Putin’s drive to tame food prices threatens grain sector

Valentina Sleptsova challenged the president on why bananas from Ecuador are actually cheaper in Russia than domestically-produced carrots and requested how her mom can survive on a “subsistence wage” with the price of staples like potatoes so excessive, in accordance to a recording of the annual occasion.

Putin acknowledged excessive food prices have been an issue, together with with “the so-called borsch basket” of primary greens, blaming world value will increase and home shortages. But he mentioned the Russian authorities had taken steps to deal with the problem and that different measures have been being mentioned, with out elaborating.

Sleptsova represents an issue for Putin, who depends on broad public consent. The steep will increase in shopper prices are unsettling some voters, notably older Russians on small pensions who don’t want to see a return to the Nineteen Nineties when sky-rocketing inflation led to food shortages.

That has prompted Putin to push the federal government to take steps to deal with inflation. The authorities’s steps have included a tax on wheat exports, which was launched final month on a everlasting foundation, and capping the retail value on different primary foodstuffs.

But in doing so, the president faces a tricky alternative: in making an attempt to head off discontent amongst voters at rising prices he dangers hurting Russia’s agricultural sector, with the nation’s farmers complaining the brand new taxes are discouraging them from making long-term investments.

The strikes by Russia, the world’s high wheat exporter, even have fed inflation in different international locations by driving up the price of grain. An improve within the export tax unveiled in mid-January, for instance, despatched world prices to their highest ranges in seven years.

Putin faces no instant political menace forward of parliamentary elections in September after Russian authorities carried out a sweeping crackdown on opponents linked to jailed Kremlin critic Alexei Navalny. Navalny’s allies have been prevented from working within the elections and are attempting to persuade individuals to vote tactically for anybody aside from the ruling pro-Putin social gathering though the opposite primary events in rivalry all assist the Kremlin on most main coverage points.

However, food prices are politically delicate and containing rises to maintain individuals broadly glad is a part of Putin’s longstanding core technique.

“If the price of cars goes up only a small number of people notice,” mentioned a Russian official acquainted with the federal government’s food inflation insurance policies. “But when you buy food that you buy every day, it makes you feel like overall inflation is going up dramatically, even if it is not.”

In response to Reuters’ questions, Kremlin spokesman Dmitry Peskov said the president was opposed to situations where the price of domestically produced products “are rising unreasonably.”

Peskov said that had nothing to do with the elections or mood of voters, adding it had been a constant priority for the president even prior to the run up to elections. He added that it was up to the government to choose which methods to combat inflation and that it was responding both to seasonal price fluctuations and global market conditions, which have been impacted by the coronavirus pandemic.

Russia’s economy ministry said that the measures imposed since the start of 2021 have helped to stabilise food prices. Sugar prices are up 3% so far this year after 65% growth in 2020 and bread prices are up 3% after 7.8% growth in 2020, it said.

Sleptsova, who state television identified as from the city of Lipetsk in central Russia, didn’t respond to a request for comment.

‘MISERABLE HELP’

Consumer inflation in Russia has been rising since early 2020, reflecting a global trend during the COVID-19 pandemic.

The Russian government responded in December after Putin publicly criticised it for being slow to react. It set a temporary tax on wheat exports from mid-February, before imposing it permanently from June 2. It also added temporary retail price caps on sugar and sunflower oil. The caps on sugar expired on June 1, the ones for sunflower oil are in place until Oct. 1.

But consumer inflation – which includes food as well as other goods and services – has continued to rise in Russia, up 6.5% in June from a year earlier — it’s fastest rate in five years. The same month, food prices rose 7.9% from the previous year.

Some Russians see the government’s efforts as insufficient. With real wages falling as well as high inflation, the ratings of the ruling United Russia party are languishing at a multi-year low.

Alla Atakyan, a 57-year old pensioner from the Black Sea resort city of Sochi, told Reuters she didn’t think the measures had been sufficient and it was negatively impacting her view of the government. The price of carrots “was 40 roubles($0.5375), then 80 after which 100. How come?” the former teacher asked.

Moscow pensioner Galina, who asked she only be identified by her first name, also complained about steep price rises, including of bread. “The miserable help that people have been given is worth almost nothing,” the 72-year outdated mentioned.

When requested by Reuters whether or not its measures have been ample, the financial system ministry mentioned the federal government was making an attempt to decrease the executive measures imposed as a result of an excessive amount of interference in market mechanisms basically creates dangers to enterprise growth and should trigger product shortages.

Peskov mentioned that “the Kremlin considers government action to curb price rises for a range of agricultural products and foodstuffs to be very effective.”

FARMING FRICTION

Some Russian farmers say they perceive the authorities’ motivation however see the tax as unhealthy information as a result of they imagine Russian merchants can pay them much less for the wheat to compensate for the elevated export prices.

An govt at a big farming enterprise in southern Russia mentioned the tax would damage profitability and imply much less cash for funding in farming. “It makes sense to reduce production so as not to generate losses and to raise market prices,” he mentioned.

Any influence on funding in farming gear and different supplies doubtless is not going to turn into clear till later within the yr when the autumn sowing season begins.

The Russian authorities has invested billions of {dollars} within the agriculture sector in recent times. That has boosted manufacturing, helped Russia import much less food, and created jobs.

If farm funding is scaled again, the agricultural revolution that reworked Russia from a web importer of wheat within the late twentieth century, might begin to draw to an finish, farmers and analysts mentioned.

“With the tax we are actually talking about the slow decay of our growth rate, rather than overnight revolutionary damage,” mentioned Dmitry Rylko on the Moscow-based IKAR agriculture consultancy. “It will be a long process, it could take three to five years.”

Some might even see the influence sooner. The farming enterprise govt plus two different farmers advised Reuters they deliberate to scale back their wheat sowing areas in autumn 2021 and in spring 2022.

Russia’s agriculture ministry advised Reuters that the sector stays extremely worthwhile and that the switch of proceeds from the brand new export tax to farmers would assist them and their funding, subsequently stopping a decline in manufacturing.

The Russian official acquainted with the federal government’s food inflation insurance policies mentioned the tax will solely deprive farmers of what he known as an extreme margin.

“We are in favour of our producers making money on exports. But not to the detriment of their main buyers who live in Russia,” Prime Minister Mikhail Mishustin advised the decrease home of parliament in May.

GLOBAL IMPACT

The authorities measures might additionally make Russian wheat much less aggressive, in accordance to merchants. They say that’s as a result of the tax, which has been altering usually in current weeks, makes it tougher for them to safe a worthwhile ahead sale the place shipments might not happen for a number of weeks.

That might immediate abroad consumers to look elsewhere, to international locations reminiscent of Ukraine and India, a dealer in Bangladesh advised Reuters. Russia has in recent times typically been the most cost effective provider for main wheat consumers reminiscent of Egypt and Bangladesh.

Sales of Russian wheat to Egypt have been low since Moscow imposed the everlasting tax in early June. Egypt bought 60,000 tonnes of Russian wheat in June. It had purchased 120,000 tonnes in February and 290,000 in April.

Prices for Russian grain are nonetheless aggressive however the nation’s taxes means the Russian market is much less predictable when it comes to provide and pricing and should lead to it shedding a few of its share in export markets usually, mentioned a senior authorities official in Egypt, the world’s high wheat purchaser.

($1 = 74.4234 roubles)