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ANALYSIS: Russia's food price inflation poses political conundrums for the Kremlin

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In Russia annual inflation has reached almost 6%, overshooting the central bank’s target of 4%. Official data shows that a basket of food prices went up by almost 8% in the last 12 months, the fastest rate in five years. In 2020 fruit and vegetable prices went up by more than 17%. During January-November last year the retail price of sugar went up 70%, sunflower oil by 24% and pasta by 10%.

 

In response to rising inflation rates the government has pushed up its main interest rate by 25 basis points to 4.5%; a further 25 basis point rate is widely expected in April.

 

At the same time, after adjusting for inflation Russians’ disposable income has fallen by more than 10% since 2013. The average Russian consumer is feeling the pinch.

 

Last July the Russian government approved "Resolution #530" which established maximum permitted retail prices for 24 "socially essential food products". The wide-ranging list included various meat products, certain vegetables, pasta, grains and wheat-based bread and pastries.

 

Export taxes

 

Last December the Russian government established an export quota for barley, corn, rye and wheat of 17.5m tonnes to last from mid-February to the end of June; it also imposed a wheat export tax which has been €50 per tonne since the start of March, and export taxes of €10 per tonne for barley and €25 for corn. A permanent formula-based export tax for barley, corn and wheat will start as of June.

 

Russia has now announced an increase in export duties for sunflower seeds to not less than €320 per tonne starting in July and lasting to September 2022. It has also set an export tax on sunflower oil, at 70% of its indicative price per tonne. Taxes on white sugar imports of up to 350,000 tonnes have been removed until the end of August.

 

Wheat output drop

 

The IGC (International Grains Council) estimated earlier this month that although total global grains production would climb to almost 2.3bn tonnes (a record) in the 2021-22 season, the larger supply would all be absorbed by higher consumption.

 

Within that, Russia’s wheat production is seen by the IGC as falling to around 77m tonnes this season, down about 6m tonnes year-on-year.

 

Russia exported more than 34m tonnes of wheat in 2019-20; it halted wheat exports during May and June last year, in the wake of Covid-19 panic-buying which stripped shops of wheat-based products.

 

"Systemic risks"

 

Food bills amount to some 40% of the average Russian household’s costs. The efforts to reduce food inflation seem to be having little effect; a new draft Bill has been proposed in the state Duma or parliament, which would criminalise false information about the price changes of the socially-important food products, and make such false information dissemination punishable by a substantial fine or up to three years imprisonment.

 

According to the UN’s Food and Agriculture Organization (FAO) global food commodity prices rose for the ninth consecutive month in February. The Russian Audit Chamber, the budget watchdog, has warned that price caps on socially-essential goods carry "systemic risks" as manufacturers and farmers may refuse to sell, which could lead to unexpected shortages.

 

Globally the complex set of Russian export restrictions and duties may well backfire; they will curtail trade in the items concerned, which may well push up food price inflation elsewhere. In any case they do not help the underlying problem for the average Russian, which is tackling higher food costs on smaller disposable incomes.

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