reduces supply.
In turn, farmers were much better off until export duties were imposed on them. Earlier, they could sell thier goods on the foreign markets and make good money on it. They argued that a fair price was formed based on two offers: the first one is the price that domestic processor-company can pay, while the second is the price that the global market can pay via its traders and suppliers. So, a certain price equilibrium was reached. However now, thanks to the export duty, price fluctuations have decreased, but at the same time they took awy a certain part of the farmers’ income.
I believe there is only one way out of this situation, we must structure a financial system in such a way that the final products could be produced in Russia and supplied to the market with a high degree of redistribution. Under this scenario the government will have a profit delta, the population will get richer, while the raw materials will be used more efficiently. Russia simply has no other way.
The perpetual conflict between suppliers and retailers over who raises prices the most can affect consumers?
Yanin, "The topicality of these disputes in the current environment has come to naught. Today it’s equally bad for both producers and trade. Retail companies, unfortunately for producers, will consolidate. The role of state-controlled companies will increase, and consequently, large companies close to the government will receive preferences and benefits. If large agricultural holdings able to work with retail chains on an equal footing will be established, maybe some kind of price equilibrium will be established. But for now, it is difficult for everyone, and I do not see any reason to be optimistic. If previously the producers could earn thanks to export of their goods abroad, now their access to foreign markets is limited. The demand for Russian-made goods will be minimal, and the number of countries that are ready to buy Russian products will shrink.
Regarding the state management of the food market, playing with prices, regulation, trade margins, the introduction of export duties, all these measures require good thinking on the part of officials, which I have great doubts about. I believe that they won’t be able to deal with this task and there will be downfalls in the market, which will facilitate shortages of certain types of products. Companies will curb the production of goods that are under the thumb of state regulation. The agricultural business is dependent to a large degree on the stability of economic policy. It’s very hard to put milk back into a cow, or freeze eggs. It seems to me that the sooner the state withdraws from the policy of direct price regulation, the better."
Considering the aforementioned, what kind of food shortages are possible in our country?
Vostrikov, "We are self-sufficient regarding the production of basic products, and there is nothing to worry about. In the worst-case scenario, consumers will switch to certain products from one price category (which is, say, expensive) to another, a cheaper one. For example, a person used to buy beef, but as it becomes unaffordable, he switches to pork. If, say, pork becames expensive, then [this man’s] diet will include chicken meat. The buyer will continue to maneuver between these products in order to get the proteins, carbohydrates and vitamins he needs. There will be enough basic food categories in the country. We produce at least five times as much grain as we can consume. We are the largest exporter of oilseeds. We’re a little short on milk production, but we can buy dried milk from friendly countries, especially since Belarus is the largest importer.
As for the rest of the products, it’s likely that there will be some changes in the assortment. Some ingredients we can’t import from abroad, some packaging [methods] will be an issue. All this leads to a situation wher a previously produced product before may disappear from the shelfs, and a substitute product will appear in its stead. But this is not a crucial issue for the buyer. Back in Soviet times, for example, no one looked for specific cucumbers: the only ones available were either salted or pickled.
That’s all! It is clear that right now we have no problems with greenhouse vegetables. But changes may occur with end-products. For example, a producer who used to produce several analogues of a certain product in different price categories may, to cut expenses, could abandon a major product line and concentrate on producing only one type of product (whichever has the greatest demand). And then such a product will become cheaper. It’s just like in the non-food market. Some brands are leaving, but we still won’t have to walk around naked and will find clothing and footwear to replace them. We’ll just switch to other brands."
What products may become cheaper in the first place?
Yanin, "Vegetables, potatoes, the entire "borsch set" in general. They should get cheaper, at least for a while, starting in June. I believe [the change in price] will be by 25% compared to peak prices. But because of the strong rise in price that occured earlier, consumers are unlikely to notice that vegetables became cheaper. This will hardly help the wallet, as on a year to year basis, the price will still be higher than what it was before the crisis (even at its lowest point)."
How can one economize when buying groceries?
Vostrikov, "There are plenty of apps that track the lowest prices in stores (this includes promotional ones). So, residents of megalopolises will primarily benefit from choosing the cheapest offer, since there is no regular price as such for manufacturers at the moment. [The highest demand is for] the goods with promotional prices. The second tip: if you want something canned for the winter, the surest way to save money is to go and buy everything you need at the production site of these goods. It’s officially allowed to sell the harvest right "from the fields." A farmer will offer the goods cheaper than one might buy at the market or in the store, because farmer’s preice will not include logistics and other middle-man markups. Even in the city, if you want, you can find a vegetable store, where the price will be drastically lower than the one in the store."
Yanin, "If you want to save money, you have to drive off further you might even have to cultivate something yourself. True, you will spend more time, but these are the conditions we live in. Well and you have to freeze, preserve, or salt your harvest. This might be the easiest way to reduce your expenses on groceries.
Dmitry Vostrikov (Source: Rosng.ru)
[1] Mk.ru, June 5, 2022.
