Home WORLD-NEWS Putin’s drive to tame food prices threatens grain sector

Putin’s drive to tame food prices threatens grain sector

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MOSCOW, July 21 (Reuters) – During a televised session with ordinary Russians last month, a woman pressed President Vladimir Putin on high food prices.

Valentina Sleptsova challenged the president as to why bananas from Ecuador are now cheaper in Russia than domestically produced carrots, asking how her mother can survive on a “maintenance wage” with the cost of staples like potatoes so high, according to a recording from the annual event. .

Putin acknowledged that high food costs were a problem, including with “the so-called borsch basket” of staple vegetables, and blamed global price hikes and domestic shortages. But he said the Russian government had taken steps to address the issue and other measures were discussed, without further elaboration.

Sleptsova poses a problem for Putin, who relies on broad public approval. The sharp rises in consumer prices are causing unrest among some voters, especially elderly Russians with small pensions who don’t want to see a return to the 1990s, when sky-high inflation led to food shortages.

That has prompted Putin to urge the government to take steps to tackle inflation. The government’s measures include a tax on wheat exports, which was introduced permanently last month, and a cap on the selling price of other staple foods.

But in doing so, the president faces a difficult choice: By trying to counter voter discontent over rising prices, he risks damaging Russia’s agricultural sector, with the country’s farmers complaining that the new taxes are discouraging them from making long-term investments. to do.

The measures taken by Russia, the world’s largest wheat exporter, have also fueled inflation in other countries by pushing up grain prices. For example, an export tax hike unveiled in mid-January brought world prices to their highest level in seven years.

Putin faces no immediate political threat ahead of September’s parliamentary elections after Russian authorities carried out a sweeping crackdown on opponents linked to imprisoned Kremlin critic Alexei Navalny. Navalny’s allies have been prevented from participating in the election and are trying to persuade people to tactically vote for anyone other than the ruling pro-Putin party, even as the other main parties in the struggle support the Kremlin on most key policy issues .

However, food prices are politically sensitive and controlling increases to keep people happy in general is part of Putin’s long-standing core strategy.

“When the price of cars goes up, only a small number of people notice,” said a Russian official familiar with the government’s food inflation policy. “But if you buy food that you buy every day, you get the feeling that overall inflation is rising dramatically, even when it’s not.”

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

Peskov said that had nothing to do with the election or voters’ vote, adding that it was a constant priority for the president even ahead of the run-up to the election. He added that it was up to the government to choose which methods to fight inflation and that it was responding to both seasonal price fluctuations and global market conditions, which have been hit by the coronavirus pandemic.

The Russian economy ministry said the measures imposed since early 2021 have helped stabilize food prices. Sugar prices are up 3% so far this year after growing 65% in 2020 and bread prices are up 3% after growing 7.8% in 2020.

Sleptsova, who was identified by state television as being from the city of Lipetsk in central Russia, did not 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 criticized her for being slow to respond. It imposed a temporary tax on wheat exports from mid-February, before being imposed permanently from 2 June. It also added temporary retail price caps on sugar and sunflower oil. The caps for sugar expired on 1 June, those for sunflower oil until 1 October.

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 – the highest rate in five years. In the same month, food prices rose by 7.9% compared to the previous year.

Some Russians find the government’s efforts insufficient. With falling real wages and high inflation, the ratings of the ruling United Russia party are languishing at multi-year lows. read more

Alla Atakyan, a 57-year-old retiree from the Black Sea resort of Sochi, told Reuters that she did not think the measures had been enough and that it had a negative impact on her view of the government. The price of carrots “was 40 rubles ($0.5375), then 80, then 100. How come?” the former teacher asked.

Moscow retiree Galina, who asked to be identified only by her first name, also complained of steep price increases, including those of bread. “The miserable help people have received is worth next to nothing,” said the 72-year-old.

When asked by Reuters whether the measures were sufficient, the Ministry of Economy said the government was trying to minimize the administrative measures imposed, because too much interference in the market mechanisms generally poses risks to business development and product shortages. can cause.

Peskov said that “the Kremlin believes that government measures to curb price increases for a range of agricultural products and foodstuffs are very effective.”

AGRICULTURAL FRICTION

Some Russian farmers say they understand the authorities’ motivations, but see the tax as bad news because they believe Russian traders will pay them less for the wheat to offset increased export costs.

A director of a large agricultural company in southern Russia said the tax would hurt profitability and reduce the money spent on agricultural investments. “It makes sense to reduce production so as not to cause losses and to increase market prices,” he said.

The potential impact on investments in agricultural machinery and other materials is likely to become apparent later in the year, when the sowing season begins in the fall.

The Russian government has invested billions of dollars in the agricultural sector in recent years. That has boosted production, helped Russia to import less food and create jobs.

If agricultural investment is scaled back, the agricultural revolution that turned Russia from a net importer of wheat at the end of the 20th century could come to an end, farmers and analysts say.

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

Some may see the impact sooner. The agricultural manager and two other farmers told Reuters that they planned to reduce their wheat sowing areas in the fall of 2021 and in the spring of 2022.

The Russian Ministry of Agriculture told Reuters that the sector remains highly profitable and that transferring the proceeds from the new export tax to farmers would support them and their investments, avoiding a drop in production.

The Russian official familiar with the government’s food inflation policies said the tax will only deprive farmers of what he called an excessive margin.

“We are in favor of our producers earning money from exports, but not at the expense of their main customers who live in Russia,” Prime Minister Mikhail Mishustin told the House of Representatives in May.

GLOBAL IMPACT

According to traders, the government measures could also make Russian wheat less competitive. They say this is because the tax, which has changed frequently in recent weeks, is making it harder for them to secure a profitable forward sale where shipments may not take place for several weeks.

That could prompt foreign buyers to look elsewhere, to countries like Ukraine and India, a trader in Bangladesh told Reuters. In recent years, Russia has often been the cheapest supplier for major wheat buyers such as Egypt and Bangladesh.

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

Prices for Russian grain are still competitive, but the country’s taxes mean the Russian market is less predictable in terms of supply and pricing and could cause it to lose some of its share of export markets overall, it said. a senior government official in Egypt, the world’s top wheat buyer.

($1 = 74.4234 rubles)

Reporting by Polina Devitt and Darya Korsunskaya; additional reporting by Maria Vasilyeva, Andrew Osborn, Nigel Hunt, Ruma Paul and Nadine Awadalla; adaptation by Veronica Brown and Cassell Bryan-Low

Our Standards: The Thomson Reuters Trust Principles.

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